Challenges the Govt. of India's lack of accountability in fiscal governance and transfer of financial assistance to states

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Governance by Idolatry
Shantanu Basu
George Bernard Shaw observed that “The art of government is the organization of
idolatry. The bureaucracy consists of functionaries; the aristocracy, of idols; the democracy,
of idolaters. The populace cannot understand the bureaucracy: it can only worship the
national idols.” Rule by idols deriving extra legitimacy from media bytes, subterfuge and
obfuscation are the hallmarks of Prime Minister Modi’s government. A brief illustrative
discussion on the financial (mis)management front would aid closer popular appreciation or
otherwise of the present government’s financial administrators and their political honchos.
Prime Minister Modi’s government recently accepted the 14th Finance Commission’s
(FC) recommendation of a 10% hike in transfers of central assistance to states. Reportedly,
such enhanced transfers will translate to an additional transfer of Rs. 1.78 lakh crore in 2015-
16 over the 13th FC. The states’ share of central taxes in the 12th FC period was Rs. 6.13 lakh
crore while that of the 13th FC period was Rs. 13.11 lakh crore, a rise of 113% during the
UPA government’s tenure. An across-the board 10% hike in states’ share of central taxes
would add a paltry Rs. 14,481 crore to states’ kitties in 2015-16. This is the only element of
central assistance whose utilization the Centre cannot dictate to states. Unfortunately, 60-70%
of this share is expended by states on non-Plan expenditure for salaries, pensions, state
loan/interest repayments, etc. without much attendant gain on the development front.
Moreover, additional Central assistance to states in the 12th FC period was Rs. 1.43
lakh crore while the 13th FC granted Rs. 2.59 lakh crore, a hike of 81%. A 10% hike in total
transfers over the 13th FC award would therefore have implied a raise of around Rs. 1.71
lakh, close to the greatly publicized figure of Rs. 1.78 lakh crore. States had demanded a raise
to 50%, against which the 14th FC granted 42%. So what is this grand media brouhaha all
about?
Against this, Mr. Modi’s government slashed additional developmental financial
assistance to India’s states by as much as Rs. 1.34 lakh crore from BE 2014-15 to BE 2015-
16 by transferring a horde of development schemes, without funding, to the states. This is
borne out by the Govt. of India’s Expenditure budget 2015-16 that pegs central assistance to
states at Rs. 2.05 lakh crore against Rs. 3.38 lakh crore in BE 2014-15, i.e. a decline of about
40% in absolute terms. If inflation at an average of 12% compounded per annum were
factored in 2010-15, the states ought to have been allowed a hike in gross transfers from the
Centre by around 65% or Rs. 28 lakh crore. Applied to 2015-16, states would have over 40%
less to spend on development. Why then are imperial-sized projections of illusory
magnanimity being made by Govt. of India’s spokespersons?
How will the Govt. of India bridge this development gap? The Receipt Budget 2015-
16 of the Govt. of India projects income from dividends and profits of Rs. 1.25 lakh crore,
Rs. 43,000 crore from telecom spectrum sales and estimated Rs. One lakh crore of surrenders
on capital development account in 2014-15 (that will add back to the Govt. of India’s cash

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balance with RBI and wipe out the revenue deficit). Now let us add around Rs. 24,000 crore
obtained from disinvesting part of Govt. of India holdings in 14 Navratna and mini-Navratna
PSUs in 2014-15 and a conservative Rs. 6,000 crore from prorated (over 30 year lease
period) fees from recent coal mine auctions (till March, 2015) and derive a total of about Rs.
3 lakh crore of assured income in 2014-15 that can be used in 2015-16 and beyond and which
is well within the Rs. 2.60 lakh crore BE 2015-16 limit of budgetary assistance for the
Central Plan. The Govt. of India also projects only around Rs. 7,000 crore as disinvestment
target in 2015-16 in Navratna/mini-Navratna enterprises, receipts of which has no
principal/interest liability attached to it. However, are Rs. 3.18 lakh crore via this route, by
the Govt. of India’s Plan Outlay Budget 2015-16 projections, even remotely probable, given
huge slippages in past disinvestment schedules and modest divestment target for 2015-16 and
inefficient productions by PSUs like Coal India? Or is this too part of a larger idolatry
campaign?
Moreover, the Govt. of India benefited from declining oil prices in 2014-15 and
pocketed central excise revenue collections of Rs. 21,400 crore in 2014-15. CRISIL estimates
that the extra revenue generated on account of excise duty hikes on petrol and diesel would
be Rs 7,800 crore and savings in petroleum subsidies another Rs 2,670 crore. Together, the
headroom created may be Rs 10,470 crore or close to 0.74% of GDP in 2014-15 for carry
over to 2015-16. In fine, the Govt. of India would have about Rs. 3.30 lakh available to it for
developmental purposes in 2015-16. Why not share 50% of these with states where all
governance, save foreign affairs, national defence and currency, is delivered? Would this not
be in keeping with PM Modi’s hyped principle of cooperative federalism?
Now, let us turn to Govt. of India’s development schemes for 2015-16. A terminally-
ill Air India gets Rs. 2500 crore, there is no mention of smart villages, instead smart cities,
renewable energy remains slave to the national grid instead of off-grid solutions, and even
includes caste-based solutions (when energy needs are not caste-specific), et al. SAIL,
NMDC, RINL, KIOCL, MOIL, still need budgetary support of Rs. 13,000 crore, many
Navratnas, for their expansion plans. Sick PSUs in heavy industry and fertilizers are allotted
Rs. 161 crore to survive, a bureaucratic CSIR is allotted Rs. 2,241 crore, Rs. 495 crore to
mostly moribund commodity boards, Rs. 9,555 crore for recapitalizing PSBs even when no
recovery action from five-star defaulters is forthcoming, a scandalous Nalanda University, a
mega pilfer-prone Mid-day Meal scheme for schoolkids and schemes for women, Rs. 3,905
crore for a redundant UGC, indeed the list is endless. Further, schemes such as Swachh
Bharat Abhiyan (Rs. 3,625 crore), rural housing (Rs. 10,025 crore) are entirely dependent on
states for its implementation, caste (Rs. 6,467 crore), and religion-based (Rs. 3,713 crore)
welfare schemes, here too the list is endless. In any case, all these fancy figures will remain
slave to a chronic, yet mostly unexplained, resource crunch. What has radically changed in
the essence of age-old development schemes that warrant giant media bytes? Obviously, the
nearly seven-decade emphasis on populism retains its intrinsic value in perpetuating idolatry.
PM Modi’s government suffers from utter lack of transparency in the sources and
application of sale proceeds of national resources, myopia from glib renaming of age-old
schemes to give a showroom-fresh impression, short sightedness evident from shying away

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from hard decisions like winding up sick PSUs, perpetuation of caste and religion-based
welfare schemes, for turning a blind eye to mega pilferage in welfare schemes and not
devising workable monitoring and performance systems to check such malpractices, denying
of private fundamental research efforts, pursuing prospective white elephants like the
Nalanda University, denying fundamental needs like off-grid alternative energy in rural
areas, and, above all, denying states their rightful share of the means of delivering
governance.
The more Mr. Modi’s government tries to change, it remains the same. While he
indulges in animated viewpoints on cooperative federalism, this is only part of a never-ending
idolatrous election campaign even as his electors await much-promised succour; evidently,
the campaign for Election 2014 is still on! On-the-ground status quo then continues to
negatively feed upon governance as it encourages all-round mediocrity and the fullest
inappropriateness and frigidity in appointments at topmost bureaucratic and political levels,
notwithstanding high decibel official proclamations to the contrary.
The people of India voted for change, they demanded change, and still do. General
Elections 2019 are only four years away, and Indian electors are not beguiled by lofty
demagoguery for exits from the rough and tumble of daily life. Biblical worship of idols is
ephemeral as is the worship of idolaters; only demonstrated willingness to change is eternal.
There is much to be said about the negativism that marks the current ennui in financial
administration of this nation by amateurs and pretenders, but let that be the purpose of
another article. As there are idols and idolaters, there are idol breakers in electors too, a
remembrance that has its own immeasurable AWACS value. So beware! Forewarned is
forearmed!!
The author is a senior public finance analyst