(Representative Image)
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HT guest column | Financial crisis: Public spending needs overhaul

The Punjab governor in his address in the Vidhan Sabha on March 28 rightly drew the people’s attention to the serious financial crisis being faced by the state. “The state government is mulling to bring out a white paper on development, governance reforms and the financial position of the state, clearly apprising the common man of the present situation inherited by the government,” he said.
By By invitation KR Lakhanpal | Hindustan Times
PUBLISHED ON APR 01, 2017 10:11 AM IST

The Punjab governor in his address in the Vidhan Sabha on March 28 rightly drew the people’s attention to the serious financial crisis being faced by the state. “The state government is mulling to bring out a white paper on development, governance reforms and the financial position of the state, clearly apprising the common man of the present situation inherited by the government,” he said. The move will help sensitise MLAs of both ruling and opposition parties of the gravity of the situation to elicit their cooperation in applying corrective measures. The first step toward change is awareness, and the second step is acceptance.

Let it be stated at the very outset that the fiscal situation currently faced by the state government is symptomatic of a deeper malaise resulting from deinstitutionalisation of decision-making and governance due to whims and fancies of those in power, leading to widespread misgovernance and malfeasance. While there are no quick fixes, the promised white paper would definitely help in gauging the magnitude and complexity of the problem and in drawing up a road map to reverse the rot and restore the financial health of the state.

Straightaway, a word of caution may be in order. The government books may not be a true reflection of the magnitude of the problem. Even the Comptroller and Auditor General’s report, tabled in the state assembly in the just concluded session, may not capture the extent of falsification of books completely. This has been done by fast-forwarding receipts, deferring expenditure and incurring huge off-budget liabilities by raising loans through various state entities. Besides, the diversion of food credit and PSPCL loans are yet to be reflected in the books of the government.

On the other hand, the future revenues of the government and its entities, for the next five to 10 years, already stand mortgaged to repaying and servicing the huge loans raised by the government to meet the yawning budgetary deficits persisting over a long period of time. Ignoring this aspect would also tantamount to turning a blind eye to the various acts of omission and commission and criminal neglect on the part of those who are responsible for things coming to such a pass. Even pending a deeper probe, it may be safe to conclude that the state is in deep financial crisis and the government might have to face widespread odium for defaulting on its debt servicing and other obligations, like payment of salaries and pensions. To avoid such an eventuality, the state government must seek a temporary bailout from the central government and immediately push for measures to restore financial rectitude.

Some suggestions in this regards could be as follows:

Go back to the basics: Sound public finance is premised on the principle — no taxation without representation, and no expenditure without authorisation. Unfortunately, a very large part of public spending in Punjab over a long period of time has been arbitrary, discretionary and uninformed by public good. It must be brought to an immediate halt and institutionalised decision-making must be restored.

Ensure value for money: In other words, all public spending must be subjected to a rigorous cost-benefit analysis and any expenditure that does not result in commensurate public good should be eschewed.

Check waste, abuse and fraud: Economy doesn’t lie in sparing money, but spending it wisely. One sees a definite silver lining in the huge savings that might result from a modicum of prudence in public spending, noting the widely prevalent malpractices.

Reprioritise public spending: In the recent past, the emphasis has been on spending huge amounts of money on projects of little use to the people, rather than focusing on health, education, electricity, roads and sanitation. There is a need to adhere to ‘low investment-high impact’ principle.

Introduce total transparency: Without transparency in public spending, it may be impossible to ensure accountability. Not only cost estimates, likely benefits and start and finish date of a project should be publically known, but any conflict of interest between such projects and senior functionaries of the government and their family members should also be open to public scrutiny. Comprehensive protocols in this behalf need to be drawn up and strictly implemented through thirdparty social audits.

The foregoing suggestions are not just theoretical prescriptions. Rather, these flow from the experience of some of the progressive governments in the country that have vastly improved their governance by following these principles. Unfortunately, the Punjab government has been moving in the opposite direction. Therefore, presentation of a white paper on state’s finances, howsoever important, alone will not suffice to realise the mandate of the new government to resolutely pull the state out of the current morass. It will take herculean efforts, heroic leadership and steely resolve. One may, perhaps, be sanguine in the belief that if it could be done during 2002 – 2007, it can also be done during 2017–2022.

krlakhanpal@gmail.com

(The writer is former Punjab chief secretary. Views expressed are personal)

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