In the hands of the States

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The decentralisation blueprint is ready. Nuts and bolts must now be put, write AVANI KAPUR and VIKRAM SRINIVAS

Following the recommendations of the 14th Finance Commission, the NDA Government's first full Budget has transformed the nature of Center-State fiscal relations. While the total quantum of funds transferred to States has increased only marginally, from 49.4 per cent to 50.4 per cent of gross Central revenues, there has been an increase in the proportion of funds which are untied — from 58 to 75 per cent. This represents an increase in State Budgets of Rs1.8 lakh crore, or 15 per cent of estimated State revenues for 2015-2016.

The bulk of this funding, amounting to Rs1.34 lakh crore, has been generated by reducing allocations for social sector schemes. Previously, schemes used to be classified into three groups. Now, the first group remains unchanged.

It includes schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act, the National Social Assistance Programme, and the expenditures from the education cess for Mid-Day Meal and Sarva Shiksha Abhiyan. The second group consists of major Centrally Sponsored Schemes for which States have now been asked to shoulder a higher share such as the National Health Mission, the Swachch Bharat Abhiyan and the budgetary support to Mid-Day Meal and Sarva Shiksha Abhiyan.

Schemes in the third group have been discontinued altogether. These include Planning Commission assistance, special assistance to various States and districts, the Backward Regions Grant Fund and the National Scheme for Modernisation of Police Forces.

These sweeping changes have come as something of a fait accompli for Union Ministries and State Governments alike. The former can no longer operate as many schemes it used to for there simply is no money to go around.

Even schemes that are deemed to be of national priority, such as the Sarva Shiksha Abhiyan or the National Health Mission, will have to be re-designed. While the exact role of line Ministries and State Governments is yet to be spelt out, a review of how key social sector schemes worked in the past shows potential areas for reform for effective implementation.

First, there is usually a significant mismatch between Budget allocations and the funds that are actually released or spent. Between 2007 and 2012, for instance, of the  Rs1.69 lakh crore allocated for the Ministry of Health and Family Welfare, only 69 per cent was spent.

Similarly, for the Swachch Bharat Abhiyan, the Union Government had released only 33 per cent of total budgeted allocations till February 2015. Consequently, revised estimates were 38 per cent lower than budgeted estimates in 2014-2015. In a scenario of decreased allocations, this gap will need to be drastically reduced.

Second, funds are often released by the Centre towards the end of the financial year, which leads to difficulty in utilisation. In 2014-2015, only 15 per cent of allocations for the Swachch Bharat Abhiyan was released in the first two quarters of the financial year.

Similarly, only 29 per cent of allocations were released for the National Health Mission in the first quarter of the 2014-2015, down from 46 per cent in 2013-2014. If these schemes are to be run effectively, the Centre will need to ensure that implementation hurdles caused due to lack of timely release of funds are reduced.

Third, most Centrally-sponsored schemes were tightly controlled by the Centre, which determines priorities within schemes through a mechanism of approval of plans at a line-item level. Consequently, there were large gaps between plans proposed by States and approvals by the Centre. For example, the Centre approved only 58 per cent of total proposals by States for Sarva Shiksha Abhiyan in 2014-2015. With States bearing a larger share of these schemes, the Centre will need to be more flexible in order to meet all priorities. 

Fourth, there are areas where the Centre can play a useful coordinating and facilitating role without encroaching on the States' ability to run schemes. For example, no data on enrollment in Government secondary schools, or quality of secondary education exists, making assessment of the Rashtriya Madhyamik Siksha Abhijan impossible. A potential start in this direction is the Centre's stated commitment to conduct a nationwide School Learning Assessment.

The argument for greater de-centralisation has always been that States are more aware of their needs and more likely to implement schemes effectively. However, devolution of finances, while necessary, might not be sufficient to ensure effective service delivery.

To begin with, it is by no means a given that States will use their new found autonomy to increase expenditure on the social sector. While States have historically spent about 35 to 39 per cent of their total expenditures on social sector, political priorities for spending the additional funding might vary across States.

Another open question is whether States have the institutional capacity to design and implement effective schemes on their own. The delivery structure for most State services remains top-heavy and poorly responsive to citizens.

 In education, for example, many State Governments spend large proportions of their Budget allocations on salaries to teachers, who remain unaccountable for children's learning outcomes. In such a scenario, even increased social sector expenditure by States might not lead to better outcomes without an effort to reform the delivery system.

Here, The Centre can play a critical role in building consensus on national priorities, providing States with technical expertise, and fostering healthy inter-State competition. A good example is the role played by the Ministry of Panchayati Raj in its initial years. Rather than act as a traditional Ministry administering a scheme, it acted as an advocate for institutional reform which empowered local Governments.

(The writers are analysts with the Accountability Initiative at the Centre for Policy Research)

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