The 'main hun na' school of budgeting

Arun Shourie: Saturday, March 29, 2008

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

In the Budget for 1990/91, the VP Singh Government announced a loan waiver of Rs. 10,000 crore. The Government was soon out. I am not on the precedent, but on the accounting! The waiver had been included in the Budget.

Soon, a new Government was in office. Delivering the Budget speech on 24 July, 1991, the then Finance Minister was as stern as he was scornful about the loan waiver, and about the way it had been budgeted.

‘There is one large component of non-plan expenditure that is a burden on the exchequer,’ he told Parliament. ‘I refer to the Government’s obligation under the Rural Debt Relief Scheme. Unfortunately, there was a gross under-estimation of the total fiscal liability under this scheme which was introduced last year. In addition to the sum of Rs. 1500 crores provided in the revised estimates for last year, we have to provide Rs. 1500 crores in the current year. But this is not all. We may need a similar provision in the next year.’

Guess, who was so punctilious then. The words constitute paragraph 39, of the Budget Speech delivered that day by the then Finance Minister, Dr. Manmohan Singh.

And now? No provision at all for the Rs. 60,000 crore that the loan waiver is supposed to cost. ‘Main hun na’… ‘Credit me with some intelligence...’ ‘Funds will be found...’ ‘Modalities are being worked out…’

After much bewildered talk, the Prime Minister and Finance Minister did hit upon one source for financing the waiver: we may sell Public Sector equity, they suggested. On behalf of the CPI(M), Brinda Karat shot that down with one sentence. Chidambram then told Parliament – and this is after two weeks of confusion -- that he was confident that he would be able to carve Rs. 40,000 crore out of buoyant revenues this year, and that he was equally confident that it would not be difficult for whichever Government is in office next year to find the remaining Rs. 20,000 crore.

Take him at his word for a minute. If it is possible to be so confident on 14 and 17 March when he said as much to the two Houses of Parliament, why it could not have been said while announcing the waiver a fortnight earlier?

Here is Parliament being asked to approve a scheme of Rs. 60,000 crore with no inkling of where the money will come from, and, hence, with no idea of what its impact will be – on prices, on interest rates… Even of whom the waiver will benefit. Is this ‘accountability’? ‘Transparency’?

And this is just a typical omission.

The Sixth Pay Commission is to report soon. Given that election loom, the Government will certainly implement the pay hikes. The Fifth Pay Commission had increased emoluments by 35 per cent. There will be cascading effect for state governments, for municipalities, indeed for each and every institution even vaguely linked to the State machinery. There is no provision at all for this certain outlay in Chidambram’s Budget. When it is prudent to include Rs. 5,000 crore in the Railway Budget as the likely outflow on account of the Sixth Pay Commission increases, why is prudent not to make a provision for the same contingency in the General Budget?

Similarly, subsidies on petroleum products, on food and fertilizers are mentioned, but not included! The latter two alone are estimated to be over Rs. 63,000 crore. The Fiscal deficit is put at 1,33,287 crore in this Budget. Once you include the four items that have been left out – the loan waiver, the subsidies on petroleum, food and fertilizers -- plus the impact of the 6th Pay Commission, it is liable to be double the figure that has been indicated. Fiscal responsibility?

A reform they were to institute

‘Seven years ago, I placed before Parliament the first paper on subsidies,’ Chidambram said in the Budget for 2004/05. They need to be sharply targeted at the poor and the really needy. So? He has, he said, initiated a new study on them!

By the next Budget, he had taken further action: he had placed the study before Parliament. Subsidies are necessary, ‘However, we must now take up the task of restructuring the subsidy regime in a cautious manner and after a thorough discussion.’

Nothing was done even by the 2007/08 Budget. ‘The issue of subsidies is proving to be a divisive one,’ Chidambram said, ‘but I would urge Honourable Members that it is imperative that we make progress on this front if we are serious about targeting subsidies at the poor and the truly needy.’ It isn’t that he had done nothing: ‘My Ministry has held extensive discussions with stakeholders on three major subsidies, namely, food, fertilizer and petroleum. We have also sought the views of the general public. Working groups/committees have gone into the question of fertilizer and petroleum subsidies, the latest being the Dr. C. Rangarajan Committee. I would urge Members to help the Government evolve a consensus on the issue of subsidies.’ Another consultant to Government.

The Prime Minister, of course, alternates his emphasis: reforms one day; reforms with a human face the next! And yet, at least on occasion, he has spoken clearly. The Gross Budgetary Support for the 11th Plan is going to be double of what it was during the 10th Plan, he told the Planning Commission last November. ‘These are large increases by any reckoning,’ he continued. ‘This will only be possible if we have strong growth, if tax revenues remain buoyant as they have been in recent years and if non-Plan expenditure is checked and checked effectively. We need to address the problem of mounting subsidies in food, fertilizers and now, in petroleum which is a recent phenomenon. Over Rs. 1 lakh crores are going to be spent this year alone on these three items. I would like my cabinet colleagues and the Planning Commission to reflect what these mean for our development options and what development options these subsidies are shutting out. Do they mean fewer schools, fewer hospitals, fewer scholarships, slower public investment in agriculture and poorer infrastructure? It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are plugged.’

The warnings having been given, the task is done – what more are consultants to do, after all? There is no mention of the subject in Chidambram’s Budget speech this year.

But there is mention of one of these subsidies – that on fertilizers – in the document distributed with the Budget, Implementation of Budget 2007-2008. In the Budget for 2007/08, Chidambram had emphasized the need to distribute fertilizer subsidies by some alternate way – so that they reach the farmer directly rather than being eaten up by fertilizer companies. So, what is going to be done? ‘The fertilizer industry has agreed to work with the Department of Fertilizers,’ he told Parliament, ‘to conduct a study and find a solution.’ And what will happen once the study has been done? By now, you should be able to guess: ‘Based on the report, Government intends to implement a pilot programme in at least one district in each State in 2007-08.’

That was the last Budget. And what are we told now about what has been done on this matter? ‘The modalities for providing an alternative method of delivering the fertilizer subsidy directly to the farmer are being worked out. The proposal was examined by a Group of Ministers (GOM) and the Report is being finalized.’

In the meanwhile, all the ills continue: the industry does not get reimbursed in time; the farmer does not get the full benefit; the application of fertilizers remains distorted and our land is harmed.

Exactly the position in regard to the other subsidy, of Rs. 32,600 crore – that on food: the 61st Round of the NSS reveals that one half of the poorest quintile do not have either a BPL card or one for the Antyodaya Anna Yojana. On the other hand, more than a sixth of the richest quintile have BPL cards!

The Italians have the right expression for it

‘The Eleventh Plan target for additional power generation capacity is 78,577 MW,’ Chidambram told Parliament while speaking on this new Budget, adding, ‘which is more than the total capacity added in the previous three Plans.’ In the 10th Plan the target was 41,000 MW. Additional capacity that got commissioned was just about 21,000 MW. But why be niggardly in setting targets? John Galbriath had a word for Indian Planning: ‘therapeutic targetry’! But the sentence that scores for gall is the next one: ‘By end March 2008, we will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period.’

Just pause for a moment, and read that sentence again: ‘By end March 2008, we will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period.’ The trick in it is the benchmark that has been used, ‘Commercial Operation Date (COD)’ – a plant that has been completed is said to have attained ‘Commercial Operation Date’ once it has been in operation at full load for at least 72 hours. Ten power plants contributing 3020 MW were included when totaling up the achievements of the last year of the 10th Plan on the ground that they had been ‘commissioned’. They have been counted again among the achievements of the first year of the 11th Plan – on the ground that in regard to them ‘Commercial Operation Date’ has been achieved! The plants are the same ten. Nor is it just that: among these ten, is Ratnagiri CCPP (Dabhol) II, a plant that was completed in the Ninth Plan; among them is the atomic power plant at Kaiga – which is virtually shut for want of fuel; among them is Karbilangpi, a plant of the Sixth Plan! Nor indeed do the remaining ten plants – accounting for 3090 MW of the 10,000 MW for which Chidambram takes credit – testify to either reforms or execution in the power sector having improved. Each one of them has been under construction for years – among them is another Dabhol plant, Ratnagiri CCPP III, which too was completed in the Ninth Plan; among them are two plants at Purlia which were sanctioned in the Eighth Plan!

Claims and promises in regard to the Ultra Mega Power Projects in Chidambram’s successive budgets have been even more farcical, even more brazenly misleading. It is our intention to award five projects before December 31, 2006, he told Parliament in the Budget for 2006/07. By the 2007/08 Budget, this became, ‘Seven more UMPPs are under process and we are confident that at least two will be awarded by July, 2007.’ In this Budget, he says that the fourth UMPP ‘will be awarded shortly,’ and that five more can be brought to the bidding stage provided the states extend the requisite support. After listing four Ultra Mega Projects, his document of ‘accountability and transparency’, Implementation of Budget 2007-2008, reports ‘Five other suitable sites have been identified by the Central Electricity Authority’ – it proceeds to list five sites in five states. The fact as of 20 February, 2008 is that not one site has been finalized, not one. In regard to each of them, letters are going to and from central and state governments: I can supply the list at short notice.

And yet you can’t quite say that the Government has lied – notice the words it has used, ‘Five other suitable sites have been identified by the Central Electricity Authority.’ That doesn’t mean they have been settled, and, if you concluded as much, well, that is your problem.

The Italians have the right expression for this kind of reporting: suppressio veri suggestio falsi – to suppress the truth is to suggest the false!

A symptom

And yet the Budget is but a symptom of the ways of the Government:

•Just go on announcing schemes;

•Grab existing schemes, group them, give them a new name, and proclaim them as historic new initiatives;

•Announce huge grants and outlays, forget them;

•Advance false claims: those ‘Action Completed’s;

•Shove problems to the future – as in the loan waiver; shove blame on the past – even when doing so flatly contradicts what you have yourself stated in Parliament, as the Prime Minister’s ‘the unpaid distress bills of the NDA’ is flatly contradicted by what is set out in the Economic Survey 2003/04 that Chidambram himself tabled;

•Mislead – as in the calculation of the deficit;

•Double-count – as in regard to power;

•Proclaim the desirable –‘we must aim at outcomes, not just outlays,’ the necessity for reforms as in the Economic Survey – and make people believe that, because you have proclaimed the desirable, you are straining to attain it.

And do all this with full faith – that no one will actually read the documents you pile on them; that, even of they do, they will soon forget; that the media are the easiest to bamboozle…Mismanagement

The Budget is a symptom also of gross mismanagement of the economy. Apart from the fact that reforms have been at a complete standstill ever since this ‘dream-team’ of ‘reformers’ took office, their management has brought the country back into the vicious cycle of high interest rates, declining growth, and inflation. Till 2004 April, foodgrain stocks had been scrupulously kept 40 to 50 per cent higher than norms set by experts – so that fixers always knew that, were they to raise prices, Government could, and would, counter them by releasing stocks from its godowns. Ever since, stocks have been allowed to fall below the norms – with the result that traders today know that the Government just does not have the wherewithal to stabilize prices.

The result has been worsened by erratic policies. Exports of non-basmati rice were banned; soon the ban was lifted. Government did nothing as wheat output fell short; then it floated a tender to import wheat; then it cancelled the tender, then…

As prices kept rising, it hurtled to swat a fly with an axe – the axe of monetary policy: higher interest rates, tightened money supply… Prices continue to rise, and naturally so. Investment is discouraged, and naturally so. Growth rate of manufactures has already begun falling, predictably so…

The dream-team…

(Concluded)

For all stories visit www.indianexpress.com/arunshourie

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)

For all stories visit www.indianexpress.com/arunshourie

On their own yardstick

Arun Shourie: Thursday, March 27, 2008

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

One problem is that while the Government committed itself in that new scripture – The National Common Minimum Programme – to doubling the proportion of GDP that is devoted to social sectors like health and education, in fact, as NC Saxena, member of the UPA’s National Advisory Board, points out, the proportion continues to hover around half the pledged targets.

But that is the lesser problem. The even more debilitating one has been much in the admonitions of the Prime Minister and the Finance Minister. In his Budget speech for 2005/06, Chidambram drew pointed attention to this: ‘At the same time,’ he told the Treasury Benches that were cheering his announcements of higher outlays, ‘I must caution that outlays do not necessarily mean outcomes. The people of the country are concerned with outcomes. The Prime Minister has repeatedly emphasized the need to improve the quality of implementation and enhance the efficiency and accountability of the delivery mechanism.’

So what did he propose to do? ‘During the course of the year, together with the Planning Commission, we shall put in place a mechanism to measure the development outcomes of all major programmes,’ he told Parliament. ‘We shall also ensure that programmes and schemes are not allowed to continue indefinitely from one Plan period to the next without an independent and in-depth evaluation.’ Given that activists were said to have the ear of the Highup, Chidambram added, ‘Civil society should also engage Government in a healthy debate on the efficiency of the delivery mechanism.’

Two years went by, little happened. Chidambram returned to the theme in his Budget of 2007/08. ‘There is no dearth of schemes,’ he told Parliament, ‘there is no dearth of funds. What needs to be done is to deliver the intended outcomes.’

The Prime Minister has been proclaiming the desideratum just as frequently and even more emphatically. ‘We have generated adequate resources in the last three years for use in social sector without sacrificing fiscal prudence,’ he told the ‘Roundtable on India’ organised by The Economist in March 2007. ‘However, we cannot spend our way to prosperity and having tangible outcomes is, therefore, as important as increasing outlays. This is the single biggest concern of our government today and we have to address this issue if we need greater returns on our social investments.’ And a few months later, in November, 2007, he told the full meeting of the Planning Commission, the Gross Budgetary Support provided for in the 11th Plan is almost double what it was in the 10th Plan. More than that ‘the architecture for inclusive growth’ has been laid out, the ‘basic elements’ of that architecture ‘are now fully in place.’ ‘This is a matter of satisfaction and indeed of pride,’ he said. ‘For the next few years, the emphasis must be on ensuring that these programmes deliver what they promise. We must work purposefully to realise the socio-economic transformation the Plan seeks to achieve.’

And what is happening on the ground? After all, these worthies are not consultants to Government. They are the ones directing it. The answer can be gleaned by picking up any one of what Chidambram calls ‘the flagship schemes’ of this Government.

If this is the flagship…

‘The object is to guarantee 100 days of employment in a year to one able-bodied person in every poor household,’ Chidambram told the cheering MPs during his Budget speech for 2004/05 as he explained the Government’s commitment to the poor. So, what was he going to do? Pending legislation, the Food for Work Programme is being extended to 150 districts.

And where is the money to come from? Chidambram’s solution was one that has become the hallmark of this Government: ‘Allocations under different schemes will be pulled together to support the Food for Work Programme,’ he declared. There are substantial funds totaling over Rs. 6,000 crore under SGRY, SGSY, SJSRY, REGP and PMRY.’ A typical stratagem: if there is one big programme, split it into five and announce five path-breaking, closer-to-the people initiatives; if there are five programmes, club them, and announce one historic initiative! In either event, rename them – giving them one of the two permissible names.

In the 2005/06 Budget, while announcing that he was increasing the allocation for this programme to Rs. 11,000 crore, Chidambram correctly noted that there were two components to the allocation – a cash component and a food component.

By the 2006/07, the commitment had got altered, a word got slipped in: while the original commitment was to ‘guarantee 100 days of employment in a year to one able-bodied person in every poor household,’ the commitment now became to guarantee 100 days of employment in a year to one able-bodied person in every rural household. As for allocation, Chidambram said, ‘In the current year, under a clutch of schemes including the Food For Work programme, a sum of Rs. 11,700 crore is expected to be spent on rural employment.’ A few sentences later, the figure was given as 11,300 crore. And there was to be in addition, Rs. 3,000 crore under the Sampoorna Gramin Rozgar Yojna (SGRY).

In the Budget for 2007/08, the scheme was expanded from 200 districts to 330, and the allocation was increased to Rs. 12,000 crore, plus another Rs. 2,800 crore for (SGRY) for rural employment in districts not covered by NREGS.

In this new Budget, Chidambram proclaims, the National Rural Employment Guarantee Scheme ‘has proved a historic measure of empowerment of Scheduled Castes and Scheduled Tribes, and, especially, women’; that the allocation for it will be raised to Rs. 16,000 crore, and that it will be rolled out to all 596 rural districts of India.

In a note that he has sent to all the Highups, NC Saxena punctures the balloon. First, he points out, since this Government took office, the allocation for rural employment has actually fallen! While Chidambram has been parading financial outlays, he has forgotten to mention what has been happening to that other component of outlays on this programme, the food component: this, Saxena shows, was sixty eight lakh tonnes in 2005/06; it fell to twenty four lakh tonnes in 2006/07; and this year, it was just a little more than seven lakh tonnes till Novemebr, 2007, and may not reach even fifteen lakh tonnes by end-March 2008. Converting these figures into cash, Saxena points out, the outlay by the central Government on wage employment schemes has come down from Rs. 18,406 crore in 2005/06 to Rs. 15,000 crore.

The second point he makes is almost cruel! Recall the other part of the announcement: the programme will be extended to all 596 rural districts of India. But one-fourth of the districts are short of labour, Saxena points out! ‘Reckless expansion will only promote migration and fudging of documents,’ he writes.

That must have been obvious, even to Chidambram. So, what happened? Rahul Gandhi, with his insights into India, is said to have ‘suggested’ that the programme be extended to all districts. The revelation having descended, Chidambram at once did the needful, as they say in Government! ‘They are perfect practitioners of dialectics,’ that distinguished civil servant, the late Ashok Mitra told me about the type, ‘Strong to the weak; weak to the strong’!

And then there is the fatal point, one to which …. has already drawn attention in The Indian Express: larger outlays or smaller, on the ground the programme is riddled with leakages, fraud and the rest. In the draft report on the Performance Audit of the NRGES that has been sent to Government in December 2007, the CAG states, among other things, that under the programme

•Only 3.2 per cent of the registered households have been given 100 days or more of employment;

•The average employment that has been provided to each household is just 18 days;

•While projects are to be taken up in low-wage areas, such areas have not even been identified in 53 of the test districts;

•Works have been taken up without the kind of planning and scrutiny that the guidelines require – on occasion just on the ‘recommendation’ of VIPs;

•While no more than 40 percent is to be spent on materials, in case after case much higher proportions – on occasion up to 80 per cent – are being spent on materials;

•Materials are being purchased without the mandatory tenders being called;

•Contrary to guidelines, work has been assigned to, and payments are being made to contractors and the like;

•Registers of materials received, and utilized of work assigned and executed are not being maintained;

•Workers are being paid wages that are far, far less than the minimum prescribed;

•Muster rolls as well as registers of materials and payments are being fudged wholesale – the report is full of shameful examples;

•When wages are not paid in time, workers are to be paid a compensation; this is not being paid – ‘because it has not been claimed,’ say those in-charge…

And so on. NC Saxena draws attention to these findings also about this ‘flagship’, saying only, ‘As regards its implementation, I think the CAG has said whatever needs to be said.’

Another flagship

Another ‘flagship’ that Chidambram mentions in his Budget is the provision of drinking water. This too has all the hallmarks of this Government.

‘I turn now to one of my big dreams,’ Chidambram declared in his Budget for 2004/05. He described how ‘Water is the lifeline of civilization,’ and lamented that the water bodies of yore had fallen into disrepair, and said that, ‘I therefore propose to launch a massive scheme to repair, renovate and restore all the water bodies that are directly linked to agriculture.’

So, what shall be done? ‘In the current year, we shall begin with pilot projects in at least five districts, and we shall select at least one district in each of the five regions of the country. The estimated cost is Rs.100 crore.’ The big dream has become a little dreamlet. Even so, from where shall the funds for even this dreamlet come? ‘Funds for the five pilot projects will be drawn from existing programmes such as SGRY, PMGJSY, DPAP, DDP and IWDP. Once the pilot projects are completed and validated, Government will launch the National Water Resources Development Project and complete it over a period of 7 to 10 years.’ And then there is the LIC, and those much derided institutions, the World bank, and others. Funds will not be a constraint.

The much bigger dream, of course, has been the Rajiv Gandhi National Drinking Water Mission. In this year’s Budget, Chidambram lists it again as one of the ‘flagship programmes’ of the UPA. He increases the allocation for it from 6,500 crore to 7,300 crore. And he carves out Rs. 200 crore out of this for providing drinking water for schools.

Excellent. Who can deny the importance of water? Who cannot agree that it is a shame that even 60 years after Independence we are not able to provide drinking water to all our people?

The first thing we have to remember is that this is almost an ancient programme. It used to be known as the Accelerated Rural Water Supply Programme – ARWSP.

Second, its implementation remains woeful, living up to Rajiv Gandhi’s statement that only 15% of outlays reach the poor in whose name they are defrayed. As Ganesh Pandey and Ravish Tiwari have reported in The Indian Express, the CAG has conducted a Performance Audit of this flagship also, and sent his findings to the Government in December, 2007:

•While guidelines require that states prepare Annual Plans for works that are to be taken up, of 26 states, 8 had not prepared the required Plans at all. Of the remaining 18, 9, while saying they had prepared them, did not submit them to the central Government; 10 had put together something at the state-level but these had no district or lower level details; Plans drawn up by 10 turned out to be ‘sketchy’; 9 had no shelf of schemes and likely size of allocations.

•While the guidelines require that 35 per cent of the outlay be on schemes that benefit SC/STs, the CAG’s Audit finds that in state after state, no separate targets or schemes have been formulated for the Scheduled Caste population; that the allocation, instead of being 35 per cent of the total, is much, much lower.

•An enormous portion of the funds have been diverted – for paying salaries, for defraying office expenses, for paying outstanding bills, for other schemes.

•Works said to have been completed do not exist; works have been ‘completed’ in non-existent villages; in other cases they have been taken up in villages that are already ‘fully covered’; works have been abandoned – in typical cases, pipes have been laid only part of the distance, pools have been dug where there is no water.

•Guidelines provide that the quality of water must be assessed: it is not assessed at all – water treatment plants have just not been installed as required.

•One half the Rural Protected Water Supply projects and a fifth of the tubewells shown as ‘completed’, found to be ‘non-functional’ or abandoned.

•In state after state, the expenditure figures turn out to be manifestly inflated; they turn out to be not just without authorization but ‘fictitious’.

•The Guidelines have provided a remedy very close to Chidambram’s heart – they require that Village Monitoring Committees and Special Monitoring and Inspection Units be set up; the CAG finds that in 14 states the committees are not holding regular meetings; 21 states have not nominated the required officials from the Health Department; 15 states have not established Special Monitoring and Investigation Units; in the remaining 11 states, these MIUs do not carry out field-level monitoring of quality of water, adequacy of service, etc.

•Guidelines require that the central and state governments monitor and evaluate the works from time to time: in 22 states, no evaluation studies have been carried out at all; in 17 states, officials from state headquarters have not visited districts, blocks and villages for inspections.

A ‘flagship’?

Or the tattered rag covering a sunken vessel?

(To be continued)

For all stories visit www.indianexpress.com/arunshourie

'Action completed'!

Arun Shourie: Wednesday, March 26, 2008

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

The document is Implementation of Budget 2007-2008, and is one of the important documents that have been distributed with this year’s Budget. ‘In keeping with the endeavour of the Government of India to promote transparency and accountability,’ writes the Finance Minister, P. Chidambram, in his Foreword, the document has been compiled. It contains ‘the status of implementation of announcements’ that were made in the preceding Budget. ‘I am happy to place this brochure before the House,’ he writes.

The item for which those words appear in bold italics – it is one of the several items for which they appear in the same way – is ‘Mumbai as an International Centre.’

‘Action completed’? Has Mumbai become the International Financial Centre that the Government had said it would be made?

You will recall that over the last three years, three big announcements have been made for Mumbai – and each of them has been splashed across our papers in huge, bold headlines. Mumbai was inundated by a traumatic flood on 26 July, 2005. The Government announced a special package of Rs. 1,260 crore to ‘rejuvenate’ the Mithi river – this was to be one of the steps that would prevent that kind of a flood. Not one paisa has been disbursed since then.

Next, the Prime Minister announced that funds would be given to metamorphose Mumbai into another Shanghai. Not one paisa has been given since that announcement. A power-point presentation has indeed been made to the high-ups – it is a compilation of sundry projects that have been conceived and commenced by a succession of governments.

And then came the announcement that Mumbai would be made into an International Financial Centre. Another ‘special package’ was announced – to much fanfare: a ‘special package’ of Rs. one thousand crore. For months, my friend and colleague, Kirit Somaya tried to find out how much money has actually reached the Maharashtra Government. Nobody would tell him. But he is not the kind to give up. He filed an application under the Right to Information Act – just imagine the commitment of our governments to -- what was that expression of Chidambram? -- ‘transparency and accountability’ that to get to know how much they have given in their generosity for such a worthy cause, a citizen has to take recourse to the Right to Information Act! Kirit strained for two months. Eventually, he received the information in July 2007: the total amount that has been given by the Centre is Rs. sixteen crore sixteen lakh.

The proclamation? Rs. one thousand crore. Actually given? Rs. sixteen crore sixteen lakh.

Then how is the ‘Action’ ‘completed’?

That tract of transparency and accountability explains:

‘The Report of the High Powered Expert Committee to make Mumbai an International Financial Centre has been released. The full text of the report has also been placed on the Ministry’s website… inviting feedback from the public.

‘A presentation was made to the Prime Minister on August 24, 2007. The recommendations identified for priority implementation have been circulated to the concerned regulators/agencies for comments/views on the process of implementing the recommendations. An Action Plan has been drawn up and is being implemented.’

Thus,

•Report received

•Put on the Ministry’s website

•A presentation made to the PM

•Recommendations circulated to regulators/agencies for comments/views

Action completed!! Not that the project has been implemented. Not even that ‘the process’ by which it will be implemented has been settled. Just that the ‘comments/views’ on the process by which it is to be implemented have been invited.’ But ‘Action Completed’, it is!

And the sequence is typical. Given the concern of this Government for the poor, it is de rigueur to talk about the unorganized sector, and that is what Chidambram did in his Budget for 2005/06. ‘The unorganized or informal sector accounts for 92 per cent of the employment and absorbs the bulk of the annual accretion to the labour force,’ he said. The ‘possible solution’ is PURA or Provision of Urban Amenities in Rural Areas. A Commission has proposed action along these lines. And then the typical commitment, much praised recently for cleverness: ‘Once the proposals are firmed up, Government will take up the creation of a few growth poles, as pilot projects, in 2005-06.’

President Abdul Kalam was still in office. He used to propagate this idea of Professor PV Indiresen. Hence, a few ‘pilot projects’, but those also in the indefinite future – when the proposals have been firmed up. Kalam gone, PURA gone. No mention in subsequent budgets.

But commitment to the poor continues. The poor are at the heart of the Government’s thinking, the Prime Minister and the Finance Minister have proclaimed times without number; to the poor, what matters most is food; for delivering food to them, the Public Distribution System is the key; and for making that system effective, the key is to improve the working of the Fair Price Shops.

‘Fair price shops constitute the backbone of the food security system for the poor,’ Chidambram told Parliament in his Budget for 2004/05. ‘We shall address the weaknesses in the system and strengthen public distribution,’ he promised. ‘I shall return to this subject a little later.’ That was in para 15. You had to wait for 60 paragraphs to learn what Government would do on this vital matter. An idea has been suggested, he said – that Government should distribute food stamps to the poor, and the poor should be able to go to any designated shop and procure the food. And so, another pilot: ‘I propose to introduce a pilot scheme for distributing food stamps, instead of distributing food through fair price shops, in two or three contiguous districts in a selected state. I sincerely hope that one of the States will come forward to associate with the Central Government in this experiment.’

Three years later, the pilot had disappeared, but more managerial types had alighted. Chidambram has continued to feel the urgency of improving the public distribution system. And so in the Budget for 2007/08, he took the definitive step for improving them: ‘A Plan scheme for evaluation, monitoring, management and strengthening of the targeted PDS will be implemented in 2007-08, and this will include computerisation of the PDS and an integrated information system in the Food Corporation of India.’

Come this Budget, and Government has moved higher up the technology scale: not mere stamps, not mere computerization and integrated information systems, an all together new, and technologically more advanced pilot. ‘An idea that has been growing,’ Chidambram says in this year’s Budget, ‘is to deliver subsidies to the target group through smart cards. Finally, I have found two willing partners -- the State of Haryana and the Union Territory of Chandigarh. They will introduce, on a pilot basis, a smart card based delivery system to deliver food grains under the PDS in Haryana and Chandigarh, respectively…’

And in the meantime, all the weaknesses of the Public Distribution System, to correct which Chidambram was going to revert later in his Budget of four years ago, continue unabated, all the leakages continue unchecked. In its report of April 2005 on the Targeted Public Distribution System, the Planning Commission records some of these ills:

•The implementation of TPDS is plagued by targeting errors, prevalence of ghost cards and unidentified households;

•Though the off-take per household has shown some improvement under TPDS, yet only about 57% of the Below Poverty Line households are covered by it;

•Leakages and diversions of subsidized grains are large and only about 42% of subsidized grains issued from the Central Pool reach the target group;

•Over 36% of the budgetary subsidies on food are siphoned off the supply chain: in several states, much higher proportions are siphoned off – 42% in Assam, 82% in Bihar, 42% in Gujarat, 56% in Haryana, 43% in Karnataka, 62% in Madhya Pradesh, 76% in Punjab, 61% in UP;

•Another 21% of the food subsidy reaches households that are above the Poverty Line;

•The cost of income transfer to the poor through PDS is much higher than that through other modes.

The Comptroller and Auditor General released his own findings in 2006. In his Performance Audit on Management of Foodgrains, the CAG concluded, first of all, ‘The results of the 59th round of the National Sample Survey of NSSO revealed that: almost 71 per cent of farmers had not even heard of the concept of Minimum Support Price. Even in Haryana and Punjab (which together contribute 56 per cent of all rice procured and 85 per cent of all wheat procured in the country), 37 per cent and 38 per cent of farmers respectively were unaware of MSP; and almost 81 per cent of farmers were effectively unaware of how to use the MSP programme.’ Second, the Audit once again laid bare all the holes with which we are familiar:

•The number of households Below the Poverty Line in the records of the state governments is a third higher than in the records of the central Government. This has the effect of scaling down of rations, says the CAG.

•Lists of beneficiaries are not updated, and this enables bogus cards to continue.

•Large number of cases have come on record in which ration cards have been issued to households that are not eligible for them: cards issued far in excess of numbers who are Below the Poverty Line; cards issued to households whose income is far in excess of the poverty line; households managing to get food under one scheme as well as another one; ration cards issued on the recommendations of VIPs with no further verification; the cards issued in one state are almost double the number of households that have been found to be Below the Poverty Line by a survey of the Rural Development Department.

•Foodgrains are distributed at lower than the prescribed scale of issue by four to 25 kg in several states and Union Territories.

•Grains are diverted in state after state.

•In Punjab and Haryana substandard rice is accepted on a vast scale.

It is not that ‘solutions’ have not been thought of. It is just that they have all met the familiar fate. To ensure proper monitoring of ration shops an Area Officers Scheme has been devised. The officers are to inspect the shops regularly. The CAG’s finding? ‘There was 96% shortfall in inspection by Area Officers under this scheme between 2000 and 2004/05…’ Vigilance Committees are to be formed, and they are to independently monitor the shops: in 24 states and Union Territories, the CAG finds, the Vigilance Committees have not been formed or are defunct and ‘non-functional’…

Nothing surprising in any of the findings – they are endemic. They have marred the Public Distribution System for decades. It was precisely to purge the system of them that Chidambram was flying all those pilots… The assurances are being implemented, the work is in progress, Chidambram’s brochure informs us.

The system, of course, remains as it has been.

(To be continued)

For all stories visit www.indianexpress.com/arunshourie