The federal roll-back

In my latest column for livemint, I highlight what I think was the most significant aspect of the 2014-15 union budget presented by Finance Minister, P Chidambaram. By announcing the intention to increase the plan assistance to states almost three-fold, the Government of India has made a major move towards empowering state governments and also towards holding them to account for their performance in areas of human development.

In this context, the following now become really critical.
The formula for distribution of funds between states: Not entirely unexpectedly, 2013 saw the war of committees over devising an appropriate funds distribution formula for states. Along with this comes the lobbying for special status by different states in order to gain additional central funds.
State treasury systems: In spite of some degree of automation, many state government treasuries are in bad shape. Earlier, state treasuries would capture only the state government funds and not the CSS funds that were channelled through the societies. In the new arrangement, the state treasuries will have to handle a significantly larger volume of funds and transactions. As public finance expert T.R. Raghunandan cautions us, the finance departments in many of our states have a long way to go.
Monitoring data: Unearthing government data—physical and financial—is a formidable challenge, as anyone in the business will reveal. Additional funding to the states will mean additional responsibility for data collection and reporting in a transparent and reliable manner.

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