The Thirteenth Finance Commission's innovative recommendations could act as a catalyst to ensure better outcomes from public expenditure.
What explains the relatively scant media attention paid to the report of Thirteenth Finance Commission (ThFC) earlier this year? The superstitiously-inclined might be tempted to blame it on the number 13! Others, to just bad timing!
Remember, the report was placed in Parliament the same day as the Economic Survey and just a day before Budget 2010-11. Inevitably, it had to share its moment in the sun with the Survey and was subsequently eclipsed, first by the Budget and then by a series of more headline-hogging developments, from rising inflation to now, the IPL scam.
Whatever the reason the outcome is unfortunate. First, because the recommendations of a constitutional body entrusted with addressing vertical (between the Centre and states) and horizontal (between states) inequities in revenue-sharing in a federal structure have a wide import and must be debated.
And second because the FC has made a number of novel suggestions that could impact our lives as individuals far more directly than the minutiae of complex tax-devolution formulae.
The credit for this does not go to the commission alone. It is the result of an additional responsibility entrusted on the Th FC and incorporated in its terms of reference: to suggest ways of improving the quality of public expenditure to obtain better outputs and outcomes.
Faced with such an open-ended and vast mandate the ThFC has zeroed in on five broad areas that it regards as critical to better outcomes — better targeting of subsidies, improvement in the infant mortality rate, better statistics, better delivery of justice, police reform and encouraging innovation.
In each of these areas the commission has tried to nudge states in the desired direction by offering the only carrot FCs have at their disposal: incentives in the form of grants.
Take for instance the Rs 2,989 crore grant to state governments to encourage them to enrol beneficiaries of public welfare schemes like the National Rural Employment Guarantee Scheme (NREGS) and PDS within the UID (Unique Identification) programme.
The grant is meant to finance a payment of Rs 100 per head to incentivise citizens below the poverty line register for the UID.
Similarly, a grant of Rs 5,000 crore has been made to reduce the infant mortality rate. The amount is to be shared between states based upon a formula that has two components: a first that rewards improvement in the mortality rate and a second that provides a premium if such change is made above the median value of the mortality rate for all states.
The third component, a Rs 5,000 crore grant, addresses a critical aspect of any initiative that is meant to ensure better outputs and outcomes: improve the delivery of justice.
Given the huge backlog of over three crore cases pending in various courts in the country today, the ThFC has earmarked grants for improving quality of legal infrastructure — increasing the number of court working hours using the existing infrastructure by holding morning/evening/shift courts, enhancing support to Lok Adalats to reduce the pressure on regular courts and to State Legal Services Authorities to enable them to enhance legal aid to the marginalised and empower them to access justice, promote the alternate dispute resolution (ADR) route to resolve part of the disputes outside the court system, enhance capacity of judicial officers and public prosecutors through training programmes and support creation of a judicial academy in every state to facilitate such training.
A small grant has been made for holding 10 mega Lok Adalats per high court and about five Lok Adalats for each of the 1,500 court locations per year.
Additionally a grant of Rs 200 crore has been made to strengthen the National Legal Services Authority (NALSA) and State Legal Services Authorities (SALSAs) set up with the aim of ensuring access of the poor and marginalised to the justice system. Training of police personnel, a longneglected area, has also been given a legup through state-specific grants.
One of the biggest puzzles in the India growth story is the limited success we’ve had in scaling up individual success stories, whether it is the Amul story in the context of milk production or the successful water-harvesting scheme that has turned Alwar from a dry, arid land to a lush green one.
So in a bid to foster simple low-cost innovations that could provide better alternatives, reduce costs and improve service delivery, the commission has set aside some money (Rs 20 crore) for a Centre for Innovations in Public Systems in Hyderabad.
Another grant of Rs 1 crore has been allocated to each district to set up a District Innovation Fund (DIF) at the district level aimed at making cutting edge levels of governance responsive to felt needs and innovations.
Lack of reliable data has long been our weak spot. How many Indians have incomes below the poverty line? What is the output of fruits and vegetables? What is size of the services sector?
We simply do not know. Successive governments have been batting in the dark and in the absence of such basic information it is not surprising the best of development policies fails to make much impact.
The first step, therefore, is to beef up our statistical machinery, especially at the grassroots’ level.
The commission has zeroed in on two specific initiatives to do this at the state and district level; at least 75% of the grant is to be utilised for strengthening statistical infrastructure at the district level.
The report is dot on when it says, ‘The citizens’ primary interface is with the state and local governments.’ Hence it is necessary to improve these interfaces if service is to improve.
Sadly, with the exception of a few states where service delivery is tolerable, public expenditure has generally been marked by poor outcomes.
Given the magnitude of our problems, grants from the ThFC will make a difference only at the margin. But such grants are a signal to states that if they are willing to redirect their energies in certain desired directions, they will find support from the FC. They are a signal future FCs can build upon as well.
And, with some luck, could translate into better every day lives for ordinary citizens. If and when that happens, we’ll owe a small debt of gratitude to the ThFC.
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