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Budget outlays: From Pranab to Jaitley, how FMs are gaming the system

11 July-2014, R Jagannathan/FP: In post-budget interviews, Finance Minister Arun Jaitley answered critics – who were cribbing about the scattering Rs 100 crore outlays over many schemes – in two ways.

Budget outlays: From Pranab to Jaitley, how FMs are gaming the system

Budget outlays: From Pranab to Jaitley, how FMs are gaming the system

He said there is usually a time lag between announcing an outlay (say, for an AIIMS or an IIT) and when the money is actually needed. Hence the Rs 100 crore allotted this year is not a political gimmick with suboptimal funding. The smallish outlay is about getting the project going, which tends to proceed slowly in the initial stages as state governments have to allot land and give various regulatory permissions, etc. In fact, Jaitley suggested that often even the initial outlays are not fully utilised. So the problem isn’t outlays.
He is surely right about this, but here’s the real problem. Outlays have a tendency to not get used because implementation is lackadaisical and the necessary speed and buy-ins from various stakeholders are missing before outlays are announced. Finance ministers can well throw up their hands and point out that they money is there, but someone didn’t use it. But this is a copout.
The question is: why announce outlays when the plan to support it isn’t in place? The assumption that it is not the FM’s job to ensure utilisation of funds points to where the budget-making process is consistently going wrong. Worse, at the end of the year finance ministers even claim credit for not using outlays by shifting the goalpost: they preen about managing to rein in the fiscal deficit. Spending laxity becomes a fiscal virtue in the government.

This rigmarole was perfected by P Chidambaram over the last two years when he announced huge increases in plan and capital spending, and then missed the targets by a mile. He also claimed huge success in cutting the fiscal deficit after these failures. Arun Jaitley, it seems, is taking the same phony route to false fiscal rectitude.
This is nothing but a planned gaming of the system where budget speeches are used to score political brownie points, and then can be turned around to claim fiscal kudos the next year. When spending deadlines get missed, Chidambaram could claim his “red line” on fiscal deficit was met.
Consider the last two budgets of UPA-2, involving Pranab Mukherjee and Chidambaram. In 2012-13, Pranab Mukherjee announced an ambitious 26 percent hike in plan outlays. His actual performance was 4 percent. In 2013-14, Chidambaram promised a 29 percent increase in plan spends. He actually managed only half that. This year, Jaitley has promised a 21 percent hike in plan spending – more moderate than either Pranab and Chidambaram, but it is unlikely this spending will actually materialise as planned. Four months of the year are over, and the fiscal wolf is always at the door.
The moral: FMs should not make allocations unless there is accountability from the spending ministry and the concerned state governments about the implementation schedules. This means outlays must follow reasonably assured outcomes and not precede them – unless implementation is fully under central control and it is clear with whom the buck stops.
Even projects meant to cater to political constituencies should clearly spell out accountability and implementation schedules. After all, if a project in Assam is intended to garner votes for the party in power, how can it actually benefit from this if the project takes years to take off?
This was precisely what Railway Minister Sadananda Gowda red-signalled when he pointed out the other day that out of the 99 projects sanctioned in the last 10 years, only one had been completed. Jaitley surely does not want to go where Gowda does not.
Narendra Modi has a political opportunity here. Thanks to his decision to keep his cabinet small, there are hordes of MPs out there fretting about lack of ministerial jobs. They could be disgruntled elements. Modi’s advice to them is to go to their constituencies and work for the people. That’s always a good idea, but why not make them key political drivers and facilitators of projects in their states or constituencies? This will give them something to do, and also curry favour with voters?
The budget, for example, makes Pune the driving hub of the idea of industrial corridors. Jaitley said in his budget speech yesterday (10 July): “A National Industrial Corridor Authority, with its headquarters in Pune, is being set up to coordinate the development of the industrial corridors, with smart cities linked to transport connectivity, which will be the cornerstone of the strategy to drive India’s growth in manufacturing and urbanization. I have provided an initial corpus of Rs 100 crore for this purpose.”
Now, why should not the Pune MP be the facilitator for this project, regularly pushing the state government, city municipality, and central ministry concerned to get this done urgently?
The problem is not how small or how big the outlays are. The problem is outcomes are not being connected to outlays and no one is held accountable for the spending and implementation. Minimum government, maximum governance must start with maximum accountability for outcomes.
It may not be the finance ministry’s job to get projects implemented, but there ought to be someone whose job it is. Finance ministers have to tie outlays to outcomes – and this is the shift Modi needs to enforce.

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