The Union Budget 2017 has heralded the end of Plan and Non-Plan distinction in expenditure, which was in existence since the 1950s. More than a mere change in budget accounting, it has brought about a major change in mode of disbursement of grants to the States by the Centre. Till now, States used to get Normal and Extra Central Assistance. The State Plan size was to be approved annually by the Centre and limits for market borrowing were fixed. With the NITI Ayog in place, this flow of funds from the Centre to the States will not be available in future. The only route for disbursement of grants by the Centre to the States will be in the form of share of assistance for Centrally Sponsored Schemes (CSS).
The States will of course continue to get the Constitutionally mandated tax share and grants as recommended by the Finance Commissions. When the planning process was in place, grants by way of Normal Central Assistance to the States was formula based. The criteria like Population, Special Problems, Per Capita Income etc., were part of what was known as Modified Gadgil formula. With this becoming history, States have lost an important source of non-discretionary formula based grants. Now, they are left with only scheme based assistance, which is mainly through CSS. States, including Kerala, which still persist with the planning process, need to think very seriously about this.
In a federal setup the Centre and States are equal partners in achieving nationally important goals in social and economic sectors. But in India, States are at different levels of development and regional imbalances are glaring. CSSs have rigid criteria fixed at the Central level. Their ‘One Size Fits All” is ill suited in the present Indian circumstances. Kerala, which is considered a high achiever in social sector is worst affected by this approach. But certain changes have now been made to introduce flexibility in CSS. Presently, Kerala faces the fiscal trilemma of a) revenue receipts being inadequate to cover even routine revenue expenditure, leaving little for any new scheme, b) limited scope for borrowing as deficit levels are high and c) losing the important source of Plan grants hitherto available through a formula based system.
If information available is correct, there is no standard formula for distributing Central share of assistance in CSS, horizontally across the States. The States will have to submit proposals and pursue them with the concerned Central Ministry. In this competition for limited funds, Kerala will have to put forth its case effectively, lest it should be treated as a high per capita income and high achiever in Human Devel- opment Index and not considered for Central assistance. We have to clearly point out the pockets of deprivation, though our per capita income, which is an average, is higher than the all India level. It is an undeniable fact that despite being a literate and aware society, our administrative machinery is not agile and is far from having adopted best practices of management. This is evident from the low level of utilisation of funds allotted for plans and projects.
There is a collectively lackadaisical approach. There needs to be a serious introspection, which has to be translated into a mission mode approach for administrative action. Keeping sharp political differences in the realm of debates, a professional approach to preparation of proposals and bargaining for Central funds is to be adopted. Our social sector achievements are already getting blurred by the isolation at the margins and the State is fiscally hamstrung to tackle this on its own. The changed scenario after Union Budget 2017 is much beyond mere budget accounting and it calls for a thoroughly professional approach in bargaining for scheme based assistance by Kerala. Our Achilles heel is the implementation part and it needs to be remedied, in the face of the fiscal trilemma, which is likely to continue to stare at us.
– Writer is former I-T Commissioner
