Date of Release: March 31st, 2015

Published in: The Pioneer

To make the most of their new financial freedom, State Governments need to improve their planning, allocation and utilization of funds, writes Apoorv Tiwari

It has been almost a month since the Union Budget was presented, and much water has passed under the political bridge since then. The focus seems to have shifted to other Bills, in particular the land acquisition Bill, which continues to face stiff opposition. However, the issue of fiscal transfers from Centre to States — especially the one involving greater untied tax transfers from the previous 32 per cent to 42 per cent now — remains important from political and developmental viewpoints.

The Centre claims that it is strengthening India’s federal structure by offering the States more flexibility to spend their money. The Opposition claims that the total transfers to the States remain the same as earlier, around 61 to 62 per cent of the net Central taxes. Both are correct. Meanwhile, State Governments are grappling with the short- and long-term implications of this change.

The first task before the States will be to strengthen their planning mechanism to deploy the funds more effectively. This will involve augmentation of human as well as technical resources. With lesser assistance through Centrally Sponsored Schemes, the onus of social sector allocations now rests with the States. This, however, will need to be balanced against investments in infrastructure projects which will spur growth.

A robust planning mechanism is needed for the States to get their priorities right. The Planning Boards in the States will have to do a lot of the heavy-lifting. Grassroots planning, starting at the panchayat level, will also need to be significantly strengthened. The 14th Finance Commission has already devolved more money directly to the panchayats and urban local bodies.

Second, beyond allocation, there needs to be greater focus on utilisation of allocated funds. The line departments responsible for implementing various schemes often do not have the capacity to effectively utilise the funds, and this needs to be urgently remedied. For example, the Agricultural Technology Management Agencies, responsible for the extension of agricultural technologies to the field level, are classic examples of dysfunctional agencies. Though they exist in almost every district in the country, almost all the ATMAs are technically ill-equipped to meet their mandate of last-mile agricultural extension.

Third, States need to utilise technology to a far greater extent in order to effectively monitor the progress of schemes and other programmes. They need to strengthen their management information systems to capture more information on the allocation and utilisation of funds. Block-level offices must be in a position to measure the impact of various programmes quantitatively, for which data capturing and reporting are of paramount importance. This will also allow mid-course corrections in the implementation of schemes wherever necessary. In essence, State-level policymaking has to be made more objective, accurate and evidence-based.

The States must also be willing to learn from the best practices adopted by other States across various developmental sectors, including sector-wise budgetary allocations as well as programmatic interventions. Here, the recently constituted NITI Aayog could be of great use for all State Governments. The idea of cooperative federalism will remain a mirage unless there is greater sharing of information and experiences between States.

Finally, while Government funds in the social sector are important, they must not crowd out local innovation. It is possible to allow entrepreneurs at the grassroots to address development challenges with State support, without the involvement of State agencies at every level.

Some of the best solutions to development problems in gender, health, education and livelihood in various parts of the country have been a product of local innovation, which managed to achieve scale with the support of State Governments. This organic tendency to innovate must not be stifled, especially by States who suddenly find more money to spend, after the implementation of the Finance Commission recommendations.

In a nutshell, as they plan the way ahead, States must remember that before the 14th Finance Commission and after, the crucial task of policy implementation has always been their prerogative. In the new financial year, some States may have more funds, some may not. But there is scope for every State to better equip itself to use whatever it has at its disposal.

(The writer is research lead at Swaniti Initiative, a non-profit that delivers development solutions to parliamentarians)