On July 6th 2009, the new United Progressive Alliance (UPA) government will conduct its first major business activity since coming in to power: present the annual budget. Much hope resides on this budget.  The President’s address before the first session of Parliament laid out the UPA’s governance agenda  for the next five years. Many promises of action are made in solemn speeches, but in most cases they are also quickly forgotten. The question to be asked of the budget is this: Will it live up to the promises made? The President laid out 10 broad areas which the present government will focus on. Among the usual issues of security, social welfare, fiscal management, and infrastructure, the speech specifically mentioned the “consolidation of the existing flagship programmes for employment, education, health, rural infrastructure, urban renewal and introduction of new flagship programmes for food security and skill development” and “governance reform”.

The two issues are interlinked. A lot of the problems that the flagship programmes suffered from during the tenure of the last UPA government had to do with failures in governance – basically the lack of a culture of accountability. For instance, the curious case of unutilized funds. According to estimates, more than Rs.50,000 crores that were committed to these flagship programs in the previous government are lying unutilized. This amounts to a loss of 1% of GDP. How do we make sense of this? And do we know enough about how the money is being spent, and by who? Who do we hold accountable for this?

For one, it is virtually impossible to track many of the government expenditures in real time. In the present system, a large part of social sector expenditures are incurred through a mechanism known as Centrally Sponsored Schemes (CSS). Within CSS, funds from the central government are ‘off-budget’ i.e. they by-pass the state government treasury and go straight from the central government coffers to bank accounts of the specially created state implementation societies.  Ironically, this procedure was put in place to get away from the red-tapism of the bureaucracy but it has created more problems than it has solved. Legally, state level societies cannot be audited by the Comptroller and Auditor General (CAG). Instead, audits are undertaken by private auditors. These are neither regular nor uniform in their methodology and process. Worse, these reports are not easily available in the public domain making it impossible to track social sector funds.

In addition, one of the primary reasons why funds might be lying unutilized is that the implementation societies in the States can carry forward the allocated funds from one year to the next.

Governance reforms that address these aspects in strengthening transparency and accountability in public planning and expenditure processes are critical to making sure the desired outcomes from the flagship programs are attained. Of course the budget cannot do everything at the same time. After all it is only a statement of revenue and expenditure of the government. But seeing as the flagship programs will undoubtedly get more allocation in this year’s budget, it does present us with an opportunity to bring in new initiatives that would go a long way in improving accountability within the system. A revamped outcomes budget, and extending the mechanism of mandatory social audits in these schemes are some thoughts. The budget can also announce the setting up of  an Independent Evaluation Office, and adequately fund this important body. These would be the first few steps towards “re-energizing government and improving governance”. The President’s speech promised that this will be the case. But will it happen?

Dr. Anit Mukherjee is a Fellow at National Institute of Public Finance and Policy, New Delhi.