Budget 2017: States gear up for budget not tethered to 5-year plan | union-budget$budget-analysis | Hindustan Times
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Budget 2017: States gear up for budget not tethered to 5-year plan

This year’s Union budget would be the first annual policy document since 1951 with no linkage to a five-year plan and is expected to present a new roadmap for development without a holistic national plan.

union budget Updated: Feb 01, 2017 00:52 IST
Union minister for finance Arun Jaitley, along with MoS Santosh Kumar Gangwar and Arjun Ram Meghwal, giving final touches to the Union Budget 2017-18.
Union minister for finance Arun Jaitley, along with MoS Santosh Kumar Gangwar and Arjun Ram Meghwal, giving final touches to the Union Budget 2017-18.(PTI Photo)

This year’s Union budget would be the first annual policy document since 1951 with no linkage to a five-year plan and is expected to present a new roadmap for development without a holistic national plan.

The 12th five-year plan ends on March 31, 2017, and will be replaced by less comprehensive vision document prepared by the National Institution for Transforming India (NITI) Aayog in consultation with various ministries and limited stakeholders.

The document, however, lacks vigour of the five-year plans and does not provide a bird’s eye view of the vision outcome for the next 15-20 years.

The dismantling of the plan and new fund flow mechanism for the states started with Prime Minister Narendra Modi’s first Independence Day speech in 2014 where he announced the scrapping of the Planning Commission. The panel was replaced by NITI Aayog termed as the government’s think-tank on economy and developmental agenda.

Between 2014 and 2017, the Centre’s increased devolution of state share of taxes from 32% to 42% as recommended by 14th Finance Commission, halved the centrally sponsored schemes (CCS) to 30, sought more from states to pay for implementing CCS, merged additional central assistance with state plans and transferred management of central funds for states from the erstwhile plan panel to the Union finance ministry.

“It is the finance ministry which has to devise a formula state funding to meet national developmental objectives. Earlier, the planning commission had a clear plan on that,” former chief statistician of India Pranob Sen, who worked extensively on the last three five-year plans, said.

More fund flow

The implementation of the 14th Finance Commission recommendation meant that the states got about Rs 1.80 lakh crore more through the share of central taxes since 2014-15 - the first budget of the NDA government.

For this increase, the states had to forgo Rs 29,000 crore in state plans and a good amount transferred through CCS as the Centre reduced its funding share by about 10 percentage points to 60% citing implementation of the 14th Finance Commission recommendations.

An analysis of state budgets by Accountability Initiative showed that the CCS change meant that states like Telangana, Uttarakhand, Maharashtra, Karnataka and Tamil Nadu got less money whereas Goa, Punjab, Bihar, Haryana and Kerala got more.

The reason for this distortion was the Centre increased CCS allocation through supplementary budget presented in the winter session and not many states were in a financial position to absorb more funds so late in a financial year.

Higher devolution meant that substantial in fund flow of the poorer states like Jharkhand, Bihar, Madhya Pradesh and Rajasthan in percentage terms as compared to more developed Tamil Nadu, Maharashtra and Punjab. In absolute terms, the poorer states have not got much hike.

Less on social sector

The funding pattern change, finance minister Arun Jaitley announced in 2014 would result in spurring development on the ground.

NITI Aayog’s data on expenditure by states on development presents a contrary picture.

The share of money spent on development expenditure as the share of gross state domestic product (GSDP) has fallen to 8.5% in the current financial year from 13% in 2014-15. Also, the higher fund flow has not resulted in substantial increase in expenditure on social sector.

“Prime reason for this was that initially, the states expressed their inability to provide 40% of the funds for implementing the centrally sponsored schemes in which central share has been reduced. Now, they are providing for their 40% share,” a senior NITI Aayog official said.

An analysis of central and state budgets by non-government Accountability Initiative before budget 2017 shows that the biggest casualty of the government’s shift in funding had been health and elementary education sectors.

“With more money, the states should have provided higher allocation for health and education. Sadly, the budgets do not reflect them,” Accountability Initiative director Yamini Aiyar said.

What next

Ending the plan meant the NDA government’s so-called marked shift from right based welfare approach of the UPA government to one where the states have more say in utilising the money for public good.

The NDA government replaced UPA’s “entitlement” with “empowerment” by scaling up the leak-proof Aadhaar based direct benefit transfer (DBT) with JAM (Jan Dhan, Aadhaar, Mobile) trinity as its foundation. Till December 2016, only 56% of welfare funds were being transferred through DBT.

The government promised more for infrastructure, farm sector and poor through state governments – the national development priorities.

“With plan and Planning Commission gone, we don’t have any mechanism to find whether the states are really spending more on national development priorities. Only the next budget will help us to know how it will be done,” Sen said.

Accountability Initiative’s Aiyar said there was a unique opportunity for change and NITI Aayog had created a process of outcome focused measurement index to rank states on key social sector indicators.

“If designed right, this outcomes index could be used to design a performance-based inter-governmental transfer system based on meeting the objectives of the schemes,” she said.

The budget 2017 would is expected to throw more light on fund monitoring in the plan-less era.