Shortage of administrative capacity leading to underspending by states

CAG audits show that more than lack of funds, it's the shortage of administrative capacity that leads to underspending on health and education

States often spend far less money on health and education for lack of departmental capacity rather than lack of funds, a perusal of the latest audit reports of these governments has shown. 

The unused sums are often large. Even the Delhi state government, which has predicated its political model on spending on health and education, “saved” 21 per cent of its education department budget of Rs 13,492.52 crore for the year FY20 (a pre-Covid-19 year). 

In Uttar Pradesh, of the total sum of unreconciled expenditure in the state budget, over 5 per cent is the spending on education. The trends afflict financially better managed states, too. In Odisha, the share of education spend not reconciled is close to 9 percent. These are averages of decades, which show the problem is endemic across states.

In the post-Covid-19 world, this is a problem multilateral institutions do not understand fully. 

A World Bank-Unesco report last year, Education Finance Watch, notes: “Education budgets are not adjusting proportionately to the challenges brought about by COVID-19, especially in poorer countries.” It argues, “Unfortunately, recent increases in public education spending have been associated with relatively small im-provements in education outcomes.” 

But it still prescribes more spending instead of examining how government agencies can soak in the sum defrayed.

All states recognise the need to direct more of their expenditure for health and education. As the table shows, by FY21 general category states (excepting those from the Northeast, Uttarakhand, J&K and Ladakh) were supposed to be spending at least 6.74 per cent of their aggregate expenditure on health, and an even higher 15 per cent on education. 

The ratio calculated by the Comptroller and Auditor General (CAG) is an important benchmark, since no state would wish to be seen spending less than the national average.

This is where the challenges creep in. While states direct more of their money to these sectors, the actual spend trails, often significantly. 

Delhi, for instance, had to surrender Rs 2,461.82 crore from its education budget because several of the policy initiatives taken up did not match the slower pace of approval of schemes or their guidelines. 

These are not easy issues to tackle because unlike, say, an approval for a bridge or an airport, spending on education means defraying money across thousands of entities — in equipment, textbooks, stationery, doctors, nurses, teachers, technicians and so on — by an overstretched state administration. All these thousands of entities have to show they have spent the money for what they were meant.

The Maharashtra state government agreed with the Centre to spend two per cent of its Gross State Domestic Product every year to promote Rashtriya Uchchatar Shiksha Abhiyan, a higher education scheme. 

Data shows against the committed two per cent, the state’s spending on higher education was only 0.37 per cent in FY16 despite timely matching central grants. Worse, the percentage actually declined from then each year to reach 0.28 per cent in FY20.

“Government did not assign any reason for the declining percentage of expenditure on higher education but stated that (it) would endeavour to spend a higher percentage on higher education,” a CAG audit report notes. The amount spent in FY20 was no chicken feed at Rs 8,152.95 crore. But there were hundreds of colleges and universities, receiving often less than Rs 5 crore each. It was a massive task to ensure the sum went out in time and was received back in time.

How do these gaps show up at the grassroots? In Jharkhand, in a block in West Singhbhum, the CAG found that in 22 schools, desks and tables for students were bought far exceeding the number of students. These were, incidentally, test checks, which means the auditors had randomly chosen these schools in one corner of the state. One has to multiply these results across the state to assess the scale of funds mismatch.

The same weakness shows up in healthcare. Odisha is one of India’s better managed states, as the audit reports state: “Total expenditure relative to GSDP in Odisha was better than the general category states.” 

Yet even here, in a Covid-19-hit year, the state ended up with savings of 17 per cent in its health and family welfare budget. Obviously there were immediate concerns, due to which the state couldn’t use even a single rupee of its Odisha e-Hospital Management Information System or NAT-PCR (nucleic acid testing-polymerase chain reaction) facility in blood banks, surrendering Rs 2,671.32 crore.

Conditions in states that are far more lax in fiscal discipline such as next-door Jharkhand were expectedly worse. “The health department has not formulated its own standards or norms” of what outpatient departments should expect in district hospitals for any type of services, the CAG found. The setting of norms does not need money but administrative discipline.

The outcomes of not spending money get particularly disturbing in the Northeast. 

In Mizoram, aggregate expenditure on health by the state government was 73 per cent of the budget for the five-year period, FY15 to FY19. It was not even its own money that it could not spend. The percentage of utilisation of available funds under the National Health Mission ranged between 55.54 and 85.84 per cent during the same five-year period. Just like Jharkhand in the plains, the state had not standardised simple things such as the number of beds that should be available in the district hospitals or the type of medical services to be delivered. “No norms had also been laid out for allocation of human resources to these hospitals,” the report pointed out.

As Amir Ullah Khan, research director of the Centre for Development Policy and Practice in Hyderabad and a keen student of the health sector, notes, “The two problems of lack of spending and low budget are co-terminus, because the most important factor continues to be the inexplicable lack of a constituency for health and a subdued demand from the voter for better health care.” There is no doubt that almost all states have to put more officials to track these outcomes than they have so far, he added.