The size of the Indian governments investment budget has now become far too massive for any one organisation to keep anything more than a perfunctory watch over that money in real time. The reason why the Planning Commission ran into disrepute was it gave a deceptive feel that it could manage the money but was not really equipped to do so.
The big challenge will be how to redraw the management of government investment. Before taking it up, it will be instructive to examine how the Commission was handling this brief.
Of the total plan expenditure of the Centre, nearly 50% is now spent on salaries. Data from the governments civil accounts department show that the plan panel had become more inefficient over the years in managing the money meant for investment. The share of capital expenditure has been declining for the past three years.
The redrawing of the Planning Commission, which has begun now, should consequently not plug for any other monolithic body to manage the money, including the Union finance ministry. The following data analysis reveals the scale of the problem.
Union governments, over the years, have not skimped in higher budgetary allocations for plan spending, except for minor blips in some years. But to make good the allocations, the Commission developed some short-cuts and this is where the problems emerged.
Of the plan expenditure for FY13, for instance, the Commission has carried out more than 35% of it through what is called the society mode. As per the CAG definition, this is the practice of transferring money required for implementing several centrally-sponsored schemes directly into the bank accounts of implementing agencies like societies or autonomous institutions. The practice became widespread FY07 onwards, the CAG notes. Between then and FY13, there has been an increase of two-and-a-half times in such outgo.
This mode undercut the older method of transferring money by routing it through state treasuries. The older system was supported at every stage by a robust tracking mechanism for expenditure. The reasons which were offered to develop the short-cut were that from the early years of 2000s, the states were in fiscal deficit and so plan funds from the Centre were often hijacked by them to meet their own ways-and-means needs. This logic does not hold good any longer. All the states are cash-surplus and finance the deficit of the Centre instead.
What has happened by parking such large sums of money with the