Wednesday, May 28, 2008

The new remedies

Arun Shourie: Friday, March 28, 2008

Arun Shourie puts the Budget to the aam aadmi test and argues why the UPA fails miserably

What the CAG’s Performance Audit has revealed about the ‘flagships’ – the National Rural Employment Guarantee Scheme and the Rajiv Gandhi Drinking Water Mission – is the pattern. NC Saxena draws attention to an account of another ‘flagship’ programme held up by Chidambram in this new Budget, the ICDS – the Integrated Child Development Services. After citing what the PM, FM, etc. have been saying about ensuring outcomes and not being lulled by outlays, Saxena asks, and ‘How is outcome delivered in the states?’, and answers, ‘By falsifying records!’ He cites the tour observations of a person in a position to know, and unlikely to state things that would embarrass the Government:

‘We discovered that all data of children at the centre for the past five months, weight, vaccinations, health records etc, were filled in with pencils. On probing further, I found it was done so that in case of an official inspection, the figures could be erased and “correct” data inserted to make the centre’s performance look good!’

The writer? The Congress MP, Sachin Pilot. Recalling such accounts, Saxena observes, ‘The practice is so widely prevalent in all the states, presumably with the connivance of senior officers, that the data reaching GOI [according to a recent study by the National Institute of Public Cooperation and Child Development] shows only 8% as the overall percentage of malnourished children in case of 0-3 years (with only one percent children severely malnourished), as against 46% reported by NFHS-3. What is equally astonishing is the fact that records show a steep decline in the percentage of malnourished children from 29% to 8%, which is totally at variance with the findings of the various NFHS surveys. By sending bogus reports the field officials are thus able to escape from any sense of accountability for reducing malnutrition.’

This then is the pattern. And what does Chidambram propose to do about the matter? He sets it out in his new Budget:

‘I think we do not pay enough attention to outcomes as we do to outlays; or to physical targets as we do to financial targets; or to quality as we do to quantity. Government therefore proposes to put in place a Central Plan Schemes Monitoring System (CPSMS) that will be implemented as a Plan scheme of the Planning Commission. A comprehensive Decision Support System and Management Information System will also be established. The intended outcome is to generate and monitor scheme-wise and State-wise releases for about 1,000 Central Plan and centrally sponsored schemes in 2008-09.’

Pray, what is the reason to believe that this new central scheme of the Planning Commission will work better than the 1000 central schemes of the Planning Commission that it is to monitor? Then follow the currently fashionable words, ‘Government also intends to strengthen evaluation. Some ministries have started concurrent evaluation. This needs to be supplemented by independent evaluations conducted by research institutions. The Planning Commission will authorise such evaluations of the major schemes and complete the task by the time of the mid-term review of the Eleventh Plan.’

Pray, why will the new evaluations authorised by the Planning Commission be more independent than the innumerable ones that it has authorised in the past? Why will they be more independent than the countless evaluations that have been done independently of the Commission in the past?

The piece de resistance

In each of its five Budgets, this Government has had one triumphant item – agricultural credit. In each Budget, Chidambram has proclaimed higher and higher targets, and in each he has announced that the target has been exceeded. In the new Budget, he says that, as against Rs. 100,000 crore that were disbursed when this Government assumed office, Rs. 280,000 crore shall be disbursed as rural credit in 2008/09.

Surely, that very fact should have alerted the Government that either the credit is not reaching those who need it most, or that their problems are not going to get solved by credit alone. As suicides have mounted, as the agrarian crisis has barged more and more into its face, the Government has done what it always does – it has appointed committee after committee: the Swaminathan Commission; the Radhakrishna ‘Expert Group on Agricultural Indebtedness’; the A. Vaidyanathan ‘Task Force on Cooperative Banking’; the RBI’s ‘Working Group on Distressed Farmers’ headed by Sardara Singh Johl; the RBI’s ‘Technical Group to Review Legislations on Money Lending’ headed by SC Gupta.

Second, it has rained package after package:

2% remission in interest rate – 1,700 crore were provided for this in the 2006/07 Budget;

The Backward Regions Grant Fund: in the 2006/07 Budget, Chidambram announced that he would disburse Rs. 5,000 crore; this year he pledges to disburse Rs. 5,800 crore;

In July, 2006, Government announced the PM’s special package for distressed farmers of 31 districts in four states. In the 2007/08 Budget, Chidambram announced that Rs. 16,979 crore would be spent under this special package. The usual panoply of institutions have been set up to implement and monitor the package: state-level committees consisting of representatives of central and state government, district level committees and Panchayati Raj institutions, and ‘appropriate institutional structure and special purpose cooperatives/community based organizations at the local level for delivery of the package and optimum utilization of resources in a time-bound manner.’

And yet distress continues unabated. Yet suicides go on increasing. Who is swallowing up these packages? What is happening to the packages?

The Report of the Radhakrishna Committee – The Expert Group on Agricultural Indebtedness – gives a part of the answer. It sets out the result of its inquiries into the fate of the PM’s special package in its Report:

Commenting on the disbursement of fresh loans, the Committee observes, ‘The gap in the off take of fresh credit in three states (Andhra Pradesh, Karnataka and Maharashtra) indicates that the credit needs of the farmers were not assessed accurately. The credit flow targets do not appear to have been based on a proper assessment of the credit absorption capacity at the farm/household level. In order to ensure that the basic objectives of providing farm credit are not distorted, disbursements should have been made only after proper project appraisal. This also calls for greater coordination among banks and block level officials at the ground level in identifying the genuine credit needs of the people.’

In regard to ‘Irrigation’, it finds, ‘Utilization rates varied across states and between irrigation schemes. In the case of major irrigation schemes, delay occurred because for some of them like Accelerated Irrigation Benefit Programme (AIBP) sanction has to be obtained from the Planning Commission and for many others from the Ministry of Environment and Forest and Tribal Affairs. This is a time-consuming process.’

Pause a moment. That sentence itself gives us a glimpse of the well-practiced trick: the Accelerated Irrigation Benefit Programme is an existing programme. All that has been done is that it has now been shoved into the new envelope, ‘The PM’s special package for distressed farmers in 31 districts’! But to continue with the findings of the Radhakrishna Committee:

‘The progress is poor under minor irrigation in the case of Andhra Pradesh and Karnataka due to the existence of grey blocks…’

‘Watershed Development, Rainwater Harvesting and Check Dams: Progress has been extremely poor in all the states. Even Maharashtra, which had in place a shelf of sanctioned projects, could utilize only 12 per cent of its financial allocation of Rs.54 crore in the year.’

And then a comic instance:

‘Kerala falls under high rainfall area and no watershed projects are being implemented in the state under any of the Government/NABARD programmes. As such, the concept of watershed development is relatively new to the state; all the partner institutions involved in the implementation of the project are required to be sensitized vigorously.’

And then, a glimpse of the same old trick – of giving an existing programme a new name, but this time with another comic consequence:

‘In the case of Andhra Pradesh, the state government was already availing of loan from the Watershed Development Fund at the time the package was announced. The switchover from loan mode to grant mode took some time due to the procedures involved in the conversion.’

And then the thoughtlessness: ‘The process of watershed development requires five to six years,’ the Committee notes, but the authorities that be have decreed a cut-off of three years!

‘Rainwater harvesting and construction of check dams are a non-starter in most districts.’

And it turns out that in some cases at least there is good reason for this!

‘Some states which are implementing rain water schemes and enjoying cent per cent subsidy are reluctant to switch over to the scheme from the Ministry of Agriculture under the Prime Minister’s package. With regard to check dams, NABARD is yet to receive proposals from any of the states….’

And so on, to one dismal conclusion after another: ‘There is no coordination between different agencies implementing the schemes. Further, no information is available on the impact of the scheme on the people. In addition to financial targets in the Prime Minister’s package, physical targets need to be set and monitored…’

Lesson? Another massive special package! Exactly, but exactly the sort of package that the Radhakrishna Committee, the RBI’s Working Group, Vaidyanathan himself, each and every one of them had said should not be given: a ‘historic’ loan waiver amounting to Rs. 60,000 crore.

The loan waiver

First, as expert after expert has pointed out no one knows from where this figure of Rs. 60,000 crore has dropped. Second, the waiver is of loans that are overdue to commercial banks, rural banks and cooperatives. Each of the expert bodies has emphasized that the farmers in real need are the ones who do not have access to institutional credit – they borrow from moneylenders and the like. Two columns – one for Andhra which has witnessed a spate of suicides, and one for India as a whole -- from the detailed tables furnished by the Radhakrishna Committee tell the tale:

Accordingly, to get relief to the ones who really need it, the Radhakrishna Committee suggested, not a loan waiver but a ‘one-time measure of providing long-term loans by banks to enable them to repay their debts to moneylenders,’ and thereby free them from the latters’ clutches. The RBI’s Working Group as well as experts like Vaidyanathan added another reason: arguing against giving any general loan waiver, they pointed out that it would reward those who had not paid, that it would implicitly penalize those who had, that it would reinforce the culture of not living up to one’s contractual obligations.

But compassion is compassion! Hence, 60,000 crore it shall be.

NC Saxena and Vaidyanathan – both advisors to the Government – prick the claims. Saxena points out that the farmers who get credit from institutions are actually those who are well-enough connected to have access to these banks and cooperatives. A number of these, Saxena points out, double up as moneylenders! They borrow from the banks at 6.5 per cent, and lend to the small farmer in distress at rates ranging from 50 to 100 per cent. So, who is the waiver actually going to help? Vaidyanathan adds a further fatal detail. Writing in The Hindu, he points out that ‘The magnitude of outstanding debt of rural households, going by National Sample Survey data, is less than outstanding debt reported by the institutions in the cooperatives and substantially so in regional rural banks. Since both are intended to lend mostly in rural areas, this difference suggests that they also carry a sizeable portfolio of non-household, non-rural loans… There is good reason to believe that a generalized waiver of all overdues will benefit non-rural borrowers to a considerable extent; that the large majority of rural households, including those in the below 2 hectares category will not benefit; and that the magnitude of the benefit will be considerably less than Rs. 60,000 crore. Benefits in rural areas will accrue to a rather small fraction of households and the magnitude of beneficiaries is likely to be considerably less than the cited figure.’

But who is listening? It is celebration time, time to seize the moment: posters, rallies to hail the Almighty for her beneficence… And hope that she is looking…

(To be concluded)

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