Erroneous Expenditure

M Y Tarigami, one of the better informed legislators, has got the state government to admit that Rs 1,150 crore which was supposed to be spent under various Centrally Sponsored Schemes for the yea...

M Y Tarigami, one of the better informed legislators, has got the state government to admit that Rs 1,150 crore which was supposed to be spent under various Centrally Sponsored Schemes for the year 2012-13 has remained unspent.
He, it seems, was astonished as to how despite the availability of money, the government is unable to spend development funds. But this is not even the tip of the iceberg!
 The expenditure mismanagement by the government is an all pervasive phenomena that calls into question the entire planning and development framework. 
Every year, after exercising considerable political prowess and administrative energy in getting a large plan size approved and financed by the Planning Commission, no one seems to be focusing on how these funds are being utilized on the ground.
The current fiscal, 2013-14 is a classic example. After being dismayed by the "small" plan size of Rs 7,300 crores, all that the government has managed to spend till September this year, is just about 15 per cent of the plan!
In the first six months of the current financial year, state government has managed to spend just about Rs 1,000 crores out of a total of Rs 7,300 crore. This is a shocking state of affairs. 
Equally amazing is the flip side to this.  In the remaining six months, from October 2013 to March 2014, the state government will spend Rs 6,300 crores! That is 85 per cent of the plan.
If this doesn't look absurd enough, factor in the fact that out of these six months, four happen to be winter months. As such, these are not the "working season" in a major part of the state; i.e Kashmir Valley and Ladakh.
With two thirds of the state economy not amenable for development works for the four out of these six months, what is the efficacy of spending Rs 6300 crores? 
How will they achieve this feat? To get a sense of this, the last two years are a great indicator. 
In 2011-12, the total plan expenditure was Rs 6,600 crores. Of this, only 6 per cent was spent in the first quarter, 16 per cent in the second quarter, and 21 per cent in the third quarter. And, now hold your breath, a staggering 62 per cent of the total plan was spent in the last quarter, i.e January to March of 2012.
In the last three months of winter, and technically not the "working season" in Kashmir and Ladakh, the state government actually spent more than Rs 4,000 crore.
It gets even better. In the last month i.e March 2012, a staggering 40 per cent of the total expenditure was incurred. So, in March alone, more than Rs 2,500 crores of plan money was disbursed.
The year 2012-13 was no better. In the six months, just over 15 per cent of the total plan was spent. In the last quarter, 43 per cent of the plan with nearly Rs 2,000 crores plan expenditure being defrayed in month of March.
It is through this bizarre money madness in March that the state government boasts of meeting the 100 plus plan utilization. Indeed, in the presentation to the Planning Commission this was a key highlight and achievement!
From this data it is obvious that the paradox of developmental spending by the state government is that it is the lowest in the working season and highest in the "non-working" season!
It may be argued that the bunching of expenditure is more of a payment problem than the actual execution of work. While this may be true in part, it doesn't explain the paradoxical spending pattern.
The implications of this bunching of government plan expenditure are wide ranging: from the macro-economic to the social. 
First, the operational implications of bunching payments are very serious in terms of the private entrepreneurs and government contractors in the state.
To the extent that these are year-end bunched payments, it amounts to private financing of the state plan! This may be a very unique contribution of J&K to the planning process!
With contractors and institutions who are executing the plan works not paid till the end of the year, they debt finance these works. This is bound to cut into their margins making government contracts un-remunerative. To protect their margins and make it remunerative, the quality is compromised and with that the implementation of the plan project comes into question.
Second, the economic implication, in terms of growth impulses of autonomous investment in public works, which drives economic growth gets considerably weakened. The money doesn't get enough time to circulate and create absorptive capacities in the system.
Further, the growth impulses that a sustained spend over the years can generate is far more disaggregated than a bunched payment at the end of the year. It also distorts the "intra-year" investment and growth relationship.
The economic activities the planners wish to influence are year-round activities and cannot wait till the last month of the year. And that too in a highly seasonal economy with a limited working season.
Third, is the institutional process. Is there adequate institutional capacity to process this kind of expenditure in one month? It is highly unlikely that all the requirements mandated to be met in the process of sending are met. From this it follows that this bunching facilitates and indeed, encourages leakages, a euphemism for corruption.
Finally, the implication in terms of geographical distribution. The mismatch of plan funds release and working season has in the past resulted in reallocation of plan funds towards the Jammu region where the working season is longer.
So while in the plan allocation, there is seemingly a fair distribution across different parts of the state, it may well turn out that in terms of actual utilization it is fairly skewed. This can causes inter regional economic disparities and political tensions.
 With this the futility of the plan exercise comes a full circle. It starts with the size that bears less relation to the absorptive capacity of the economy and more to the political ego. It is approved with major funding gaps, and is disbursed in the last quarter and that too when the working season is well past! How, then, do you expect to see the fruits of development spending! 

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