Smooth flow of public expenditure is the need of the hour

The net is in place to ensure that central funding for expenditure by other spending entities flows in a timely manner, and is used productively without delay at the recipient’s end. In the current financial year 2021-22, for the first time, infrastructure spending of 0.5% from the permissible state borrowing limit of 4% of the State Domestic Product (GSDP) was carved out. Both that, and the fifty-year bullet payment loan for capital expenditure to the states 15,000 crore in 2021-22 (Increased.) 1 trillion in 2022-23) needs to be pre-submitted by the states of capital expenditure plans. I haven’t seen statistics for those initiatives, but it doesn’t seem like the submission and approval process took too long. We don’t know about the execution.

I would like to utilize the limited space here to examine the Central Grants to Local Bodies (called Local Grants) prescribed by the 15th Finance Commission (XVFC) and sanctioned by the Central Government. As per the law, these funds must flow to the states, so that local bodies can be transferred to their respective jurisdictions. Scheduling these grants by type of use may seem desirable as a way to ensure useful use, but it introduces delays in fund flow and thus paradoxically reduce effectiveness compared to unconditional grants. does.

Even if completely unconditional, local grants are a small inflow, where the receipt of all installments except the first is, at a minimum, subject to certification that the previous installment was spent, or “utilised”. Actually a simple enough requirement, but the state government has to collect this certification from all its constituent local bodies, and it takes time. In the XVFC local grant, 60% was earmarked for water and sanitation, calling for a use certification that is more complex than just use.

Has the local grant earmarked by XVFC really flowed this year? Sadly, there is no such portal where these flows are regularly recorded for all the states. A Press Information Bureau (PIB) notification dated 25 February 2022 listed what urban local bodies (ULBs) with a population of less than 1 million have received (with a performance qualifier on top of the terms of use in cities over a million). carved puzzle). The total current year provision for ULBs with sub-million population was 15,136 crore, which is the “original” urban grant for the record (the term has been misused in many contexts).

Nine of the 28 states had received half their entitlements, just four weeks away from the end of this fiscal year. That means he got the first installment, but not the second. Six states received more than half but less than the full entitlement, meaning they received the second tranche of the unconditional portion but not the second tranche of the usage restricted portion. Only eight states were successful in getting their full authority. It was a total of three states on 14 February, an indicator of year-end haste, underscoring the stop-go provision of public services we are all familiar with. Five states got zero, meaning they couldn’t even meet the entry conditions for the first tranche (there’s no room here to explain them). I don’t have data for rural local bodies, but the problem there is generally worse.

These descriptions are boring, but they point to a very real problem. We have just passed through a life-threatening health crisis. People in nearly 4,000 sub-million cities/towns can protect themselves from future pathogens with easy access to water. Waterworks need to be considered to remain sustainable in a climate-changed future. Stop-go funding does not encourage long-term thinking. It encourages the search for quick solutions like digging borewells.

The problem is that terms of use retard fund flows, but sadly there is no evidence that unconditional flows are used wisely or well. The 13th Finance Commission was dominated by unrestricted local grants to local bodies, and the 14th Commission expanded the unconditional component even further. But there is no evidence that these fund flows improved the provision of water and sanitation in the country’s smaller cities and towns, not to mention rural areas.

XVFC, in addition to the basic local grant, provides a separate health grant to the local bodies, amounting to 13,192 crore in the current year, dependent on states submitting plans to improve spatial dissemination of public health services. A single installment grant, it was accessed by only 19 out of 28 states till mid-November. Nine states including Haryana and Uttar Pradesh had not submitted the plan.

It remains an unresolved structural problem in the Financial Federation of India. An active outreach window, perhaps implicit in the NITI Aayog, is needed to assist states that are unable to meet deadlines or process requirements, so that public services can be provided equitably throughout the year. Funding exists, but the spigot gets blocked from time to time.

Indira Rajaraman is an economist