Public Spending Council: RSTV - Big Picture

Public Spending Council RSTV –Download PDF Here

Rajya Sabha TV programs like ‘The Big Picture’, ‘In Depth’ and ‘India’s World’ are informative programs that are important for UPSC preparation. In this article, you can read about the discussions held in the ‘Big Picture’ episode on “Public Spending Council” for the IAS exam.

Guests: A. K. Bhattacharya, Editorial Director, Business Standard;

              Sushil Chandra Tripathi, Former Principal Secretary, Finance, Uttar Pradesh;

              Surendra Nath Tripathi, Director, Indian Institute of Public Administration.

Anchor: Frank Rausan Pereira.

Context:

Prime Minister Narendra Modi and the Chairman of the Economic Advisory Council Bibek Debroy have expressed that the government needs to form a Public Spending Council similar to the GST Council to strategize public expenditure and to ensure maximum impact out of it.

Need for a Public Spending Council:

• The Indian economy is facing a slowdown which has resulted in the declining of economic activity in the last few months.
• There exists discontent among states over the manner in which centre is distributing money to the states under Central Sector Schemes as well as Centrally Sponsored Schemes.
• Fiscal consolidation measures tend to reduce public expenditure.
• But there needs to be a more strategic and focused decision making body that would make the expenditure of central and state governments more efficient and prompt.
• Former Finance Minister Arun Jaitley had mooted the idea of a Public Spending Council.
• States always have scarcity of resources to meet various objectives.
• Resource gap and development requirements varies from state to state.
• It is required to prioritise Centrally Sponsored Projects, Central Sector Projects, Planned Projects and maintenance of planned and non-planned assets based on objectives and resource availability.
• Before the 15^th Finance Commission comes up with its recommendations (which will be effective from April, 2020), the centre and the states need to prepare a smoother and efficient spending mechanism.
• 12^th five year plan ended in 2017 but many of the schemes still continue.
• By March, 2020, many of the schemes, which were started under the NITI Aayog regime, will reach their finishing point set by sunset clauses.
• The schemes may continue even after 2020, but without any financial allocation.
• Issues related to agriculture development, agriculture crisis, education, rural development, urbanisation, drinking water, etc. are not specific to a particular region but common to all Indian states.
• Common problems require a common decision making
• Central schemes like Sagarmala, Bharatmala, Pradhan Mantri Gram Sadak Yojana, etc. have good track record in settling major issues and prompt decision making.
• Recently mooted Jal Jeevan Mission will also operate in similar lines.

History of Public Expenditure Management in India:

• Planning Commission:
• Earlier, this activity was coordinated to an extent by the Planning Commission (PC).
• PC members used to visit state capitals to meet state government representatives.
• PC used to represent the interest of the states by inviting state Chief Ministers to Delhi and then negotiating with the Finance Ministry on expenditure and its efficiency.
• But, once resources are allocated to the states, they were allowed to spend according to their own priorities.
• NITI Aayog:
• Since the introduction of NITI Aayog, the role played by Planning Commission in terms of public expenditure is appropriated by the Expenditure Finance Committee of the Finance Ministry.
• NITI Aayog undertakes occasional visits to state capitals but never succeeded in substituting the PC to the extent of negotiating on behalf of the states with the Finance Ministry.
• Centre has also abolished the distinction between plan and non-plan expenditure.
• Right now, there are around 300 Central Sector Schemes and 30 Centrally Sponsored Schemes.

Working of the Proposed Council:

• A ‘centre led and states participated’ Public Spending Council (an Expenditure Commission) has to provide directives and lay down priorities related to the expenditure of both centre and states.
• Only such areas which have a national priority and wider connotations need to be considered. Ex.: education, agriculture, health, etc. (and not Panchayatiraj, law and order)
• The council may consist of the Finance Minister as its chairman and Chief Ministers of states and representatives of U.Ts as members.
• Voting pattern in the council can be based on ‘one state-one vote’ or based on share of GDP.
• Since the GST council voting pattern is more advantageous to the centre, a new pattern of voting can be considered, wherein the states have more advantages and the centre can’t run away with the ball.
• However, if the principle of cooperative federalism need to be followed, the council need to be modelled on GST council.
• Otherwise it will take us back to the Planning Commission era wherein the Chief Ministers of states used to complain about being exceedingly guided by the centre.
• The council will not decide on specific projects under different schemes but larger questions like connectivity of all villages above 500 population will be addressed.
• It will decide on the overall requirement of funds
• Nitty-gritties and day to day matters can be taken care of in the state level.
• The council may also accommodate for further allocation of funds from central government, RBI, external assistance or institutional finance.
• The proposed council need to focus more on subjects in the concurrent list and leave aside other areas.

Advantages of the Proposed Council:

• It will bring in need based allocation of resources in a more efficient, extensive and fast
• It will help achieve the common goal of holistic development while considering the differentiated needs of different states at the same time.

Criticisms against the Proposed Council:

• Nature of expenditure is not similar to that of raising revenue. Hence a GST council like body will not be appropriate.
• Expenditure is an everyday affair and needs everyday management.
• There will be ground level problems associated with land acquisition, delays in projects, inability to formulate a proper scheme, etc.
• It involves minute details of the expenditure.
• Everything can’t be decided from meetings held in the National capital.
• It will be difficult for a single body to handle entire budget expenditures of central and state governments.
• Centre and state governments may not agree on every issues related with expenditure, especially in a democracy like India.
• But the track record of GST council demonstrates that there won’t be any disputes on major issues.
• When it comes to expenditure, every minister of a state need to be a member of the council which will make it huge. There will be around 500 members in the council.
• GST Council is comparatively small, because one minister each is represented from every state.
• Much more time will be required for discussion of a large number of schemes and projects.

GST Council like Body?

• The Constitution was amended to bring in the GST council and around 17 taxes were merged into a single tax.
• GST Council is a federal body where all the states and centre are represented almost on the same table.
• Even though there were apprehension about agreement between the centre and states, decisions on even contentious issues have been made with consensus and swiftness.
• Enhancement or reduction of taxes in different sectors were decided after the states were consulted in political and administrative process.
• It accommodates the views of other stakeholders as well.
• The model can be replicated for the proposed Public Spending Council.
• Disadvantages:
• According to the voting pattern in the GST council, at least 18-19 states are required to be united to veto a proposal from the centre.
• 99% of its meetings are held in Delhi. It is acceptable for discussing fiscal matters, but the decisions on expenditure in a particular state need to be taken at meetings on state capitals. True efficiency can be achieved through a decentralised approach.
• It also took about 15 years to get all the states to agree on GST.

Will it harm the Federal Ethos?

• Constitution of India is essentially federal in nature and spirit.
• But, it is not like the U.S system where the states came into being first and then formed a union.
• In India, centre has overriding powers over states in many matters. Ex.: Under Article-3, centre can create and abrogate states or make them U.Ts.
• The legislative, administrative and financial relations between the centre and states has been provided in the Constitution.
• In the areas where states have jurisdiction, they will carry out the expenditure.
• Each and every areas of public expenditure are not found on the concurrent list of the Constitution.
• State governments may not easily give up their powers in deciding expenditure on state subjects.

Alternatives:

• Specific ministry wise councils can be introduced where ministries formulate schemes after having consultations with the state governments.
• Scope of the consultation and whether to include all the states are to be decided by the ministry itself.
• It will facilitate discussion of minute details and optimisation of resource utilisation in tandem with the state government schemes.
• The schemes can be different for different states depending on their conditions and requirements while meeting the broader national objective at the same time.
• Instead of a one-time meeting, the council may conduct separate meetings with each states or with 3 or 5 contiguous states
• NITI Aayog may also take up the additional function of acting as a platform for public expenditure decision making.
• A two tier system may be devised:

Tier 1: Finance Minister and NITI Aayog together sitting with the Chief Ministers and State Finance Ministers, for giving the overall priorities and taking views of the states on whether all the central schemes  are required in equal measure in each and every state. Some states want to curtail some schemes and take up some other. Ex.: Sarva Siksha Abhiyan was not encouraged by Kerala because schools were closing down due to lack of children. What is required by Kerala may not be required by Bihar and vice versa.

Tier 2: In Ministry level meetings, details of the schemes can be discussed which can’t be discussed at Chief Minister level meetings.

Conclusion:

The proposed council must bear in mind that expenditure for a scheme must consider the ground realities and the requirements of the state. The proposals and decisions must be pushed with an approach of consensus only.

Also, See:

Read previous RSTV articles here.