Stemming the rot of profligacy

According to the findings of the World Bank’s ‘social protection for a changing India’ report, only 40 per cent of the poor benefit from the safety net provided by governments while the funds meant for the other 60 per cent are waylaid. The margin of error, not being negligible, points to vast leakages and structural inefficiencies in delivery mechanisms.

It turns out that our public distribution system (PDS) that accounts for 1 per cent of the GDP leaks or diverts almost 60 per cent of the foodgrains meant for the poor. Even flagship plans for the common man such as the MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) have not been above board as the process of selection has raised questions. Crores of rupees waived in terms of farm loans have actually helped rich landlords already flush with untaxed agricultural income.

Who is responsible for the leakage? Corruption is surely an issue, besides the lackadaisical approach of some states to ensure better fund utilisation and more effective implementation of projects. For this unconscionable margin of error, India is home to a third of the world’s malnourished children under the age of five, and ranks below China and Pakistan in the International Food Policy Research Institute’s global hunger index.

Criminal offence

Wasteful government expenditure is not a phenomenon unique to India or to developing countries, but for India, where a considerable section of its population lives outside any modicum of social security, any systemic leakage amounts to a criminal offence.

Rajiv Gandhi was surely not off the mark when he famously remarked in 1985 that for every one rupee spent on poverty alleviation programmes in India only 15 paise reached the intended beneficiary. While the much-quoted observation has become a cliché, it is surprising why, 26 years down the line, little has been done to plug the loopholes.

Montek Singh Ahluwalia, deputy chairman to the Planning Commission, for instance, admits to the vast scale of omission in allocating the poverty eradication funds. He pointed to inter-regional inequalities, to a situation where in a state like Maharashtra which was doing reasonably well on the over-all social development index, Marathwada or the drier regions were lagging.

Evening out allocations for development and sprucing up local bodies with monitoring agencies could be an answer to the problem of inter-regional inequalities. In terms of social security, the rural poor has so far been prioritised over the urban poor. States must be held to account for non-performance that leads to poor utilisation of funds. It is also open to scrutiny why states with higher poverty that are allocated more funds, have the lowest capacity to spend effectively.

Perhaps as long as our poverty figures are fuzzy, we cannot distinguish the leftouts from the beneficiaries and the fake from the deserving. India spends over two per cent of GDP on core safety net programmes much of which get siphoned off, because of which the reduction in poverty and improvement in livelihoods of the vulnerable have not reached full potential.

The loss of government spending to waste, fraud or abuse is unsustainable more because India has a generation-long backlog of infrastructure to build mass transport, urban housing, power generation, pollution control, waste treatment and water systems. Besides, India’s greatest fiscal challenge has been the mass subsidisation of public investment in areas like electricity and fertilisers.

Some commentators attribute India’s double-digit inflation to wasteful expenditure as the Centre’s annual expenditure stands nearly 50 per cent higher than revenue. In one account, cutting wasteful subsidies, routinely appropriated by middlemen, out of a total subsidy bill of Rs 1.16 lakh crore the government could save as much as Rs 45,000 crore.

If the government runs large budget deficit, then it crowds out efficient private expenditure with wasteful government ones, creates inflation, and leaves the future generation with a higher tax burden. As has been envisaged in the presentation of the 2011-12 budget, India’s standing on the debt front is poor but its general fiscal deficit of 9.8 per cent in 2010 is almost twice that of emerging economies.

The problem with subsidies is that they are not well-targeted. Besides, any talk of reducing subsidies is politically explosive. But it is important to put a cap on overspending to an extreme degree and at unacceptable levels like on unrestrained subsidies both overt (through the budget) and implicit. It is imperative as well to cut down on unproductive costs and raise expenditure on productive assets. Surely, our social security system cannot be allowed to rot in the hands of fraudsters.