What Budget?....We Need Plumbers to Fix Leakages! Annual Budget of the government is most talked about on the day of presentation it self, with every thing pouring from admirers and critics on the same day, since TV channels have to do 24 x 7 job. So, I would restrain from commenting on the provisions of the budget itself. Budgeting For Elections: Annual ritual of presentation of union finance budget has lost it’s sheen of late with so many minibudgets during a year, with little regard for budgeted expenditure and leaking delivery system. Every budget with an impending election is an opportunity to please the vote bank and in a term of five year, every year there is election in one or other state or panchyats or zilla parishads, municipal corporation etc. So it is all weather season for freebies. Union Finance Minister Pranab Mukherjee presented the budget 200910 projecting a high gross fiscal deficit (center & states) of 10.8 % of GDP. This is not surprising for two reasons. First, Chidambaram had given a go by to FRBM by taking out largest unplanned chunks of expenditure, Rs. 70,000 crores of debt waiver to farmers out of purview of FRBM with deficit for 200809 soaring to a high of 11.5%. That was a small price to pay for coming back to power as UPA II. Secondly, global meltdown had its impact and the stimulus was essential to prevent the economy slipping into deeper recession. Pranab Mukherjee did reiterate commitment to FRBM targets in subsequent two financial years. In a one to one conversation around 1993, I happened to ask Dr. Man Mohan Singh, when he was Finance Minister, as to why India can not have something like Gramm Rudman Holling Act of USA for controlling fiscal deficit. He explained that India being a developing country was not yet ready then but was in favor at appropriate time. Now it is a sad precedence that FRBM can be bypassed or set aside when inconvenient politically. UPA has not yet finished its political agenda, mainly the forthcoming state elections, and so with focus on expenditure on social sectors (NREGA & others) with outlay of Rs.40, 000 crores, the deficit is expected to continue to pile up. Infrastructure projects get Rs.30, 000 crores with provision of budgetary support of Rs.100, 000 crores. So what can be expected out of the expenditure planned till end of March 2010? The government will borrow the money for these projects in social sectors. The budgeted expenditure of Rs.70, 000 crores will be incurred in the social and infrastructure sectors, but the progress on ground level will be far from the targets with the result that there would be hardly any spin off felt in terms of economic boost in current fiscal. On the contrary, heavy borrowing of the government would push other borrowers from industry out of the market and inflation through the roof. Interest rates would go up due to paucity of credit and industry would be severally punished delaying the economic turn around.
System Absorption: The government has acknowledged at highest levels that there are plenty of leakages and slippages in delivery and just 15 paise ( or is it 10?) out of a rupee spent reach the people it is meant for. My question therefore is that knowing this fact for last 30 years what have we done to break the system to ensure full delivery? Shall we say that out of Rs.40, 000 crores being allocated for social sector roughly Rs.6, 000 crores may reach the intended beneficiaries? The remaining whopping Rs.34, 000 crores get absorbed by the delivery system or shall we say “transmission losses?” It is a very polished term for corruption in the system. What about similar figures for infrastructure sector? The system comprises politicians, officials and contractors though all of them individually are not necessarily corrupt. According to Yashwant Sinha, M.P., in Jharkhand state 6070% of billing under NREGA is fictitious and the scheme is a bottomless pit. That reflects the magnitude of tip of iceberg called leakages and black money generated year after year. So why are we shouting from roof tops to get black money in 100 days from overseas? There is so much of black money evidently flowing through and very much under direct control of the government. Discounting the budget? Does the budgeting exercise, to be deliberately naïve and simplistic about it, assume that if 15 paise is the need for a project at the ground level then budgeting is done for one rupee to ensure successful implementation? Or is that we know for sure that the targets will not be achieved beyond 15% of full planned capacity? Either way it is simply atrocious. What is the budget all about when the system is out to subvert a plan? We read mind boggling figures of say 200,000 villages benefiting from a scheme or 4 crore jobs (fictitious?) have been created. Who has checked and counted them? CAG? If we assume veracity of figures, then why is that so much of population remains under BPL even after 60 years? Obviously the poor class remains poor for ever and middlemen become richer year after year. There is tremendous gap in ground reality and the cosmetics. We need to establish integrity of data which will be possible only with integrity of the politicians first. Program Implementation: Budgeting for expenditure and income is one thing but implementation of programs is more critical need for the country. UPA government should take up on the task of revamping the program implementation and monitoring system. Why is it that Nadan Nilekani has been taken on board for Unique ID project? I am sure it is to address the
problems of implementation of project. This acknowledges lacuna in the ability of government machinery to deliver the results. One must admire the Prime Minister to have taken this decision to bring talent from private sector to execute the project. While this may be the beginning of “privatization” of CEOs for government projects, let us take the clue and build on this precedence to evolve a model for delivery of results for all the large ticket government projects. Can the government make a beginning to appoint top class CEOs from private sector for any scheme or project with outlay of more than Rs. 5000 crores? E.Sridharan, the Metro Man, has proved that there are good and competent CEOs even within the government system. What is required is to identify them and hand them over the reins without interference and with accountability as done for Metro and now for Unique ID Project. Of course, let not Public Enterprises Selection Board do the selection! Institutionalize Experience: It is not possible to get E. Sridharan to do every project. What is easy and feasible is to have his project implementation systems, checks and controls adopted for other projects. The organization structure and empowering of qualified people has to be done with accountability as done by Sridharan in Metro projects. We have to institutionalize his experience. Instead of Lalu going around IIM, World Bank and Harvard, people like Sridhran should be making case studies for such institutions. Can IIMs design a better delegation, control & monitoring system based on experience of E.Sridharan? All the social sector projects (NREGA etc.), infrastructure projects and other key projects must be listed on the website of the ministry with schedules, and targeted tasks along with actual status on a quarterly basis, if not monthly, so that the public may be able verify the ground reality. Names of the CEOs for each scheme / project should also be given in public information. Budget for “Leak Proof Pipeline”: If Pranab Mukherjee has to ensure that the money is spent on intended projects as per schedules, then he must bring in different systems for accountability, monitoring and control. The cost over run is the last thing we can afford with fiscal deficit going further out of control. He should budget for “leak proof” pipeline! He should present a plan on how delivery of “15 paise” can be increased to one rupee with no “transmission losses”. After all it is tax payers’ money. If we want to give a real stimulus to the economy and control fiscal deficit, a beginning on this front would yield richer dividends and that too tax free! We would get rid of fiscal deficit for ever perhaps and provide a strong stimuli for boosting economy out of the woods. Even before the ink has dried on the budget document, Union Power Minister Sushil Kumar Shinde has already said that provisions can be made during the year for
requirements of his ministry not covered in the budget. So there goes the budget for a toss! Vijay M.Deshpande, Corporate Advisor, Strategic Management Initiative, Pune July 8, 2009 Scroll down for my other blogs Or visit www.strami.com