The Hindu : Competing demands

Online edition of India's National Newspaper
Friday, Jan 17, 2003

Opinion

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Competing demands

A TUSSSLE THAT takes place year after year between the Finance Ministry and the Planning Commission, and also with the individual Ministries, is being played out this year as well. The issue is budget support for Plan expenditure by the Centre and the States. Every year, as the preparation of the next Union budget gets under way, the Finance Ministry expresses its inability to meet the demands for a substantial increase in allocations for the Central and State Plans while the Planning Commission insists on larger funding if the growth momentum is to be maintained. In the end, every year again, a compromise is reached between the two positions — usually with the Prime Minister mediating between the two demands — only for the same lobbying and counter-lobbying to begin again a year later. The preparations for the Union budget for 2003-04 are proceeding on the same lines. While competing demands for resources from a Government that is under fiscal strain is not an unusual phenomenon, what is surprising is that we should be witness with such regularity to this shadowboxing between the Finance Ministry and the Planning Commission.

The Planning Commission has sought gross budgetary support (GBS) of Rs. 1,34,000 crores for the Central and State Plans in 2003-04. This is an 18 per cent increase over the budgeted GBS for 2002-03. Considering that the support for the Plan in the current financial year was only 13 per cent more than in the previous year, it is fairly certain that the Finance Ministry will provide for a growth in funding that is closer to recent trends than the huge increase being demanded by the Planning Commission. But what has given the tussle a different complexion this year is the Finance Ministry's determination to think afresh about Government support for Plan expenditure. In the mid-year review of the economy that the Finance Ministry prepared last November, an explicit mention was made of the strains that the ever-increasing GBS places on the Centre's finances, the contribution this has been making to the fiscal deficit problem and the need therefore to think afresh about Plan expenditure itself. The Finance Minister, Jaswant Singh, has also pointed out that during the past six years Central Plan expenditure has consistently fallen short of the budgeted levels. There is much that is certainly wrong with both the funding of and expenditure on the Central (and State) Plans. Budgetary resources for the Plan are often held back during the course of the year and the release of large sums in the last quarter results in a splurge by the Ministries which is of little lasting value. In expenditure, the desire to keep drawing up new programmes even before the existing projects have been fully executed continues to be strong. This too results in a substantial amount of wasteful expenditure. But sudden and ad hoc cuts in or curbs on funding, as the Finance Ministry seems to want to impose next year, will be counter-productive. There are strong indications that the modest revival in industrial growth that has been taking place during much of the past six months has been the result of an upswing in public investment (funded partly but not entirely by budgetary support from the Centre) since 2001-02. In the current financial year, Central Plan expenditure between April and November was 10 per cent higher than the year before. Much of this growth appears to have taken place in the infrastructure sector. Applying the brakes on funding of this investment is likely to hold back growth in a year that will follow the drought of 2002.

If there is a case to be made against tightening the screws on GBS for the Annual Plans of the Centre and the States, there is a larger case to be made for a review of both the funding process and pattern of expenditure by the Ministries and the State Governments. The effectiveness of public expenditure, in investment projects as well as in delivery of public services, has suffered since the early 1990s. Without an improvement in the utilisation of public resources, larger allocations are of little value in themselves.

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