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CHAPTER 5

PLANNING AND IMPLEMENTATION ISSUES

5.1 The experience of planning at the State levelover the last five decades seems to indicate that if we are to remove bottlenecks to progress, we haveto step up growth rates and also ensure that thebenefits of development are shared by all, inaddition, qualitative aspects need to be paid at least

as much, if not more, attention than the quantitativeaspects of planning. The Approach Paper to theTenth Plan had signalled that in order to achieve itsStated objectives, the Plan had to be a reform plan,and not a resources plan as before.

5.2 The issue of governance has beenseparately discussed at a much broader level inVolume I of this document. The Mid-term Appraisalhas however drawn attention to a number of governance-related findings that have relevance atthe State level as well. Carrying this analysis further,therefore, the first section of this chapter takes alook at the perspective of governance at the Statelevel, and proposes an agenda for reforms in thisarea in the Tenth Plan.

5.3 The second part of the chapter looks at moretechnical issues and concerns that have graduallyemerged over the years in the process of Planimplementation. While they may seem to berelatively minor by themselves, many of theseconcerns are tending to distort and undermine theprocess of State level planning itself, and thereforeneed to be flagged and suitably addressed duringthe Tenth Plan.

A STATE LEVEL GOVERNANCE PERSPECTIVE

Background : The Mid Term Appraisal

5.4 Since the beginning of planned developmentin India, both Central and State Governments havebeen implementing several programmes for

eradication of poverty. However, it has been theexperience of development planning since

Independence that availability of funds by itself isnot sufficient for tackling the problem of poverty.With liberalisation, there is an ongoing paradigmshift at the State level, with the Governmentincreasingly playing the role of a facilitator rather than a direct provider. At the same time, more

effective public intervention only can address thechallenges of poverty alleviation. In this, theexperience is essentially that better governance andimplementation of programmes within a pro-poor policy framework is needed for effective results onthe ground.

5.5. Many examples of anti-poor laws andpolicies are discussed in the Mid-term Appraisal(MTA) of the Ninth Plan, especially in chapters onSC/ST, forestry and decentralisation. The examplesdiscussed therein show that a large number of policies and rules act against the interests of thepoor. There is a need for putting pro-poor policiesin place. A beginning can be made by reviewing thepolicies outlined in the MTA, and sensitising publicopinion with a view to getting them modified suitablywithin the first two years of the Tenth Plan.

5.6. In the international context, goodgovernance is often interpreted from a purelybusiness point of view to mean policies that willattract foreign capital, such as effective rule of law,enforcement of contracts, protection of propertyrights, and reduction of uncertainties about decision-making by national Governments. In the context of development in a less developed country, goodgovernance may be defined as the capacity of theGovernment to manage resources efficiently andformulate, implement, and enforce such policies andschemes that are in the interest of the poor andfacilitate development.

5.7. However, good governance is not automatic.

In the scarcity-ridden context of development in apoor society, the executive (both political and

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bureaucratic) may amass large monopolistic anddiscretionary powers for the apportioning of resources. This may result in a rent seekingbehaviour. With a view to preventing rent seeking,more rules and regulations may be prescribed,which may further result in delays, inefficiencies andcorruption. Thus a vicious circle is set up, with non-compliance of rules leading to more rules andending up in a situation where individuals inGovernment, whether from the legislature or executive, may, with the best of intentions findthemselves helpless in changing the system, andultimately find it more convenient to join the systemrather than fight it. Another tendency for anyGovernment is to evolve a culture in which rules of decision-making or transaction are not easilyamenable to scrutiny by the general public or theintended beneficiaries. Not only are the decisionsdifficult to be examined, they are also likely to bechallenged or reversed, except by appeal to themunificence of the same executive which took themin the first place (thereby enlarging the ambit of power of the executive).

5.8. Independent studies suggest that corruptionand poor governance lead to lower growth and

investment. The South Asia Human DevelopmentReport also makes the point that low humandevelopment makes it easier for poor governancepractices to survive, leading to a vicious circle. Thus,good governance and accelerated humandevelopment are inextricably linked and indeed,governance forms the bedrock on which gains inhuman development can be rapidly achieved.

Delivery of Programme Benefits

5.9. Successful implementation of developmentprogrammes requires adequate funds, appropriatepolicy framework, and effective delivery machinery.Past experiences suggest that availability of fundsalone may be a necessary but not a sufficientcondition for tackling the problems of poverty andbackwardness. The determining factor seems to bethe capability of the funding Governments or Ministries to formulate viable schemes, and thedelivery system to optimally utilise funds andachieve sustainable growth.

5.10. There is now substantial evidence, whichcorroborates experiential evidence, that even

though there are variations, basic public servicesand programmes (such as those meant for the poor and the weaker sections) function relativelyinefficiently in poorer and badly performing States.This is due to lack of motivation, accountability,absence of performance appraisal, absence of asystem of incentives and penalties, understaffingand poor working conditions on the one hand, andlarge-scale leakages on the other.

5.11. This seems to be the case particularly for the numerous rural development programmeswhere studies suggest that the leakage isestimated to be between 20 and 70 per cent! Theweak track record of implementation of theseprogrammes and failure to deliver intended benefitsto the poor have been documented in variousreports and studies including the reports of theComptroller and Auditor General and surveys byinternational agencies and other independentbodies.

5.12. The implementation of developmentprogrammes by the State Governments must bemore effective. Close monitoring can be organisedin selected areas such as implementation of

schemes relating to primary health, primaryeducation, watershed development, empowermentof the local people to discharge their responsibilitieseffectively at the local level, as evidenced by theimplementation of poverty alleviation programmesetc. The monitoring can be done on the basis of questionnaires designed by selected publicinstitutions in consultation with the PlanningCommission.

5.13. One way of doing so may be through aprocess of sampling, wherein randomly selectedvillages can be identified in every State for impactstudies and obtaining progress reports in thesesectors. These studies may be carried out either by academic institutes, consultants approved by thePlanning Commission or by the ProgrammeEvaluation Organisation of the Commissionwherever possible. Incentives for improvingimplementation should be built into the criterion for the allocation of additional funds to the States insuch a manner that the States which demonstrablyperform better be entitled to more developmentassistance as compared to the States which do notimplement these programmes effectively.

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Agenda for Governance Reform

5.14. Governance reform thus needs to be at thecenter-stage of development planning, since withoutgood governance and programme implementation,much of the vast quantum of resources being spentfor development is wasted. It should be so designedas to bring about improved transparency, greater accountability, and streamlining of the structure of Government.

5.15. Improved transparency should have the resultof improving the flow of information to the generalpublic on the modes of decision-making, and hencelead to less arbitrariness, as decisions come under closer public scrutiny. Greater accountability impliesthat the decision-making (and implementing)executive is answerable for the course of action thatit pursues. Since answerability is in any case implicitin the existing process, reforms should aim atimproved accountability, which means that adverseresults associated with wrong actions are quicklycorrected and are not easily repeated. Similarly,changes in the structure and role of the Governmentare needed, involving a review of its role andfunctions, allowing it to concentrate on areas of key

concern, and reducing its role in areas where it is notneeded. In short, it means redesigning the structuresof the Government so as to reduce distortions andallow it to optimally perform its key tasks.

5.16. Experience both within and outside thecountry has pointed to certain essential elementsof any strategy for governance reform. This agendaof reform in governance, which is especially relevantat the State level, includes a multifaceted strategybased on decentralisation, civil services renewal,

open and responsive Government, tacklingcorruption and strengthening the rule of law, andfiscal and environmental sustainability. Each of these elements of the strategy is outlined below.

Decentralisation

5.17. DeCentralisation of power from Centre toStates, States to district, and areas within districtsand villages can be one of the best ways of radicallyrestructuring an over-Centralised system of governance, which may be somewhat removedfrom people, and have limited direct accountability

to them. Decentralisation results in empoweringpeople, promoting public participation andincreasing efficiency.

5.18. According to the Human DevelopmentReport 1993 of the United Nations DevelopmentProgramme (UNDP), wherever decentralisation hastaken place it has often been quite successful,encouraging local participation, increasingaccountability of local officials, reducing costs andincreasing efficiency. Decentralisation can helpmobilise local resources, promote locally andregionally diverse solutions and promote equitablegrowth by bringing the poor into the mainstream of development. It may also increase the pressure onGovernments to concentrate on those humanpriority concerns that are more likely to be chosenby the local community.

5.19. Decentralisation has been seen as desirableand necessary for public participation in the processof planned development. With the 73rd and 74thConstitutional Amendment of 1993, panchayat rajinstitutions (PRI) and urban local bodies have takenroot all over the country. However, effectivedecentralisation has not taken place in most States,

for various reasons, (see Appendix 5.1 to thisChapter) and efforts need to be made to strengthenand accelerate the process.

5.20. The 73rd Amendment envisages a politywhere more and more powers are decentralised tothe third stratum, but ironically, in many of the Statesadministrative and financial powers have beenheavily concentrated in the secretariats anddirectorates. This process of centralisation of authority has particularly been going on in the last

thirty years. The concentration of power, in additionto facilitating political corruption, results in makingdecisions the outcome of a long and tedious processthat inconveniences the public.

5.21. On the whole, the panchayats role is stillheavily influenced by the role of the developmentbureaucracy and the existing mechanisms andprocesses provide the space for considerabledistortions and leakages. The present system issuch that even honest panchayati raj institution(PRI) representatives find it difficult to carry out their functions.

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5.22 In this connection, many lessons have beenlearnt from the experience of devolution in the wakeof the 73 rd/74 th Amendment. These point to thedirection of desired reforms. Governments need tosustain the devolutionary process by transferringpowers and functions specified in the 11 th and 12 th

Schedule, to the local bodies at the appropriatelevel, and provide administrative control to localbodies over local functionaries. We must buildcommensurate capacity in the local bodies, itsmembers and its committees through training andtransfer of resources - physical and financial,encourage the local bodies to raise local resourcesfor development, and put a system of incentive-based fiscal transfers in place.

5.23. At the same time, we have to inculcateattitudinal changes in the developmentalbureaucracy, which should become a facilitator of the third level of government and help develop ahealthy relationship between elected governmentsat all levels and the bureaucracy. The accountabilityof the local bodies, their standing committees andthe representatives, need to be defined andstrengthened. Panchayati raj institutions/urban localbodies (ULB) have to be helped to evolve a code of

conduct for the newly elected members. Rules andprocedures should be made simple and transparent.Financial management and audit procedures haveto be strengthened with the objective of facilitatingthe tasks to be performed by the electedfunctionaries drawn from all walks of life.

Civil Services Renewal

5.24. In the area of civil services reform, StateGovernments face three critical challenges. They

must enhance the productivity of the civil servicesand make certain that each employee is performingsocially relevant tasks. They must ensure the long-term affordability of the civil services, and mustenforce procedures for rewarding and promotingmerit, and disciplining malfunction and misconduct,in order to strengthen accountability and enhanceperformance quality.

5.25. Unfortunately, ever since higher educationwas introduced by the British, the State has beenseen as the employer of first resort by the educatedmiddle class in India. This mindset has to change.

Since the beginning of the 1960s, a rapid expansionof government employment has taken place,especially of the support staff. With the changingrole of the government, the size and scale of thecivil services no longer relate to the nature of functions that the government can or shouldundertake. Governments should identify the surplusstaff, set up an effective redeployment plan, and aliberal system for exit. For the time being,recruitment should only take place for functionalposts, and vacant posts of secretarial and clericalnature should not be allowed to be filled.

5.26. The Administrative Reforms Commission(ARC) Report, 1970 had recommended the abolitionof clerical positions in the secretariat, by mergingthe field departments with the secretariatdepartments at appropriate levels, and by followingthe pattern prescribed in the army for decisionmaking through the single file system. This can bedone even now, as it will result in substantialreduction in the number of employees. Reducingthe number of general holidays, as recommendedby the Fifth Pay Commission can lead to better productivity of the existing staff. The CentralGovernment has already restricted the recruitment

of fresh personnel to just one-third of the postsfalling vacant each year, and some States havetaken similar steps. These are moves in the rightdirection.

Open and Responsive Government

5.27. Open Government is a key element of governance reform. The environment of secrecythat pervades government functioning encouragesmalpractices. There is no early check because

decisions are taken behind closed doors. Thesharing of information and making the entire systemmore transparent would certainly reduce the danger of the system being manipulated by a few in thename of many. Transparency builds externaldemand for reform and makes administration moreresponsive and performance oriented. One way of sending a signal for reform is to encourage theenactment of legislation for Right to Information along the lines of the statutory scheme of theGovernment of India. If the right of the ordinarycitizen to information is recognised, it willdramatically increase the strength of the citizen to

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understand and challenge corruption and thearbitrary exercise of State power. It should be theduty of the decision makers at all levels to pro-actively attempt to increase the power of the citizenin his or her relation with the State, through buildingin transparency in all official procedures andsystems, and, suo-moto, making available allrelevant information to the people.

5.28. There are many ways to bring aboutopenness in government. The declared intentionof the government should be in favour of transparency. All such information that is generallyprovided by the Assembly/Parliament to a Member should also be accessible to any member of thepublic. Departments such as the Police andRevenue, which have extensive public dealings,should be subjected to a social audit at periodicintervals. These audits, by eminent members of thepublic, should look at their policies andperformance, and suggest constructive steps for their improvement.

5.29. The government also needs to makeconscious efforts to increase its responsiveness tothe ordinary people, whom it is meant to serve. At

present the system of government is such that it isdifficult for an average citizen to have access toinformation about schemes and programmes thataffect him, and even about his rights and records.The complicated procedures not only distanceGovernment from the very people that are soughtto be provided with services but also create possiblesources of corruption. Therefore, the stress needsto be on developing computer based informationsystems so that discretion and delay can bereduced.

5.30. Each department with a public interfaceshould develop citizens charters, establishingclearly enforceable norms. The citizens charter should clearly define the standard for the servicesbeing rendered. It should also specify the remedialmechanisms available to the citizen. Merely notifyingcitizens charters should not be an end in itself. After promulgating citizens civil charters, departmentsshould ensure that the necessary changes havealso been introduced in every aspect of thefunctioning of the department and at every level toconform to the standards set in demand of these

charters. Each department should organise large-scale capacity building programmes to bring inattitudinal change in their employees.

Increasing Accountability

5.31. In his address in the National DevelopmentCouncil meeting held on February 19, 1999, thePrime Minister had Stated that, people oftenperceive the bureaucracy as an agent of exploitationrather than a provider of service. Corruption hasbecome a low risk and high reward activity. Frequentand arbitrary transfers, combined with limitedtenures, are harming the work ethic and loweringthe morale of honest officers. While expectingdiscipline and diligence from the administration, thepolitical executive should self-critically review its ownperformance. Unless we do this, we cannot regaincredibility in the eyes of the people who have electedus to serve them.

5.32. The existence of widespread transaction costs in a governmental system corrodes thecredibility of public institutions leading to widespreaddisenchantment with them, weakening the veryfabric of governance, and making it virtually

impossible to speed up development tasks. Accountability, transparency and the rule of law, areintegral constituents of good governance.Transparency in government functioning, as alreadydiscussed, will in itself reduce the possibilities of leakage and malpractice. The issue of accountabilityis crucial for effective financial management and aresponsive civil service.

5.33. A responsive legal system is essential for the development of the private sector as well as for

ensuring that all citizens, and particularly the poor,have access to justice. Streamlining of the civil andcriminal justice systems with a view to reducingdelays in disposal of cases is important. In addition,consideration of innovative mechanisms such asLok Adalat (Peoples Court for alternative disputeresolution) to reduce the burden on the courts maybe necessary. The Nyaya Panchayat in the villagesneed also to be strengthened.

5.34. Procurements is an area especially proneto malpractices. Enactment of legislations/regulations to mandate strictly competitive bidding

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of all contracts and procurement of works, goodsand services by the government and its entities,with regular issuing of tender notices, bid closingdates and contract awards, should be effectivelyensured to minimise opportunities for malpracticesin procurement decisions.

5.35. Democratic Governments respond topressures from below, and however well motivatedand determined the reforms initiated by thegovernment are, these can fructify only if government actions and decisions are subjected tocontinuous scrutiny and pressure by communitiesand the civil society. Yet, despite the enormousburden posed by weak governance, civil societyaction has been found wanting, on the whole. Thepace of improvement in governance wouldaccelerate only when countervailing forces in societydevelop sufficient confidence to oppose inefficiencyand corruption in government. States should,therefore, not just tolerate, but actively encouragecredible civil society organisations.

Sustainability: Fiscal Reform

5.36. It is important for the fiscal policies of a

government to be sound and sustainable.Unfortunately, as is well known, the fiscalsituation of the Centre and the States hasdeteriorated continuously through the 1990s,especially after 1997. The combined balance of current revenues of the Centre and the Statesfell from minus 13,324 crore in 1996-97 to minus92,969 crore rupees in 1999-00. Tax Revenueas per cent of GDP of the Centre has fallen from11.3 per cent in 1989-90 to 8.8 per cent in 1999-00. Financially weak infrastructure sectors have

placed a massive burden on the States; theproblem has been accentuated by the deepeningculture of non-payment by customers of publicutilities. The share of plan expenditure of theCentre and the States in GDP has fallen from13.4 per cent in 1986-87 to 8.6 per cent in 1998-99, making plan outlay a residual item of Government expenditure. States owncontributions to plan financing is now totally non-existent. The debt burden of governments isrising rapidly, and most governments areincreasingly borrowing even to finance their current consumption.

5.37. A fiscal crisis has major developmentalimplications. First, declining capital investmentleads to slower growth, which in turn renders itmore difficult to increase the revenue yield. Slowgrowth also means that the incomes of the poor do not rise significantly. Second, a rising debtburden has the serious implication of sacrificingthe welfare of future generations, who will sooner or later have to pay the price for the profligacy of today.

5.38. The key to overcoming the crises beingfaced is to curtail administrative expenditures , whichare absorbing larger and larger shares of the publicresources, leaving very little for spending on thedevelopmental needs of the people. There isundoubtedly a historical legacy here that has to beovercome. The pressing need of the day is to putinto place an action plan for rightsizing thegovernment with a liberal system for exit of thesurplus staff.

5.39. The Government of India has to take alead in reducing its staff, especially in ministriesdealing with State subjects. It is only then thatthe Centre will have the moral authority to seek

similar action in the States. In the Ministries, thereshould be restraint on initial recruitment, and mostvacancies caused by retirement should remainunfilled and the posts subsequently abolished.Steps have been initiated by the Centre andmany States in this direction. As is the case insome countries, to reinforce the control on staff expansion, consideration may need to be givento a legislative ceiling on the total number of postsauthorised for any particular department/organisation.

5.40. Other steps necessary to tackle the fiscalproblems and improve resource mobilisationinclude:

(i) E xt er na l Aid : States should beencouraged to attract and improvedisbursements of external assistance,which is a significant source of additionality to a States resources. Thisis a source that does not presently have aceiling, and the extent to which it can betapped depends only on the willingness of

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a State to be pro-active, pursue soundpolicies and accord priority attention totimely implementation.

(ii) Single Economic Space : There is a needfor the States to appreciate the mutualbenefits of looking at the country as asingle economic space, from whichconsiderable economic advantages can bereaped by them. Greater integration andremoval of barriers would encouragecommerce and business and lead to a win-win situation for all concerned. Similarly,there is tax competition among States toattract private investments. Such policiesare harmful, as States have lost taxrevenue without influencing investmentdecisions. Better infrastructure, faster decision-making, and investor-friendlyenvironment are more important in thedecision matrix of the investor community,and State resources are better deployedin such areas.

(iii) State Guarantees : A practice that ispushing the States towards a fiscal crisis

is the ready extension of guarantees to theborrowings of State-level publicenterprises. These guarantees maydevolve on State Governments, as thefinancial health of many such enterprisesis not sound. This practice will hurt Statescredibility and adversely influence their credit ratings and ability to raise resourcesin future. A legislative cap on guarantees,as has been done by some States, wouldimprove the confidence of the investors in

the States.5.41. Similarly, there is a case for explicitlyintroducing Reform Linked Central Assistance :The medium-term fiscal strategy should includemeasures aimed at providing financial help toStates to alleviate the fiscal stress facing them.However, the strategy would have to incorporatecertain conditionalities. These would focus oncritical issues facing the States on the fiscal andgovernance fronts. These conditionalities wouldbe formulated with the agreement of the Statesconcerned. The reform linked assistance would

need to be phased over time with a view toaccelerating the reform process at State level,and helping State finances to be put on a soundfooting in the medium term.

Environmental Sustainability

5.42. In the last thirty years there has beenenough empirical evidence to establish thatenvironmental conservation must go hand in handwith economic development, because anyeconomic development that destroys theenvironment will create more poverty,unemployment and diseases as the poor depend on the nature much more for their day today needs - and thus cannot even be calledeconomic development. It may just be a transfer of resources from the poor to the rich.

5.43. Environmentally destructive economicdevelopment will impoverish the poor even further and destroy their livelihood resource base. In theabsence of clean air and clean water not only isthe productivity of the poor going down but their expenses on medical care is shooting up,resulting in their further misery. Denuded hills andbarren pastures have resulted in fallinggroundwater levels, reduced availability of organic manure, and loss of soil and moisturefor crops, thus affecting the productivity of rainfed agriculture and income through cattle. Theenvironmental concern in India must go beyondpretty trees and tigers and must be linked it withpeoples lives and concerns.

5.44. Investment in better environment andforests however requires taking unpopular decisions like closing down of polluting industries,controlling vehicular pollution, reducing subsidyon forest raw material, etc. It also needs greater investments, the benefit from which is not easilydiscernible or immediate. When States arestarved of funds, cuts are imposed on the budgetsof these departments and activities, and moneyis diverted to paying salaries or civil worksprogrammes. Therefore, improving governancemust mean better policies and more funds for improving the quality of life through greater attention to environmental concerns.

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PLANNING AND IMPLEMENTATION:DIRECTIONS

Capital Investments

5.45. Capital investments are supposed to be theproductive and growth enhancing components of developmental expenditure. In the early years of the 1950s and 60s, plans consisted largely of capital investments. In those days, since we as anewly independent country were starting from arelatively low base, governments were concernedprimarily with adding to the stock of public assets.Capital expenditures as a proportion of plan outlayshave been steadily declining since, and have beenestimated by the Eleventh Finance Commission toform now only about 42 per cent of the States Planoutlays. In the case of some States like Kerala and

Andhra Pradesh, this proportion is even less, at lessthan 25 per cent.

5.46. States do realise the need for the plan outlaysto consist of an adequately high proportion of capitalinvestments. Nevertheless, they find it difficult toincrease capital expenditures, because of fiscalconstraints, and the immediacy of the pressure

generated by the administrative machinery, mostof which translate into revenue expenditure. At somepoint States would need to take a hard look at thesituation, put aside short-term considerations, andsee the big picture in this regard, even if it impliestough decisions. The capital content of the Planneeds to be protected, to enable plan funds to beutilised largely to create growth-inducing productiveassets. This is in the long-term interest of thedevelopment of the State.

Maintenance of Capital Assets5.47. There is another side to it. It may be arguedthat in the present day, with over five decades of planned development behind us, and a large stockof capital assets having been created, StateGovernments should be equally concerned aboutpreservation of the existing public assets andschemes that have been built up over the years.

5.48. The problem arises particularly sincepreservation and utilisation of these public assetsimply recurring expenses on operation and

maintenance (O&M), which are supposed to be thenormal responsibility of a Government. These aretherefore not seen as falling within the purview of new development expenditures, and are outsidethe Plan. Fiscal constraints on non-planexpenditures are increasing due to risingestablishment costs and interest burden. This leadsto the tendency to under-provide for themaintenance of these capital assets, sinceestablishment and interest payments have acompelling priority claim on resources, whereas theimpact of under- funding of maintenanceexpenditures is not immediately visible. Over themedium term, however, the impact is felt throughthe productive assets that have been created over a long period of time having deteriorated due tolack of maintenance, and no longer serving theproductive purpose they were intended to.

5.49. The expenses on maintenance, therefore,have to be provided for. A State cannot be said tobe planning wisely if capital assets created at a greatcost are allowed to run down for want of maintenance expenditures. Rational planning wouldmean fully budgeting these expenditures andrecognising them as an essential component of

developmental expenditure, since not providing for them would lead to running down of assets createdover the years.

5.50. The immediate consequence of thisapproach is that O&M expenditures will graduallyeat up larger and larger shares of developmentexpenditures, crowding out new investments andgiving rise to the question of sustainability. This neednot happen. If this type of expenditure goes handin hand with a policy of recovery of adequate user

charges from the beneficiaries of the servicesprovided, spending on O&M need not curtail plansfor new projects and schemes. If, on the other hand,governments make the policy choice to bear mostor the entire O&M burden themselves, theimplication for them is that in doing so they reducetheir ability to sustainably create the much neededfresh capital assets.

5.51. In an effort to improve the productivity of theexisting capital assets, and efficiency of resourceuse during the Tenth Plan, however, selective useof plan funds has been permitted for the first time

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under the Plan for critical repair and maintenanceactivities, signaling thereby a positive developmentin this direction.

Social Sector Expenditures

5.52. Today, there is a realisation borne out of thelessons of experience that investment in humancapital is probably as much, if not more, importantthan hard capital investment. Human developmentis now seen not only as an end in itself, but also asa vital means to achieve the end of economic growthand prosperity for all. The Planning Commissionhas brought out in the first year of the Tenth Plan aNational Human Development Report to signal therecognition of this.

5.53. This kind of investment creates another typeof recurring expenditure dilemma, in that, thedelivery of the services that create human capital isprimarily through personnel and require a relativelyheavy staff component e.g., teachers, health-careworkers, etc. Further, unlike other capital projects,in which the bulk of the staff expenditures are linkedto the construction phase of the project and suchcosts subsequently decline, in the case of human

capital projects, staff expenditures are an essentialand continuing part of the scheme or programme,since without them the desired developmentoutcomes will not be realised. Social services willcontinue to expand in the foreseeable future, untilthe desired levels of human development areattained. However, any planned expansion of facilities in the social sectors would need to factor in and provide for the long-term implications in termsof recurring costs. Innovative solutions have to bedevised to reduce costs of delivery while retaining

quality, in order that the expansion of services thatmust take place is sustainable.

5.54. In the context of the ongoing fiscal andadministrative reforms, redeployment of personnelfrom other government or semi-governmentformations to social sectors, where possible, needsto be considered. The need is to move towards adispensation wherein rather than recruitment for aspecific project without flexibility of redeployment,there should be conscious attempt to redeploypersonnel from project to project, once activityceases in any one project and a new project

commences. Further, options such as thoseadopted in Madhya Pradesh and Rajasthan of having contractual community appointed teacherswith low infrastructure overheads, and in Uttar Pradesh of providing one time capital grants toencourage private educational institutions (rather than the policy of providing recurring grants-in-aidto such institutions) to help expand school educationindicate that there are ways to move forward withoutcompromising on the overall objective of expandingsocial services.

Projectisation

5.55. Yet another significant issue relates to theproductive deployment of capital. Projectisationremains an imperfect art in Government. Theproblem is the delinking of project formulation andwhat in commercial world is called financialclosure. A common tendency is to underState themagnitude of the projects for Plan scrutiny, so as tosqueeze them through a constrained resourceenvelope. Then, as the years go by, they emerge intheir true colours. As a result, projects are not fullyfunded; implementation slips, and costs escalatemarkedly. Comprehensive project configuration,

costing and full financial commitment is necessaryfor proper planning of capital outlays. It should bepossible to consider the deployment of potentiallyproductive capital as a business proposition, inwhich a sort of financial closure in the sense of acommitment of outlays required for the project isbuilt into the plan, so that the requisite resourcesare arranged and a cap put on the costs includingescalation. Practically, this can be done withprospective effect, by loading subsequent planoutlays for concerned departments with an opening

balance of committed outlays that are automaticallyset apart. While this will not immediately solve theproblem of past overhang, which would beimmense, this will at least ensure that what ishenceforth committed, is realised.

Core Plan

5.56. Decisions on the size of the plan have beentraditionally driven by the tendency to present anoptimistic picture to the media and the public of ever increasing development outlays. At the same time,State Governments tend to avoid hard decisions

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involving elimination or reduction in outlays for schemes/sectors, which have a reducedcontemporary relevance. This leads to the over-estimation of available investment resources by asubstantial margin. This can also be termed asoverloading of the plan.

5.57. Overloading occurs when screeningmechanisms are weak, and this implies that the topdecision-makers are unable to set or enforcesectoral ceilings and priorities. When an overloadedplan comes up against the real constraints of Statefinances, the result is inevitable: ad-hoc adjustmentof funds and allocations towards the close of thefinancial year. Making such ad-hoc adjustmentsusually means across the board cuts in planallocations to different sectors. The State is thusforced to sacrifice or dilute the priorities that wereinitially set and reflected in the original planallocations. Overloading thus tends to lead tosurrender of priority setting, and is ultimately self-defeating.

5.58. Overloading is to be distinguished from over-programming. Used as a management tool, over-programming means the deliberate inclusion of

slightly detailed higher level of outlays in the Planthan can be realistically financed, to compensatefor unanticipated project slippages. This would alsogo hand in hand with careful ex-ante prioritisation,so that the funds are made available for lower priority projects or schemes only if the higher priorityprojects fail to utilise funds to the extentprogrammed. And this is desirable only when fulldrawal of programmed funds is seen as a virtue;this may not be so if the funds are coming fromhigh cost sources. In such cases, it may be better

from a macro viewpoint to let the funds remainunutilised rather than over-programme.

5.59. Planning with a realistic resource framework,and the effective ex-ante prioritisation that results,remains the best bet for getting a developmentalagenda implemented without loss of control. Toassist the States in this task, the PlanningCommission has taken the initiative of encouragingrealism in State plans, for better planning andprioritisation. The concept of a core plan, or theplan that would be protected in the event of resources not materialising as expected, has been

recommended to States. Annual Plan outlays arenow being finalised after discussion with the States,taking into consideration the visible resources atthe time of plan finalisation, and adopting a realisticand conservative estimate of resources availablefor financing the plan. This initiative has beenappreciated by the Chief Ministers of most Statesin their annual plan discussions with the DeputyChairman. It has also led to reduction in the gapbetween agreed outlays and actual achievementof the annual plans.

Completion of Incomplete Works

5.60. A major share of available resources shouldgo into the meeting of existing commitments i.e.,incomplete works and ongoing schemes.Incomplete works that go on for a long time due toinadequate resource allocation breed cynicism, anda loss of faith in the ability of the Government todeliver. In view of the large number of such worksand schemes that may exist, it would be necessaryto develop a simple transparent criterion for their prioritisation in order to enable the most productiveuse of resources. For example, the criterion couldbe to include works that are more than 80 per cent

complete, and to review the possibility of terminationof works on which not more than 10 per centexpense may have been incurred. StateGovernments hesitate at laying down rational criteriafor fear that their discretionary authority will beeliminated. The aim of transparent criteria is toreduce arbitrary discretion. But any criterion has thebig advantage in so far as it helps ward off unreasonable pressures for misallocation of resources, and increases probability of productiveoutcomes within a visible time frame.

5.61. All existing commitments and incompleteworks should ideally be fully funded as per their requirements, before taking up new investment for inclusion in the Plan. New investments may beconsidered in the event that ongoing works are fullytaken care of, or that a conscious decision is takento set apart a certain percentage of investible planresources for new investments. The category of approved or sanctioned schemes, works or projectsshould constitute the bulk of any new investment.Limiting new proposals only to those duly sanctionedand approved by the competent authority increases

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the probability of timely implementation andproductive use of the funds allocated.

Scheduling of the Plan

5.62. Finally, the process and scheduling of planpreparation is almost as important as the contentof the Plan. No matter how well the Plan mayhave been prepared, if it is not prepared inaccordance with a strict annual schedule, theeffort may be in vain. This is because afundamental consideration for an effectiveinvestment plan is the use of the plan documentin overall programming and management of public investments and as a regular tool of financial and economic management. Althoughmost States have arrangements such thatinclusion of schemes in the Plan is usually a pre-condition to a budgetary outlay for that scheme,

the actual allocation for a particular scheme doesnot always bear a close relationship with theamount indicated in the plan document. Thissituation arises when there is a schedulingmismatch between planning and budgeting. If plans are not prepared in time and in harmonywith the budgetary cycle, they cannot beaccurately reflected in the budget, and as suchlose their relevance as a commitment of aGovernments development priorities and as aninstrument of economic management. To achieveintegration with the legislative timetable for budgetary approval, internal procedural reformsfor improving the scheduling, and some amountof rigidity in the deadlines for various steps inthe planning process, with deadlines being laiddown and enforced in the same manner as for the budgetary timetable, become quitenecessary.

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Appendix 5.1Status of Panchayati Raj Institutions - Selected Indicators (February, 2002)

States / Holding of Constitution Status of State Devolution of Status ofUnion Panchayat of DPC Finance Funds, Functions, DRDA/ ZP

Territorries elections Commission & Functionaries in linkageRecommendations respect of 29

Subjects (At. 243G)1 2 3 4 5 6

1. Andhra GP elections held Not Accepted 54 Funds 05 DRDA & ZP notPradesh in August 2001, constituted recommendations Functions 17 merged, Collector is

while Intermediate fully, 11 with some Functionaries 02 Chairperson of and District modifications, and 19 DRDA & PresidentPanchayat elections not accepted at all. of ZP is Vice-held in July 2001 Second SFC constituted Chairman

2. Arunachal Elections not held Constituted Not constituted Not applicable yet Not yetPradesh

3. Assam Elections held in Not Recommendations No action taken yet Not transferredJanuary 2002 constituted accepted in part

so far

4. Bihar Elections held in No Report awaited Funds Not merged April 2001 Functions 20

Functionaries

5. Goa GP in 1997 No Report under No information Merger under DP in 2000 information consideration available consideration

6. Gujarat GP- Dec.2001 Not Received, but not yet No information Not mergedPS & DP in constituted placed before Legislature availableDecember 2000 for consideration

7. Haryana Elections held in Only in 16 Accepted major Funds 0 Not mergedMarch 2000 districts recommendations. Functions 16

Functionaries - 08. Himachal Elections held in Only in 5 Accepted. Second Funds 2 Merged & headed by

Pradesh December 2000 districts out SFC constituted Functions 23 President of Zillaof 12 Functionaries- 7 Parishad

9. Jammu & 73rd Constitutional Amendment Act has yet to be extended to State. However, the Ministry of Home Affairs hasKashmir requested the Government of J&K to seek the views of the State Legislature extending the provisions of the 73rd

Constitutional Amendment Act 1992, to the State. Panchayat elections in some part were held in January February2001 according to State Panchayati Raj Act.

10. Karnataka GP Feb. 2000 Only in 5 Accepted major Funds 29 MergedPS & DP July districts recommendations Functions 292000 Functionaries - 29

11. Kerala September 2000 Yes Accepted & Funds 15 Merged and headed

implemented. Functions 29 by President of ZillaSecond SFC constituted Functionaries -15 Parishad

12. Madhya January 2000 Yes Accepted. Second Funds 10 MergedPradesh SFC constituted Functions 23

Functionaries 9

13. Maharashtra GP- Oct.1997. No Major recommendations Funds 18 Against merger of PS & DP accepted Functions 18 DRDA with ZPMarch 1997 Functionaries 18

14. Manipur GP & DP Yes in 2 out of Accepted Funds 0 No informationJanuary 1997 4 districts Functions 22 available

Functionaries 4

15. Meghalaya 73 rd Constitutional Amendment Act is not applicable as the traditional system of local self Government16. Mizoram exists in these States17. Nagaland

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18. Orissa January 1997. Only in 6 Accepted Funds 5 Merged andElections in districts Functions 25 headed bySchedule V Functionaries 3 Chairperson of ZParea invalid

19. Punjab GP- June,1998 Not yet Accepted Funds 0 Not mergedPS & DP Functions 7election are due Functionaries 0

20. Rajasthan January 2000 Yes Accepted. Funds 0 MergedSecond SFC Functions 29constituted Functionaries 0

21. Sikkim October 1997 Yes Accepted. Funds 24 Status not reportedSecond SFC Functions 24constituted Functionaries 24

22. Tamil Nadu October 2001 Yes Accepted Funds 0 Status not clearedSecond SFC Functions 29constituted Functionaries 0

23. Tripura July 1999 Yes Accepted Funds 0 Status difficult toSecond SFC Functions 12 defineconstituted. Functionaries 0

24. Uttar June 2000 Yes Accepted. Funds 12 Merged and headedPradesh Second SFC Functions 13 by President of ZP

constituted Functionaries 9

25. West Bengal June 1998 Yes Accepted Funds 12 Merged and headedFunctions 29 Functionaries 12 by President of ZP

26 Chhattisgarh January 2000 Yes Not set up Funds 10 MergedFunctions 23Functionaries 09

27 Jharkhand Election due. Not Not set up No informationReported that Constituted availableelection will be heldin September 2002

28 Uttaranchal Term of Panchayat Not Report awaited Funds 12expired in Dec.2001. Constituted Functions 13State Panchayati Functionaries-9

Raj Act has yetto be notified.

Union Territories

29. Andaman & September 2000 Yes under consideration Funds 6 Merged and headedNicobar Functions 6 by Chairperson of ZPIslands Functionaries- 6

30. Chandigarh GP-Jan.1999 No SFC Report awaited No information Not ApplicableZP- July2000 availablePS- not held so far

31. Daman &Diu September, 2000 Yes Under consideration Funds 5 Merged & headed by

Functions 9 ZP PresidentFunctionaries 3

Appendix 5.1 contd.



Subjects (At. 243G)

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32. Dadra & October, 2000 Yes Under consideration Funds 0 No DRDA existsNagar Functions 3Haveli Functionaries 3

33. Delhi NCT Delhi had repealed the Panchayati Raj Act and sought abolition of the Panchayati Raj Institutions (PRI)System. However, it is now considering adopting the 73rd Amendment Act and reviving the Panchayats.

34. Lakshadweep December 1997- Yes Under consideration Funds No DRDA existsJanuary 1998 Functions 6

Functionaries -

35 . Pondicherry Elections have not been held in the UT, as the matter relating to the validity of provisions pertaining to reservation

for backward classes in the Pondicherry Panchayati Raj Act was subjudice. The Judgment of the Chennai HighCourt had become available and the UT Administration filed a clarificatory application in the Chennai High Court.On a similar issue pertaining to Tamil Nadu, the Honble High Court at Chennai had passed Orders making itpossible for theTamil Nadu Government to hold elections. The Ministry of Rural Development has advised the UT

Administration to take appropriate action to hold panchayat elections at the earliest on the same lines.

Source : Planning Commission

Appendix 5.1 contd.



Subjects (At. 243G)

1 2 3 4 5 6

Documents

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