Gorakhpur tragedy a reminder of all that ails India’s public funds management
For years, red tape has meant that departments have failed to secure and utilise all of their funding, which has often led to critical work being affectedindia Updated: Aug 13, 2017 17:00 IST
Twenty three children died within 24 hours in an Uttar Pradesh government hospital where supply of liquid oxygen had been stopped since officials ostensibly failed to settle dues with the supplier.
Whether the deaths were a result of the oxygen shortage is now the subject of an investigation, but the way one of the biggest government-run hospitals in Gorakhpur — the home district of the chief minister — ran short of a critical resource points to a systemic problem in how public finances are managed in the country.
In the case of the Gorakhpur hospital, officials failed to clear Rs 70 lakh in bills pending with the hospital’s sole supplier despite repeated reminders. In May, the college administration sent a proposal of Rs 37 crore to the state government for improving health facilities. The state forwarded the proposal to the central government for approval and allocation of funds, but not a penny has been released.
A similar story has panned out for years in several public sectors.
In the 2007-08 financial year, more than Rs 1 lakh crore was unspent by ministries and departments, according to a Computer and Auditor General (CAG) of India.
In 2004-05, 17%, or Rs 1,332 crore, of the total fund available with the states and union territories for education expenditure was not used, according to the ministry of human resource development.
More recently, in a performance audit of the Reproductive and Child Health scheme under the National Rural Health Mission (NRHM) tabled in the Parliament last month, CAG said the cumulative unspent amount in 27 states increased from Rs. 7,375 crore in 2011-12 to Rs. 9,509 crore in 2015-16.
India has limited financial resources. And almost every sector has been complaining about inadequate allocation of funds. For instance, the National Health Policy asks for government spending on health to be raised to 2.5% of GDP, compared to around 1.1% at present.
There are a number of reasons why money is not spent.
For centrally-sponsored schemes (CSS), the inflexibility of how the budget is designed is one of the problems, according to Avani Kapur, senior researcher at Accountability Initiative, Center for Policy Research. “For example, if there are staff vacancies, amount allocated for salaries would be left unspent. That money can’t be moved across line-items. Even movement of money across districts is not permitted,” she explains.
Second, the process of fund flow—from budgetary allocation to final release— has to cross a maze of red tape. According to insights shared by former health secretary K Sujatha Rao in her book Do We Care, the labyrinth of procedure eventually delays the transfer of money. This is why “field officers complain of budgets being received at the fag-end of the year”.
The trend was noted in the second Administrative Reforms Commission (ARC) report published in 2009 which found a major portion of government finances “getting spent in the last quarter of the financial year, especially in the last month.” This was one the reasons the CAG attributed to the 24.73% of the unspent money allocated to Nirmal Bharat Abhiyaan during 2009-14.
According to the ARC, a big part of the problem lies in the “bottom-up” approach in the current budgeting process where details are obtained from various units and are fit into a predetermined aggregate amount. The commission recommended that approach be given up for a top-down process, in which a fixed total level of expenditure is decided and allocated among different ministries and departments. The specific departments can then reallocate the money among various agencies or programmes in accordance with their priorities.
The delay in fund release leads officials to fudge information about their accounts. “Since rules require ‘unspent funds’ as on the last day of the financial year to be remitted to the treasury, much fudging is done to show utilisation even when funds may have been received only on the last day,” Rao wrote in her book.
In fact, in order to prevent lapsing of funds, the ARC noted that officials release idle funds to project authorities outside the government, which not only portrays an incorrect picture of government finances but also causes loss of interest (on the unspent money) to the government.
But the problem starts right at the beginning. According to ARC, the amounts budgeted are often not realistic. On one hand, “Weakness in preparing proper estimates leads to frequent revisions and supplementaries,” and on the other, “there are major unspent provisions at the end of the year,” says the report. Kapur from Accountability Initiative says that most states don’t have a clear idea of how much money will come to them. “In such a scenario, officials tend to spend on regular stuff like payment of salaries or beneficiary entitlement schemes but hold on for other items.”
Ultimately, this boils down to the problem of India’s weak state capacity, which plagues the administrative process. For instance, lack of money for certain sectors hampers our ability to spend on other sectors, Kapur says. “If there isn’t enough money to hire Junior Engineers, that would impact the capacity to spend on construction projects,” she adds.
Solutions require a significant shift from current procedures.
First, projects and schemes should be included in the budget only after detailed consideration, the ARC recommends. Second, it makes a case for building a financial information system that would be accessible to the public and provide “real time data on government expenditure at all levels.” That was the reason to set up Public Financial Management System (PFMS), which, Kapur says, all states need to implement at least for CSS. This would also help fix data gaps in monitoring the fund flow, which currently inhibits the ability to diagnose stage-level problems in the system.
Another major recommendation by ARC was to implement multi-year budgeting, in which resources are accessible for the medium term—three to five year period—as against the current annual process. This becomes necessary because a single year budget is not sufficient to meet the expenditure priorities. It can help improve budget preparation by “providing advance expenditure ceilings to the departments, increasing predictability of resource availability, and by improving the efficiency of public spending,” says the ARC report.
“Until these structural issues are not comprehensively addressed,” the former health secretary Rao says in her book, “a mere increase in budgetary allocations will be inadequate.”