FactBehindFiction: A step long overdue
Jul 11 2014
It is refreshing to learn that Jaitley has announced setting up of an expenditure management commission
for which the Indian contributed $1.5 million annually. The programme was over more than ten years ago but the government continues to contribute $1.5 million even today and no effort has been made to stop it.
The animal husbandry department in Delhi has two rickety vehicles to carry carcass, which are decades old as there is no sanction for their replacement. But the department has the sanction to spend any amount of money to carry out repairs on the vehicle to keep them running. This is how government expenditure is made without any application causing a huge drain on public resources.
In fact if one goes through the allocation of resources under various heads, there will be at least 20 items in each department, which need not be provided money, yet allocation is made so that there is no reduction in funds to the department.
Long ago, I visited a scientific laboratory and found to my surprise several brand new and unused instruments and I asked the director why so many of them continued to be unused. The honest reply was we get funds every year for buying this particular instrument and if I say no and that I want money for buying some other instruments, the fund flow would stop. I do not want that to happen so we keep on adding the same instrument though we do not require them.
Government servants always travel officially on full fare ticket in Air India so that the protocol department gets more commission and the government servant gets a free ticket for his spouse. This is how Air India is made to bleed and government spends more money on travel by bureaucrats putting the government exchequer in difficulty. Thirty-three air-conditioners in former Delhi chief minister and now Kerala governor Shiela Dixit’s residence in Lutyen’s Delhi is another blatant example.
These wasteful expenditure in the government coupled with leakages in subsidies make the government bleed. There is no accountability. In the government, the left hand does not know what the right is doing. The wasteful expenditure in corruption-ridden social schemes is even more pathetic. Also, several social schemes have outlived their utility yet they continue because no decision has been taken about their winding up.
It is therefore really refreshing to learn that finance minister Arun Jaitley in his maiden budget to Parliament on Thursday announced setting up of an expenditure management commission that will look into various expenditure reforms to fulfill the NDA government’s objective of minimum government and maximum governance. The expenditure management commission is expected to give its interim report within this financial year. This is part of the efforts to overhaul subsidy regime and various other aspects of expenditure.
Jaitley announced in the budget a non-plan expenditure of Rs 12,19,892 crore with additional provision for fertiliser subsidy this financial year. Plan expenditure is pegged at Rs5,75,000 crore. The total expenditure estimates stood at Rs17,94,892 crore. Of this, the subsidy bill is Rs 2.55,707 crore. The tax revenue to be mopped up is only Rs 13,64, 524 crore leaving a huge gap, which would be mostly met by way of borrowing and some non-tax revenue like disinvestment.
A mere 10 per cent cut in government expenditure meant a saving of Rs 1.8 lakh crore, which meant government fiscal deficit would come down by one third.
A 10 per cent cut is a doable proposition as there is not only a lot of leakage and diversion in subsidies, but also a large quantity of wasteful expenditure. The question is who will bell the cat? Usually, expenditure cut in the past has been in areas where it should not be done so as create an impression that there is limited scope for spending cuts. Sometimes, critical areas are starved of funds to justify wasteful expenditure.
Spending on poor and marginalised is certainly good but the issue is does the money reach the actual beneficiary? Well, cash transfers are now being talked about and one only hopes this works as all experiments in the past have failed. Delivery and implementation is a major concern in government without which expenditure reform will not work.
Expenditure reform is not new. In the past, the government has adopted zero-based budgeting on expenditure. That is — every spending is looked at afresh every year and allocated accordingly. But so far, it does not seem to have made an impact the way it should be. Government departments hoodwink the finance ministry and get their wasteful spending sanctioned making this exercise futile. Zero-based budgeting also refers to the identification of a task and then funding resources to complete the task independent of current resourcing. The idea is good but on the ground, it does not seem to be working fully.
KP Geethakrishnan’s expenditure reform commission submitted its report 15 year ago. Apart from containing subsidies, the thrust of the report was on downsizing and closing down of several departments, including the films division. But it never happened and spending on them continues to bleed the government. Some staff reduction has taken place as suggested by the committee but this has happened in a manner that some critical areas have been starved of requisite number of staff as it has been implemented without application of mind.
Vested interests and lack of political will has so far ensured expenditure reforms do not work in the country. But Jaitley seems to have begun well making the right noises. Only time will tell if he is able to walk the talk, as past experience show that reforming government spending is a humongous task. There is more resistance than consensus. Revenue buoyancy ensures wasteful spending is tolerated. The issue surfaces only when revenue is constrained in a slowing economy. It is usually forgotten when the revenue picks up. One can hope that this time, Jaitley is serious as his government has the mandate to carry forward unlike his predecessors.