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#4 The 14th Finance Commission and the Way Forward in the States

Vikram Srinivas, Priyanka RoyChoudhary

18 August 2016


The adoption of the 14th Finance Commission’s recommendations has resulted in states being brought into the limelight for having the responsibility of financing the bulk of public services. We’ve seen in previous blogs that a number of questions have been raised about the actual impact of this move, and we’ve described our efforts to try and answer these questions by analysing the budgets of 19 states. Going forward, the need is to continue to track what the Government of India and the states are doing, and to ensure that social sector investments they make translate into efficient and effective public service delivery. Tracking government finances, though, is not an easy task because of many reasons.

Better Data

One of the biggest challenges in tracking government finances is the quality of their budgets. The very first step in the direction of improving the quality of budgetary data would be to make them publicly available and easily accessible. Although one would expect states to upload all the budget documents post their presentation, some state budgets aren’t available even well into the second quarter of the financial year. In fact some states surprisingly haven’t updated their official websites with their recent budgets since the last decade! Additionally, the states which do put up their budgets online do so partially, making it difficult to understand the nuances of the budget in its entirety. Virtually every state presents its budgets in the form of dense, poorly formatted PDF files, which cannot be read or comprehended either by computers or human beings without a great deal of effort. An effort to bring budgetary data to open data standards by ensuring that it is released in formats which are human and machine readable, and in a timely fashion, would make it much easier to track fund flows at the apex level simply by making the budgetary data more accessible.

Moreover budgetary data, even when available, can be better organised. It is not possible currently to systematically track a range of information of interest. For example, the Union budget doesn’t give state-wise allocations, and likewise states do not allocate funds geographically. It is nearly impossible to track how much money is being spent in a constituency, a city, or a village, without extensive field work and literally collecting documents from multiple government offices.

In addition, many programmes or schemes are broken up into a bewildering array of line items. A good example is the National Health Mission, which originally began as a collection of independent programmes. Most State budgets still report budgetary data for the NHM in a fragmented fashion across line items. The basic questions of interest such as how much money is allocated for the NHM in a particular State, or across States, the share of the Union Government as compared to the states, and so on, cannot even be answered at the moment through budgets. At the other extreme, there are sometimes schemes reported as monolithic line items, with no information about breakups of sub-programs, or functional divisions such as salaries, administrative expenses, and so on.

The root of these problems is that the form of accounts which governments maintained has remained substantially the same since 1974. A Committee to revise the account heads and tackle many of these problems submitted its report in 2012. Despite the Union Government stating that its recommendations would be implemented from the next financial year, no progress has been made.[i]

Better Budget Processes

Technical problems with the quality of budget data apart, the process of preparation and scrutiny of budget also merit consideration. Budgets are still prepared in secret, and in the absence of a pre-budget statement, pre-budget consultations with citizens have limited influence. The process of scrutiny of budgets in Parliament is limited, with the budgets for several departments being put to the vote without discussion, a process called, appropriately, “guillotining”. The state of the state legislatures is worse. State legislative assemblies barely sit for 30-40 days in a year. The main sitting is indeed the budget session, but MLAs are given even lesser time to scrutinise and debate proposals than MPs. The quality of the discussion is also limited, since MLAs, like MPs, have no budget or staff. Many state legislatures also lack Parliament’s system of permanent departmental standing committees, which give legislators an opportunity to gain expertise and hold government accountable in particular areas.[ii]

More Work at the State Level

A problem particular to state government finances is that there are so few people who are interested in examining them in detail. Though states have been responsible for the majority of social sector spending in India, civil society organisations (CSOs) working with state government finances have been limited in number[iii]. In the current context, for effective advocacy, it is vital for CSOs to develop a deeper understanding of state policies and budgets and participate in budget discussions.

Too often, social sector advocacy restricts itself to a blanket call for more money to be spent. While normative targets, such as the target to spend 6% of the GDP on education, remain important, it is important to recognise that effective usage of existing moneys is also equally important. Focussing on better annual and mid-range planning, reducing the problem of unspent funds, strengthening the links between inputs such as funds and infrastructure and tangible outcomes, are all areas where state governments display a range of weaknesses. Advocacy and partnership with state governments can help tackle these weaknesses.

The Commission’s award of Rs. 2.87 lakh crore over 5 years to local governments also is an important opportunity to work with panchayats and municipalities. Decentralisation is a powerful remedy to improve public services delivery, and this increase in funds awarded to local governments can be used creatively and effectively to meet local needs. This calls for capacity building to help these bodies use funds effectively, as well as measures to strengthen accountability so that misuse of funds can be tackled.

Rethinking What Governments Should Do

The broader underlying opportunity is not just to track the finances of Union, state and local governments, but to think about the relationship between them. While it is likely that the Union will for the foreseeable future fund programmes in areas of national priority, there is no reason why the institutional architecture has to remain that of tied, rigid schemes run by individual Union departments. In fact, the moment calls for a greater rethinking: what should be the role of the Union Government versus State or local governments? What should be the mechanism by which different governments coordinate? Watch out for the next blog which will discuss these issues in detail.


[i] Press Information Bureau, Govt. of India, release dated January 25 2012, available online at: http://finmin.nic.in/press_room/2012/sundaramurti_committee_report.pdf

[ii] For a detailed examination and recommendations to improve budgets, see the India report of the Open Budget Survey 2015, available at http://www.internationalbudget.org/wp-content/uploads/OBS2015-CS-India-English.pdf

[iii] For an indicative list of budget groups in India see the website of the Center for Budget Governance and Accountability at http://www.cbgaindia.org/bwi_budget_groups_india.php


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