States stuck in a rut need a big push

In recent years, the central government and the central Planning Commission, through a plethora of centrally sponsored schemes, had been distorting the district- and state-level planning and accountability mechanisms. A move towards correcting this was made when the government of India’s 2014 budget announced a three-fold increase in the quantum of funds being transferred to state governments. The demise of myriad centrally sponsored schemes should be an opportunity to further empower states in carrying out their own planning and monitoring. Decentralizing the plan’s origin should also help focus far more sharply on implementation down the delivery chain and fixing accountability for performance.

Most states already have a planning department that has a directorate—the state planning board. If you look at the functions and responsibilities of these bodies, you will find a few items that are similar across states. Prominent among these are: working on medium- to long-term state development plans and guiding state departments, proposing schemes to correct regional developmental imbalances and facilitating decentralized planning. However, as things stand currently, the state planning boards have little power to determine (or influence) the allocation of funds among competing priorities in the state. For the most part, their power varies according to the importance the chief minister gives them and that is reflected in the quality of personnel appointed as members and the administrative powers given to them.

The less said about the quality of the budget planning process, the better. The usual scenario looks like this: state departments do not know the budget envelope they should be planning for; once they plan (usually by applying a standard formula such as a 5% extra on each line item), they are used to sitting in suspense for the approval. The approvals often slash requests and allocate amounts without any explanation, making the planning process not only tedious, but also almost completely futile. Will the increased flow of untied resources create a push at the state-level (particularly at the state Finance ministry) to reform some of these processes? Equally importantly, will the central departments and the Ministry of Finance reform their processes in ways that can facilitate capacity at the state-level?

Another piece of the puzzle is democratic decentralisation. Going forward, state planning boards should be held accountable for implementing decentralized planning in their states. In fact, I believe it should be their single-point mandate. State planning boards are well-positioned to play this role. Their coordination role among the various state departments gives them access to the consolidated picture of the state government’s priorities and the state’s finances. It is of course worth looking at the very design of the state planning board and consider, say, moving them to the finance department, if that will facilitate their functioning.

States are stuck in a rut – their ability to plan and execute schemes is limited. With the GoI accepting the Fourteenth Finance Commission recommendations, states are going to have to manage $29 billion in untied funds. Perhaps a big push is what is required to develop planning capacity?

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