Palanivel Thiaga Rajan writes: States need to invent their own development models to escape the structural limitations of the polity

Published Date: November 4, 2021

There’s an adage that governments are the only organisations that spend a rupee to provide 50 paise of benefits. As with all such adages, the scale is usually exaggerated for effect. But most people would agree that some portion of government spending is lost between intent and outcome.


Conventional wisdom attributes much of this loss to corruption or malfeasance, which are inarguably endemic in many countries, including India.


I’ve argued on multiple occasions over the past few years that there are limitations in the structural design of the Union and the state governments of India, which either cause or enable such inefficient translation of policy intent to semi-realised outcomes. Policy differences between parties and coalitions arouse heated debates in legislatures and at political rallies. But relatively scant attention is paid to whether the stated policy or enacted law — of any persuasion — delivered the intended outcomes/results.


Nowhere is this more obvious than in the annual budget modalities followed by the Union and state governments. The final accounts (FA) for a financial year are generally presented to the legislative body between 18 and 24 months after that year’s budget is approved, most often as a minor artefact along with the main attraction of the budget for the upcoming year and the minor attraction of the Revised Estimate (RE) for the year in progress. In effect, a small fraction of the attention paid to intent (budget) is paid to the outcome (FA) which is only known many months after the year is over.


A further twist is that governments in India adhere to the archaic cash accounting (as opposed to accrual accounting, which is the norm for most companies and governments) which introduces some strange incentives and behaviours, especially towards the end of the year.


As a result, even the final account is not what it seems, with the possibility that significant funds which have been presented to the legislature as spent are still held in off-balance-sheet accounts not visible to the government’s finance department. Annual accounts and audit reports issued by the CAG show this possibility becomes a reality almost every single year. For example, the accounts for 2015-2016 show that Rs 1,863 crore under the National Disaster Response Fund (NDRF)/State Disaster Response Fund (SDRF) was transferred to the savings accounts of drawing and disbursing officers (DDOs) with no further visibility on its eventual movement available to either the finance department of the government or the CAG.


This structural limitation was the basis for the initiative to identify and retrieve unutilised funds that the Tamil Nadu government announced during the amended budget speech on August 13. This was part of the third component of a set of five reforms our chief minister directed us to prioritise — Union-state fiscal relations, including GST, data-centric governance, public asset and risk management, increased accountability and productivity, and strengthening the role of the legislature.


We are pleased to announce that our efforts over the past few weeks have already yielded major dividends. First, roughly Rs 2,000 crore of funds have already been verified as “lapsed” (cannot be spent for any purpose by the holding agency/entity) and are hence to be returned to the state treasury. It is worth noting that this amount will more than cover the forgone income from the chief minister’s decision to cut the VAT on petrol by Rs 3 per litre which was estimated at around Rs 1,100 Crore. On current indications, we expect that the final outcomes will be multiples of this initial tranche.


Further, we are establishing new procedures and systems to ensure that such moving/parking of funds (especially as the year ends) cannot happen outside of the finance department’s oversight. Taken together, we feel that these steps will provide significant benefits with respect to managing scarce resources during this difficult time.


On another front, the data-integrity project undertaken to support (among other reasons) the crop and jewel loan waiver poll promise has also produced remarkable results. The integration and cross-referencing of data from multiple sources within the state’s records (for example, the civil registration system, the public distribution system) has produced remarkable insights. Many instances of ghost pension recipients and free-rice-entitled category of ration card holders (individual listed as deceased in the civil register but receiving/drawing these benefits) and malfeasance in crop and jewel loan sanctioning (crops allegedly planted on in-arable land, empty covers which are listed as containing jewels) have come to light. The rectification of such anomalies will save the government a significant amount of funds, but, more importantly, enable fairer societal outcomes (expansion of benefits to more eligible cases at little or no extra cost after the savings arising from elimination of abuse/fraud).


In these and other initiatives (for example the Illam Thedi Kalvi special programme to accelerate a return to the classrooms for children in Class I to VIII, efforts to support MSMEs in conjunction with the state-level banking committee), our council of economic advisors Jean Drèze, Esther Duflo, Raghuram Rajan, Arvind Subramanian and S Narayan have provided invaluable guidance and insight, for which we are grateful.


Our actions prove we are diligently following the five-step approach for reform and improvements that we had outlined as we took office: Collect and analyse data to develop a deeper understanding, disseminate results into the public domain and generate a public debate, receive feedback from the debate and inputs from experts, use these inputs to design policies and put into execution, constantly seek feedback and course correct when needed.


As our former party leader, the inimitable Kalaignar said: “We say what we will do, and we do what we said we would.” Even as we stand resolute in our unique and storied Dravidian political philosophy, our chief ensures that we remain focused on the thoughtful design of policies and schemes, and their execution, which are vital to achieving our intended goal of benefiting all citizens in a fair and inclusive manner.

Source: None

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