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Catalysing Change in Implementation of Government Services by Deepening Knowledge about Middle and Front End Bureaucracy

Development workers with targets to meet and reports to write know all too well the challenges of working with Government machinery as part of a project at the state, district or even at the village levels. The rigorous worker will anticipate the delays as his file crosses many desks. He will know who to meet and when as he vacillates between patient indulgence and righteous indignation in the effort to loosen the noose around a good idea so that implementation can be justified as passable.

Project implementation plans assume this bureaucratic culture as one of the undeniable constraints of working in the field. Practitioners realise that this dense intricate quagmire is like a seamless horizon which cannot be circumvented or punctured, and hence, many an innovative strategy has emerged to coddle, cope with, co-opt, conspire or collaborate with the bureaucracy on the path to meeting development goals.

Accountability Initiative’s (AI) work on understanding governance is inspired by an appreciation of the above frustrations and efforts at solutions. It is based in the same acceptance of the middle-layer of management in the Government being an intrinsic part of all implementation at scale.

AI studies the layers of middle management in the Government that practitioners are so familiar with, taking care to experience, document and analyse each layer, before peeling it away to start work on the layer beneath, until it gets to the bottom of the issues.

The objective is to twofold.

First, it is to create a knowledge bank that practitioners can use to better navigate the way they construct and implement solutions with and for the Government, and second, it is to pursue a reform agenda of its own.

AI has become part of the implementation teams at the  Rajasthan and Bihar Governments, and with an NGO partner in Bihar that support SMCs, so as to get under the skin of the processes as they are experienced by each stakeholder. It has entered each arrangement, as an equal and contributing partner, offering nuanced knowledge, tools and practical suggestions to aid contexualisation of solutions. Being present as a neutral, in-house, compassionate sounding board to each stakeholder, provides AI the opportunity for its only purpose, which, is to gain insight that can support improved policy decisions.

In Rajasthan, AI has an arrangement with the Sarva Shiksha Abhiyan (SSA) to observe the challenges faced by the education management (state level through to the head masters of six individual schools), as they cope with their task to foster School Management Committees (SMC) to become tools for accountability. In exchange, AI trains the headmasters to introduce fiscal literacy to the SMC members.

Across Bihar it is supporting the National Rural Livelihood Mission (NRHM) to improve the ability of members of Self Help Groups (SHGs) to hold local Government schools and Integrated Child Development Services (ICDS) scheme accountable. In three districts of Bihar, AI collaborates with the grassroots communicators at Nidan, as they use trusted relationships with the community and parents to negotiate better quality of services in Government schools.

In a series of blogs following this one, the trials of executing well-meaning policy will be discussed. AI will follow the journey of an idea as it changes form in the hands of Government education management. As ideas become policy documents, to when they are conceptualized as programs. When they become Government orders and letters of authority, to when training manuals created by technical experts become capacity building workshops for master trainers. And finally, to the point when these lectures are delivered to unsuspecting villagers. On the other hand, AI will also report on how the last-mile consumer of Government services, experiences these provisions. It will explore what happens when the effort is made to bridge the gaping distance between the intent of policy and the fragmented services received by the citizen.

Deciding the Wheat from the Chaff – The Bureaucratic Review Process

Because there is very little room at the top in the bureaucracy, there has to be a way to select the best for the top job; a way to separate the wheat from the chaff. The most frequently used method is to use the system of ACRs. Equally popular are playing golf (or joining golf clubs where your boss plays) and organising temple tours. But more of that later; let me focus on the ACR system.

The ACR stands for the ‘Annual Confidential Report’. This is as is obvious, an annual, confidential appraisal of an officer’s capabilities by his or her bosses. Since bureaucracies are organised in elaborate hierarchies, each appraisal comprises of three steps. One’s immediate boss initiates the report and is known as the reporting authority. The next level is that of the officer who reviews the report of the reporting officer. This level is known as the reviewing authority. However, since the system is deeply distrustful on anything said about anybody, whether good or bad, there is an accepting authority at the top of the pile. After its arduous journey through these three levels, the ACR, in the case of IAS officers, ends its journey in the office of the Chief Secretary of the State where the officer works, and with the Department of Personnel at the Government of India. 

Invariably, the onus is on the officer concerned to start the process of having his appraisal done. In earlier, more irresponsible times, the format in which the ACR was written was vague and capable of variable interpretation. The officer concerned was required to mention his name, his current responsibility and how long he was holding it. A few more terse questions, such as whether he enjoyed good health, and whether he had undergone any training during the year under appraisal, and the ACR was set on its way. Since then, the ACR has undergone several changes. Now, the officer is required to mention six to eight thrust areas of his work and give a self-appraisal of how she has functioned over the year in respect of key, relevant targets. She is also required to give an honest appraisal of constraints that she faced, in not achieving set targets. 

The rules also say that one has to speak to one’s boss in advance and fix targets to be achieved before the year commences. That never happened in my time and I am given to understand, does not happen now. 

Writing a self appraisal is an art. I did it meticulously, and did it in the finest calligraphy that I could muster; I am sure my effort would have drawn gasps of admiration from those engaged in writing entire Qurans into books the size of matchboxes. I drew neat lines in red ink to separate one target from the other, and embellished my achievements with numbers. I also developed the fine art of making my non-achievement of targets also look like success in the face of adversity. There were always some large calamities that one could draw upon to justify one’s lack of success (“I planted 1,28,000 saplings but 2460 survived, because the rest were washed away by Hurricane Katrina” – you get the idea).

Once the ACR is set on its journey, the reporting officer has to task of sieving through your subterfuge and boasts, to get at the root of what exactly you have been up to. The first question that is asked of your boss is whether he or she agrees with the targets and the achievements attained. This often catches the boss on the wrong foot, because he knows he did not discuss the fixation of those targets with you at the start of the year (just as she did not discuss her targets with her boss). So, therefore, calligraphy or not, you are likely to get the nod on the targets and achievements you’ve reported. 

Then comes a lot of very subjective questions; does the officer show initiative? Does he get along with his colleagues? Is he capable and good at teamwork? How is his oral and written communication? While these questions provide ample scope for the reporting officer to air her literary talents, this is rarely the case. CRs are often written by reporting officers in a terse style. I put it down to the fact that as officers get senior, most of them begin to resemble more and more, in their manner, demeanour and articulation, a government circular come to life. 

‘Once they have crossed twenty years of seniority’, a boss of mine well versed in these matters told me, ‘nobody reads anything, except the civil list and the railway time table’. Replace the latter with airline schedules and you get the general picture. 

Then comes the icing on the cake; the question on the integrity of the officer concerned. It stands to reason that if you have agreed with the officer’s achievement on his stated targets (which you are barred from questioning) and if you have written some wishy washy stuff on his team-spirit, initiative and communications, you might find it very difficult to write anything more than ho-hum stuff in the integrity column. You might also not want to write paeans to his honesty here; if he is exposed in a scam later, you will have egg on your face. So, in the circumstances, the accepted bland phrase to use is as follows:

“Beyond reproach”.

However, I have seen some strange comments in the ‘integrity column’. One said that the officer concerned was ‘fully integrated’. Was he a mathematical equation? I wondered. 

The best of course, was the one by a sly reporting officer who wrote in the integrity column, ‘the officer, Mr. ……., sometimes conducts experiments with the truth’. 
 

#3 THE 14TH FINANCE COMMISSION AND SOCIAL SECTOR SPENDING

In India, most public services provided to citizens are delivered by the governments of the states they live in. The theory of federalism tells us that State governments are likely to have a better idea of their particular conditions, needs and priorities than the Union Government. The 14th Finance Commission (FFC) recognised this, and hence one of its major concerns was to “provide enhanced fiscal flexibility to the states to meet their expenditure needs and make expenditure decisions in line with their own priorities.”[i]

In an earlier blog, Avani has talked about how successful the Commission’s recommendations have been at meeting this objective. Most states now receive more money from the Union, and so we can conclude (with some caveats, as Avani describes) that in some measure most states have more fiscal autonomy.

The question which naturally follows is that of how states are using this fiscal autonomy. This is a particularly pressing concern for the social sector, since any changes in budgets have had a history of impacting “non-plan” expenditures: mainly recurring expenditure for public services! In addition, there was much distrust of State governments: a feeling that they would prioritise infrastructure over the social sector. Yamini talks about how even government officials at the states felt that the social sector would be squeezed.

When last year’s Union Budget revealed that Centrally Sponsored Schemes (CSSs) were being cut, and that states were expected to make up the deficit, much ink was poured and many hands were wrung in despair. As Jean Dreze put it, “anyone with a minimal understanding of Centre-State relations is likely to hear alarm bells.”[ii]; this feeling was more generally shared by many working in the fields of education, health, women, children, and so on. [iii] [iv] [v] [vi]

When my colleagues at AI and I were looking at the budgets of 19 states, this was at the top of our minds. What do the numbers in states’ budgets tell us about their plans for social sector spending after the FFC report?

Click here for full summary

The good news is that every single state intended to spend more money on the social sector in the Revised Estimates (RE) of 2015-16, as compared to their actual expenditures in 2014-15. The highest increases were visible in many of the poorest states including Bihar (46%) Chhattisgarh (49%) and Jharkhand (53%). Telangana nearly doubled its social sector expenditure, with an 86% increase.

Interestingly, even when looking at per-capita social sector expenditures in 2015-16 RE, some poorer states planned to spend more than wealthier states. For instance, Chhattisgarh intended to spend Rs. 9,877 per-capita, compared with Kerala at Rs. 8,590 per-capita. Similarly, Odisha intended to spend Rs. 200 more per-capita than Punjab.

Another useful way of looking at these numbers is to understand the share of the social sector in the total expenditure. This gives an understanding of the priority of the social sector in the state. Put another way, if all states are spending more money overall, the social sector will also increase. However, the share gives an idea of whether the increase in social sector spending is more or less than the increase in overall expenditure.

Even by this measure, we find that 16 of the 19 states we studied have a higher share of social sector expenditure. Sharp increases are seen in Andhra Pradesh, Uttar Pradesh, Telangana and Madhya Pradesh, and modest increases in other states. The 3 states which haven’t seen an increase are Kerala, where the share is constant, and Odisha and West Bengal, where the share has fallen by 2 and 1 percentage points.

Within the social sector, of course, states could choose to spend on different sectors. We would expect, if states are using their autonomy, to see changes not just in the aggregate level of social sector spending, but also in particular sectors.

For a few states where we looked at detailed sectoral budgets, we find some evidence of changes. In 2015-16 RE, Karnataka increased allocations for housing by 91%, while Maharashtra doubled allocations for water supply and sanitation, while total social sector expenditure grew by 18% and 23% respectively. Similarly, Uttar Pradesh, doubled investments in the budget head “Welfare of Scheduled Castes, Scheduled Tribes and other Backward classes”, while Bihar increased investments in “Labour and Labour Welfare” by 78% in 2015-16 RE compared with the previous year. There is some evidence that Bihar is changing patterns also in the current year’s budget: the state is reducing expenditure on education by 10%, while sharply increasing allocations to medical and public health by 83% in the budgeted estimates of 2016-17.

This data comes with some caveats. The biggest problem is that we are comparing revised estimates of expenditure in 2015-16 to money actually spent in 2014-15. Many states find it very difficult to spend allocated money on the social sector, particularly through CSSs, and often large amounts of money languish unspent. It’s likely that when audited expenditure numbers for 2015-16 come in, the amount of money actually spent on the social sector will fall. In addition, money which states are spending need not spent wisely, or even with any effect at all. Often outcomes such as children learning, or fall in mortality, seems to improve very little despite changes in the amount of money spent.

How can we get a more reliable estimate of expenditures? What can we do to ensure that social sector spending grows not just in the aggregate, but also in every state in areas of priority? The next couple of blogs will attempt to answer the way forward for both states and the Union.

 

[i] 14th Finance Commission, Volume 1 Chapter 2: “Issues and Approach”. Available online at http://finmin.nic.in/14fincomm/14fcrengVol1.pdf

[ii] Jean Dreze, “Nehruvian budget in the corporate age”, The Hindu edition dated March 5 2015. Available online at http://www.thehindu.com/opinion/lead/nehruvian-budget-in-the-corporate-age/article6959755.ece

[iii] “Big budget cuts in education sector worry activists, NGOs”, Hindustan Times edition dated March 10th 2015. Available online at http://www.hindustantimes.com/business/big-budget-cuts-in-education-sector-worry-activists-ngos/story-QBsHgQjpdBvmNTLYjBHT6J.html

[iv] Rajesh Pandathil, “Misplaced priorities? Budget 2015 doesn’t allow govt to take on spread of diseases like swine flu”, Firstpost, March 2nd 2015. Available online at http://www.firstpost.com/business/misplaced-priorities-budget-2015-doesnt-allow-govt-to-take-on-spread-of-diseases-like-swine-flu-2129571.html

[v] Shreya Roy Chowdhury, “Children most neglected in the 2015-16 Union Budget: Child rights organisations” in the Times of India dated March 12th 2015. Available online at http://timesofindia.indiatimes.com/india/Children-most-neglected-in-the-2015-16-Union-Budget-Child-rights-organisations/articleshow/46537698.cms

[vi] Abantika Ghosh, “Activists cry foul as WCD Ministry funds slashed by half”, in the Indian Express dated March 1st 2015. Available online at http://indianexpress.com/article/business/budget/activists-cry-foul-as-wcd-ministry-funds-slashed-by-half/

 

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

Introduction

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

 

#5 The Future of Centrally Sponsored Schemes (CSS) in the New Era of Devolution

I promised, in my previous blog to offer some new thinking on the role of CSSs in the changing scenario of center-state relations.

Perhaps the best way to think about the center-state dynamic is through the spirit of the 14th Finance Commission (FFC). The core mandate of the FFC was to provide state governments’ with the fiscal space to perform their constitutionally assigned functions.

In this scenario, technically speaking the Union government ought to leave state subjects to state governments – and in practical terms, this would mean shutting down the many line ministries that people Delhi’s Lutyens zone.  But of course this is practically impossible to do for no other reason except that it would leave many politicians and bureaucrats with nothing to do!

And as I mentioned in my blog last week, the really curious consequence of the FFC mandate is that many State government actors – most of whom till recently were protesting the one size fit all model of central financing for social schemes – too are now expressing a marked preference for dealing with money from Delhi rather than their own finance departments. As my bureaucrat friends have often reminded me, the bureaucracy is incentivised to grab financial resources (for a large budgetary allocation is power), no matter where it comes from and any sign of resources reducing, results in a clamor for more. This is precisely the phenomenon that we are witnessing today.

But, more seriously, even though the Union government does not have a direct role to play in many social schemes, that are constitutionally the domain of the state, there is a strong argument for its continued engagement in ensuring that key social sector priorities are financed and provided for. The argument is important from the perspective of the moral responsibility of the Union government to ensure that all citizens’ have equal access to their rights and entitlements. The real question therefore is not whether the Union government should have a role in financing and supporting social sector investments. Rather, the emphasis ought to be on how this role might be best structured.

To answer this question, it is best to go back to first principles.

About a decade ago, in a different avatar, I worked as a research associate on a project at the World Bank that attempted to go back to first principles of public finance and accountability to unpack the optimal allocation of roles across levels of government in a federal structure. The framing developed in that project, is I believe, a very useful way of trying to address the current question of the role of the Union government in financing social sector programmes (see Pritchett and Pande 2006 and Aiyar, Hammer and Samji 2006).

Accordingly, functions that have greater economies of scale  but low degrees of transaction intensity and discretion ought to rest with higher levels of government, whereas those that need to respond to local information, that are transaction intensive and require discretionary decision making to suit local conditions should reside in lower levels of government.

This would suggest that activities like monitoring staff, designing implementation models etc. are best placed at the state and local level. The Union government, on the other hand, could play an important role in setting standards, technical knowledge sharing, assessments and monitoring outcomes.

Importantly, the Union government could also play an important role in incentivising states and encouraging creative competition and providing equalisation of funds where necessary (Bihar for instance may genuinely need money from the center for education and health related programs than say Kerala).

For the moment, the public and government debate on the role of the center seems to be limited to minor tweaks in CSSs. I would urge that the debate on the role of the Union to move away from the CSSs mode to reimagine what the Union can do keeping in mind these first principles.

Here is one model that we at AI have been proposing:

  • Reduce the number of CSSs from the current (60+) to 10-15 key programmes that provide “additional” funding to states for meeting national goals. One way to rationalize the number of schemes is by linking the “national” goals to the sustainable development goals relevant to social sectors. These include goals like zero hunger, quality education, health and well-being, sustainable cities, drinking water and sanitation. For each of these key goals, the current bouquet of schemes ought to be restructured in to one single scheme that pools all allocations under a single scheme head. This restructuring will also be an opportunity to reshape the current design of CSSs.
  • Real change in social sector financing will only be visible if the current design of CSSs is completely re-hauled in addition to scheme rationalization. In keeping with first principles, this re-haul ought to shift the role of the Union away from the current emphasis on determining line-item budgets and inputs to programmes to a focus on defining and measuring outcomes on the one hand and promoting innovation and competition on the other. This can be achieved by designing the financing system of CSSs as a 2 window grant. Under this system 75% of funds can provided as an untied block grant for state governments to implement their plans and a second window comprising 25% of the total budget for the state ought to be provided as a performance based grant linked to performance based outcome indicators. To access this funding, states will need to develop clearly defined achievement goals which will be linked to a five-year plan developed by the state line department and planning board. The Union government line ministries can play a facilitating role providing technical assistance to state governments, through mechanisms such as joint review missions, as they develop their five year (and subsequent annual) plans. Read Rules vs. Responsiveness: Towards Building an Outcome-Focused Approach to Governing Elementary Education Finances in India for a model we have proposed of how this can be done in the case of education).
  • The process of identifying outcome indicators and measuring these indicators ought to be the responsibility of the Niti Aayog and the Central Statistical Office of India. An additional budget window could be provided to line ministries to undertake 3rd party evaluations at regular intervals.

#1 Winners and Losers: How the 14th Finance Commission Recommendations Impacted State Revenues

In February 2015, the Union Government accepted the recommendations of the 14th Finance Commission (FFC) and set the stage for a radical overhaul of India’s fiscal architecture. The recommendations were designed to enhance the fiscal autonomy of states by increasing the proportion of funds transferred to states from the divisible pool[1] of taxes from 32% to 42%. Other major changes included: a change in the formula for determining inter-state tax shares and a decrease in state-specific Finance Commission (FC) grants from those with conditionalities towards more untied block grants for certain areas.

The acceptance of the FFC had two major consequences. On the one hand, it led to the Ministry of Finance (MoF) allocating Rs 5.06 lakh crore as tax devolution in the FY 2015-16 (Revised Estimate (RE)), significantly higher than the Rs. 3.38 lakh crore in FY 2014-15 Actuals.[2] On the other, it led to a decrease in the funding through Centrally Sponsored Schemes (CSSs) – the Union Government’s primary vehicle for financing social sector investments in the country. Specifically, Budget 2015 saw a discontinuation of some CSSs, reduction in allocations for others and the change in the fund-sharing ratios for CSSs putting greater onus on state governments. These changes led many to believe that the increase in tax devolution was offset by cuts in CSSs. For instance, the state of Andhra Pradesh noted,

“The reduction of the Central share for key schemes such as SSA, National Health Mission, ICDS etc, will have adverse effect on the State development indicators.”[3]

It is important to note that this was a period of transition leading to a significant amount of chaos and confusion. Many state governments had passed their budgets prior to the announcement of acceptance of FFC recommendations in February 2015. Their budgets thus, did not reflect the changed union assistance. The changed fund sharing ratios of CSSs was also announced only in October 2015.

In order to shed some light into the implications of these changes on state budgets, my colleagues and I set out to collect state budget data for 19 states. A complete analysis of the impact of the FFC would require Actuals for FY 2014-15 and FY 2015-16. However, Actuals have a two-year lag period and are thus currently available only for FY 2014-15. We have thus used REs for FY 2015-16 as the most realistic current estimate of government expenditure.

Click here for full summary

So have states received more resources from the Union post the FFC?

The answer is Yes. All the 19 states studied received at least 20% more funds from the Union government in FY 2015-16 RE compared to FY 2014-15 Actuals. There is however some state variation in the quantum of increases. Haryana, Telangana, Himachal Pradesh, Jharkhand and Chhattisgarh received the highest increase at over 60%. In contrast, Tamil Nadu and Punjab received less than 25% more from the Union.

But a simple analysis of increases in Union receipt does not tell us a complete picture. For one, 2014 was a year of expenditure contraction across all sectors. Consequently, less money was received by states in FY 2014-15 Actuals compared to Budget Estimates (BE) for FY 2014-15. Moreover, accurate estimates of CSS funds received and spent by states are not available in real time. Traditionally, we have seen that states receive a significantly lower proportion of approved allocations. For instance, in FY 2014-15 of the total Rs. 56,529 crore approved for Sarva Shiksha Abhiyan (SSA), only 62% was released[1].

Moreover, whilst the FFC had recommended a shift in the composition of expenditure from tied scheme based funding to more untied block grants, states show a mixed picture. Through much of FY 2015-16, the Union Government introduced a number of supplementary budgets that significantly enhanced the overall pool of CSS monies available to state governments in key schemes. In aggregate, CSSs and similar schemes categorized as Central Assistance to State Plans increased by over Rs. 11,000 crore between the BEs and REs. As a result, the share of tied funding increased in some states. For instance, in Tamil Nadu, share of tied funds in total union transfers increased from 40% in FY 2014-15 Actuals to 47% in FY 2015-16 RE. Haryana too saw a 13 percentage point increase.

What does this mean going forward for state autonomy? 

First, the increase in fund sharing ratios for states may mean a further decrease in untied funding as states will be expected to put a greater share of their resources for CSSs. Moreover, the acceptance of the 7th Pay Commission could further impact state revenues.

However, there is some positive news. On the 3rd of August 2016, the Cabinet approved the recommendations of the Chief Ministers Report on Restructuring CSSs which argued for states to have flexibility in choosing between different activities within a CSS according to their own priorities. This would at least give states some flexibility to prioritise their limited resources.

It will be interesting to track how states respond to these changes and how they will utilise the increased tax devolution from the Union. We will continue tracking this – so do watch this space. The next blog in this series will focus more on impact on CSSs in FY 2015-16.

 

[1] RTI filed by Accountability Initiative

[1]  The divisible pool can be thought of as the sum of all Union taxes and duties, excluding collection costs, surcharges, and specific-purpose cesses. For a more precise definition see Arts. 268 through 271 of the Constitution of India

[2]  Ministry of Finance (2016). Union Budget. Budget at a Glance, “Resources Transferred to State and U.T. Governments”. Accessed on 6 May 2016.

[3] NITI Aayog (2015). Report of the Sub-Group of Chief Ministers on Rationalisation of Centrally Sponsored Schemes. October 2015. Accessed on 25 May 2016

Uneasy Lies the Head that Wears the Additional Crown

Hierarchies are important in the IAS as anywhere else in the government. It is not only important as a positioning tool within the service, but also to peg oneself against other hierarchies. There are complicated equivalence codes that equate IAS officers to positions in the armed services or uniformed services such as the police, for instance. In normal circumstances, these are of academic interest, but at times, they can be of critical national importance. For example, whether a Joint Secretary is higher in rank than a Brigadier, can determine who sits in front of whom in the Republic day parade audience.

Closely linked with the hierarchical positions is the protocol of whom you address by his or her name, or respectfully refer to as ‘Sir’, or ‘Madam’ (To my mind, the latter term has a faintly pejorative tinge to it, but I must admit, that is not so in Indian English). The ‘Sir’ or ‘Madam’ rule, keeping in mind India’s federal polity, varies from State to State.  In some States that have strict hierarchical cultures – bordering on the obsequious – one is supposed to address officers who are even a year senior to you, as ‘Sir’ or ‘Madam’. In other, more relaxed States, you can dispense with this formality for an officer up to certain levels of seniority. In Karnataka, where I worked for the better part of my life, you could risk calling an officer five years senior to you by her name and get away with it. 

However, this is not without its risks. When officers from different States are drawn to work in the Union Government secretariat, then havoc can ensue if one addresses an officer not used to it in his State, by his name. That can result in the destruction of your CR. (Patience; describing a CR deserves a few blogs entirely devoted to the subject). So, the best option is to err on the side of caution and address any object that looks senior to you, animate or inanimate, as ‘Sir’ or ‘Madam’. I have often been addressed that way (Not ‘Madam’, but ‘Sir’) by officers senior to me. The chagrin on their faces when they realise that it ought to have been the other way, is delightful to observe. I have not rued going prematurely grey. 

In the secretariat, which is where most IAS officers end their professional lives, the designations take on a boring, repetitive tone. Using Linnaean terms, every officer belongs to the genus of ‘Secretary’. But within that, is a wide evolutionary spectrum of positions. 

Let us not consider any position that does not use the term ‘Secretary’. For instance, dealing Assistants, Section Officers and Desk Officers are one celled organisms. 

The ‘Under Secretary’ is the lowest member of the Secretary genus; the one that has just crawled out from the primeval slime. The next step on the evolutionary chain is the ‘Deputy Secretary’, a slightly evolved sub-species of this level is the ‘Director’. That is followed by the ‘Joint Secretary’. The Secretary sits at the top of the Secretariat food chain, the Tyrannosaurus rex of the genus. However, the Joint Secretary is no pushover; she is the velociraptor of the pack. The post of a Joint Secretary is a powerful position for many reasons. One is that Joint Secretaries tend to hold their positions for far longer that Secretaries, so Ministers tend to rely on them, often bypassing Secretaries. This keeps T Rexes on their toes. 

Trapped in between the two carnivores, is a position that is neither here nor there – this is the position of the Additional Secretary. This hapless individual is an herbivorous offshoot of the chain, an evolutionary dead end. Basically, when a Joint Secretary grows long in the tooth, he is promoted as an Additional Secretary, but continues to perform the same tasks and responsibilities. In earlier days when stagnation in the higher echelons of the service was not such a serious problem, the position was akin to waiting in a transit lounge. An Additional Secretary worked as an understudy to the Secretary and quickly moved in to take the latter’s position. However, as the administrative system has grown to be top heavy, Additional Secretaries are often in such suspended animation for up to five years, during which they either become brain dead, or drive themselves crazy with the worry of whether they would ever graduate to the exalted position of Secretaries.  Being Additional Secretary is akin to being a teenager between the ages of fifteen and eighteen; old enough to sprout a moustache, not old enough to watch adult movies. Walk in the corridors of power and if you discover people who are jumpy, nervous and shifty eyed, the chances are that they are Additional Secretaries. 

While these positions result in a natural, and well-recognised pecking order in India, havoc can prevail when Indian officers travel abroad. I was once on a training programme in the US, which was also attended by an Under Secretary and an Additional Secretary from the Ministry of Finance. In the US, an Under Secretary is the equivalent of a Minister of State in India. Therefore, every time that the Under Secretary introduced himself, the audience did a double take and turned awfully respectful, addressing him not by his name, but as Mr. Under Secretary. On the contrary, the Additional Secretary was slapped on his back and called Ram or Rahim, or whatever was his name. The Under-Secretary revelled in the glory; the Additional Secretary was a nervous wreck at the end of the course. 

How do officers make the grade? That depends on their CRs. More about CRs in my next blog.
 

PAISA 2016: A New Era in Fiscal Devolution in India?

Tracking fiscal devolution to State governments and Panchayats in India.

On June 3rd 2016, Accountability Initiative (AI) released two research papers on the dynamics of decentralisation between the union and state governments and from state government to local governments in India. One, State of Social Sector Expenditure 2015-16 and second, PAISA for Panchayats 2016, at the India International Centre, New Delhi.

The first report focused on analysing trends in state budgets in the context of the implementation of the recommendations of the Fourteenth Finance Commission (FFC) that mandated enhanced devolution of the divisible pool of taxes between the Union and state governments. The second report studied trends in devolution to local governments in Karnataka.

The event drew insight from an audience of policy practitioners, government officials and interested public, to further understand and debate India’s efforts at decentralising public expenditure and enhancing the role of state and local governments in the delivery of core public services.

Ms. Yamini Aiyar, Director of AI began the event by setting the context of the research papers by reflecting on the importance of the FFC and the changing architecture of spending public money for social sector programs. Ms. Aiyar also highlighted the importance of studying local government financing as a critical component of the decentralisation narrative in India.

This was followed with remarks by Mr. Arvind Subramanian, the Chief Economic Advisor to the Government of India. Mr. Subramanian spoke about the present scenario of social spending in India as well as reflected on the complexities of pursuing decentralization in a political and administrative context designed to privilege hierarchy and centralization.

THE REPORTS

State of Social Sector Expenditure in 2015-2016

This report looked closely at the effects of the FFC recommendations on state finances, with a particular focus on effects on social sector investments in 19 states in India. Dr Pinaki Chakraborty, Professor at the National Institute of Public Finance was invited to respond to the findings of this report and Mr. MK Venu, Founding Editor of thewire.in played the role of the moderator.

This report asks two key questions:

  • Did increased tax devolution result in enhancing fiscal space for states?
  • Has the changed fiscal structure resulted in any visible shifts in social sector investments at the state level?

Through an analysis of 19 state budgets, the report found that there has been an increase of at least 20% in the overall pool of union government funds received by state governments in 2015-16 when compared with the previous financial year. Moreover, the overall pool of funds made available to centrally Sponsored Schemes (CSS) also increased despite budgetary cuts in the 2015-16 budget.

The key headline finding from this report is that social sector spending increased significantly in 2015-16, when compared with 2014-15. The overall share of expenditure on social services increased from 36.1% in 2014-15 to 38.2% in 2015-16.

ReportState of Social Sector Expenditure 2015-16

During the discussion, Dr Chakrobarty expanded on the key findings of the report by bringing attention to the study on CSSs in particular. He argued that devolution needs to be studied not only from the perspective of increasing central resources for state level implementation, but also from the lens of central intervention in improving the structure of CSSs.

During the Q&A Mr. Sumit Bose, former Secretary, Thirteenth Finance Commission, added to the conversation by connecting state investment on the social sector to infrastructure priorities. He speculated that state governments are increasingly prioritising infrastructure related expenditure over social sector financing. This is an area for further investigation.

PAISA for Panchayats 2016

The panel that discussed this report included Dr. Indira Rajaraman, retired professor of economics and member of the Thirteenth Finance Commission of India and Dr. Santosh Mathew, Joint Secretary in Ministry of Rural Development and it was moderated by Mr. MK Venu.

This study looked at trends in devolution to rural local governments through a case study of fund flows to 30 Gram Panchayats (GPs) in Kolar district in Karnataka.

The study asked two key questions:

  • What are the overall trends in fiscal devolution to Panchayati Raj Institutions (PRI) in Karnataka?
  • How much money do Gram Panchayats actually receive?.

Our research showed that despite the state’s pioneering efforts in improving intergovernmental fiscal transfers, the system clearly falls short of the state’s vision for effective devolution to Panchayats. The 30 GPs in Mulbagal spent only 3 percent of all the money spent in their jurisdiction and are unaware of the nature or extent of expenditure made by other entities (like state line departments, parastatals, District and Taluk panchayats) in their jurisdiction. Further, these other entities themselves do not track or maintain records of their fund flows at a GP level leading to inefficient non-transparent and non-accountable expenditures.

Policy BriefPAISA for Panchayats Policy Brief

Dr. Rajaraman begins her remarks by assessing the value of the study in informing the dialogue on devolution in the country. She also brings to focus the function of language in looking at the decentralisation process. Further, she dissects the methodology used, and suggests an alternate use of data collected as a result of the study.

The second panelist Mr. Santosh Mathew began his opening remarks by echoing Dr. Chakrabaorty’s concerns about the continued focus on CSSs and its impact on devolution of finances to state governments. He concluded with suggestions on how to build a transparent, real-time fund flow and tracking system within the government.

During the Q&A session, special invitee Mr. Arvind Srivastava, Secretary to the Government of Karnataka, spoke on his experience as a state government official with the present systems of decentralisation and devolution. His remarks offered an important window in to the practical experiences of devolution in the country.

#2 What has changed for Centrally Sponsored Schemes (CSS) in 2015 – 16?

In December 2013, my colleagues and I were about to embark on a new project in Bihar.

In April that year, the Government of Bihar had announced the launch of an ambitious, innovative scheme called Mission Gunvatta. The mission was aimed at improving learning levels in Bihar’s government primary schools. One critical intervention under the mission was the roll out of a Pratham led intervention called teaching at the right level (TARL). Under TARL, for two hours a day, schools would be organized according to student learning levels and taught using specifically designed materials.

The program, in its design was path breaking. For the first time a state government had chosen to explicitly commit itself to improving learning outcomes, at scale and chosen to move away from the prescribed curriculum to ensure that children would be able to improve their learning levels. The classes were to begin in July and run through the academic year. So when my colleagues and I arrived in the state to start our research work, we were expecting to find things moving full speed. To our surprise nothing had really moved. And when we dug deep we discovered that the Sarva Shiksha Abhiyaan(SSA), the Government of India’s (GoI), centrally sponsored scheme and key to the state’s education money (60% of the state’s budget is funded through the SSA) had not yet released money to the state education department to print the relevant materials.

The wait ended in late December when the state department found money through sources other than SSA to print text books but by then the school year was nearing completion and the mission never quite took off. This played havoc for our research project but more importantly, it offers an interesting insight in to the complex world of social policy funding in India.

Constitutionally, the bulk of what we can loosely define as social policy related programs lie within the domain of state governments. Ideally, money for these programs ought to be transferred through the finance commission directly to state governments, leaving state’s to determine their investment strategies. However, the fiscal transfer system also allows for specific purpose fiscal transfers through the center to states called Centrally Sponsored Schemes (CSS).

Over the years, and especially the last decade, CSS became rather popular. By 2012-13, fiscal transfers through CSS came to rival constitutionally designed routes, like grants under Article 275 or revenue sharing arrangements. In 2012-13, fiscal transfers through CSS and the Additional Central Assistance exceeded Rs 3,08,000 crore, while transfers through revenue share arrangements and grants in aid, amounted to Rs 3,66,000 crore.[1]

But there were many problems with this model. First, CSS were designed to privilege a top down, one-size fit all model where states were given relatively little flexibility in implementing programs. All budgets had to be negotiated with the center and if the center didn’t approve of what states where asking for, they went unfunded.

For instance, in education, a state government needed money to restructure its teacher-training model. To access SSA money, it had to seek GoI approvals through the state SSA authorities. GoI, however, refused to provide money because the re-structuring wasn’t aligned with the prescribed framework, leaving the state with no resources. Second, states had no authority to move funds across schemes. Thus if a state wanted to spend more money on health care over employment guarantee, it didn’t have the flexibility to draw on money received from the center to buttress its healthcare expenditures. Third, CSS mandated that state governments add a share of funds to the CSS from their plan budgets. This served to ring fence money available with states to finance programs as they saw fit. Finally, many of these CSS created a parallel implementation structure through specially created societies that were tasked with implementing the central program. And as funds to SSA increased, so did the power of these societies’. This served to create turf wars like we saw in Bihar between the SSA and state departments and in the end many good ideas never saw the light of day.

States were well aware of this problem and complained bitterly about the over-centralisation in India’s fiscal transfer system. It was to address this fundamental weakness in our financing system and realign the balance between constitutionally aligned functions and financial resources that the 14th Finance Commission increased the state share of tax devolution from 32% to 42% in 2015. [2]

So how have things changed? In her blog yesterday Avani highlighted the fiscal story pointing to the changes (and lack of changes) in CSS funding and its impact on state budgets. Avani suggests that the status quo is likely to be maintained, despite the efforts by the FFC to increase state autonomy.

I want to point readers to a possible explanation for this, based on my reading of the political economy of social policy financing. As I mentioned, over the last decade GoI rapidly expanded its role in financing key social programs through one-size fit all, tightly designed CSS. Implementing these schemes required the center to tightly control and monitor state budgets thus casting GoI officials in the role of headmaster’s wrapping states on the knuckles if they didn’t follow guidelines.

State’s on their part, while they disliked the centralised approach, saw in CSSs an important source of money which they aren’t happy to give up. This explains why almost every state politician and bureaucrat, having complained to the FFC about these schemes is now crying hoarse about the lack of funds, paying scant attention to the more pressing question of how best to use the untied funds. But CSS also played an important role in ring fencing money for social programs at the state level.

I have been surprised at how many state level politicians and bureaucrats have argued with me about the importance of CSS in ensuring social sector investments because of the proclivity to invest money in big-ticket infrastructure programs where the kickbacks are higher. Given this, there is some sense of comfort with the continued funding of social policy through CSS going forward.

But we do need to address the challenge of the one-size fit all model of CSS that state’s protested against in the first place. Watch out for my next blog on how I propose this can be achieved.

 

[2] State of Social Sector Expenditure in 2015-16, Accountability Initiative. Click here to view.

No Space at the Top

It is nearing seven years since I quit the cozy confines of the bureaucracy and became a traveling salesperson of decentralisation and anti-corruption. I would be deluding myself if I did not admit that I have on occasions, reflected upon whether leaving was the right thing to do. The other day I spoke to a colleague in the government who poured out her heart to me. She wanted to leave, desperately, and told me how confining, corrupt and unfeeling the government had become. I advised her to stay. I heard myself give her the same reasons to stay on, which I had cheerfully disregarded when I left. ‘We need you there’, I said to her, ending my spiel, weakly and selfishly.

While there is plenty to be said for staying in the government and doing good things of everlasting benefit to people, from the perspective of nursing ambitions and fulfilling them, the last ten years in the higher bureaucracy are nerve wracking.  The higher bureaucracy is full of intelligent people, who have gone through layers of tough competition to gain entry. Prior to cracking the entrance examinations, many of them over the years, have trained themselves to be single-minded in their pursuit of excellence, to compete and win. A collaborative spirit is not welcome in the training of such minds. Indeed, since selection is based on competitive examinations, collaboration is an anathema.

When a set of driven, competitive individuals gain entry to the stratosphere of the bureaucracy, it is too much to expect them to transform themselves into caring, sharing, collaborative teams overnight. Of course, if it suits them, they will passionately advocate team building, but there is an implicit precondition; that they will invariably head the teams that they build.

At the start of their careers, the implications of competition are not so readily apparent. There are plenty of jobs on offer at the lower levels for officers to excel. The initial years following recruitment into the Indian Administrative Services, for instance, follow nearly identical pathways in different States. Everybody starts off with a series of field postings, as sub-divisional magistrates, CEOs of District Panchayats, and that final summit from where they can lord over their empires, as District Collectors. While there is some element of comparison between these positions, it is hard to say that being District Collector of one district is not at par with the same position in another district. True, there are so called ‘prestigious’ districts – for example in Karnataka, being posted as the DC of Mysore is to be savoured more than being the DC of Bidar district; but then then the latter incumbent has the compensation of being the minor sultan of a far flung outpost to console herself.

It is after those first fifteen years, that the field narrows down. The general public, accustomed to seeing all officers as exalted might not discern the difference; everybody is up in their snowy peaks. However, for the insider, the difference between a good post and a bad post, between a side-lined position and a mainstream, plum posting, is stark. If one is pushed to a position of relative unimportance, the effect can be as good as being punished.

How are these hierarchies and inequalities recognised and maintained? There are many ways, which only the insider knows.

In Delhi, an individual knowledgeable of the caste hierarchy of the Union Government’s bureaucracy enlightened me of the criteria used to position officers in social gatherings. ‘Who you are, in Delhi’, he said, ‘depends upon five things; the Ministry in which you work, the colony in which you live, the school to which your children go, the club where you have membership and the breed of your dog’.

By those yardsticks, I reckoned, I lived in the basement of the rankings.  I was Joint Secretary in the Ministry of Panchayati Raj, which ranked low in the pecking order of social sector ministries, particularly when compared with the more prosperous and self-important ministry of Rural Development. I lived in a colony that was centrally located, but in a house that was two levels below the category to which I was entitled. My son did not study in Delhi, so I got zero marks in the school criterion. I did not belong to any club, since, like Groucho Marx, I would not join any club that would deign to admit me. And my dog, bless the rascal, was a Road-Island Retriever, which came off an island on the road. If I looked hard at his silly face, I might recognise a shade of Labrador, but that would be cheating.