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31 Jul 2019


Bihar & Assam Floods: A Case of Ineffective Fiscal Management Behind the Disaster

While the furry of a natural calamity like a flood is not under man’s control, there sure are ways of effective mitigation. The best way to achieve this end is to create requisite infrastructure and prepare for an event in advance. Disasters come unannounced and quality infrastructure and capacity development hold the key. The catastrophic impact of flooding in the states of Assam and Bihar is a result of non- compliance to this very logic. There appears chronic fiscal incompetence among certain states that have done little to plan and mitigate disasters. Such states have failed to develop requisite infrastructure and capacities despite Government of India’s assistance and enough allocation of funds made available to them by way of grants and provisions.

It is worth noting that almost all impacted areas such as Baksa, Barpeta, Cachar, Hailakandi and Moregaon in Assam along with Araria, Darbhanga, Katihar, Purnia and Kishanganj in Bihar are classified among India’s 250 most backward districts. Until the delinking of the Backward Regions Grant Fund (BRGF) from direct central sponsorship, these districts collectively received Rs. 2,588.92 crores over an eight-year period from the Government of India. In this time period these districts (state Governments) could on average utilize just 54% of the allocation towards fortifying against unforeseen calamities.

The fund allocations under the BGRF scheme was provided under the heads of capacity building and development grants, focusing on the creation of basic infrastructure and capacity development at the panchayat level. While utilization levels of funds under development grants was below average at best, capacity building fund release was at a dismal 35% on average among effected states.

Fiscal Savings: Underutilized grants and provisions reflect poor planning by effected states

As per the most recent CAG report on state finances (tabled on 29 th November 2018), the state of Bihar for example has managed to save Rs. 41,353.31 crores out of total grant/ appropriations amounting to Rs. 1,55,825.75 crores. What this means is that the state was unable to spend 24% of the provisions in the year 2016-17 under various heads distributed among revenue, capital and loans and advances categories/ expenditures. Interestingly, Rs. 10,789.38 crores were saved by 31 grants under the capital category. Moreover, there are 11 grants that recorded a saving of over Rs. 1,000 crores or 20% of their respective total provisions.

Under these heads, the fund utilization level of Disaster Management Department (39i ) and Planning and Development Department (35) stands out with 67.09% and 55.48% savings, respectively. Literally, the state Government managed to spend just Rs. 593.52 crores on disaster management against a provision of Rs. 1803.55 crores in the fiscal year. Same goes for planning and development, under which Rs. 1,036.16 crore was spent as against a provision of Rs. 2327.25 crores. Even the supposedly important departments such as Rural Development (42), savings were to the tune of 43.48%. In other words, just Rs. 5,809.16 crores were spent as against the provision of Rs. 10,277.51 for rural development. Since the epicenter of the disaster lies in the northern rural districts of the state, this is puzzling.

Even in neighboring Assam, which is also witnessing high civilian casualties and property loss, the situation is no different, in fact worse. As per the recent CAG report on state finances for Assam, it is reported that the state managed to save Rs. 24,890.84 crores or 30% of provisions in the considered timeframe. In other words, the state managed to spend just Rs. 58,178.31 crores as against a provision of Rs. 83,069.15 crores. The most astonishing figure comes by way of underutilized funds for Capital expenditure provisions. The state managed to spend just Rs. 5,502.08 crores or 46% of grants/ appropriations in this category as against a provision of Rs. 11,877.25 crores for the fiscal year.

Among grants that accumulated savings over Rs. 200 crores, the heads under the departments of Forestry and Wildlife and Rural Development – Panchayat (56) are prominent. The departments have recorded a fund utilization of 57% and 33%, respectively. This apparent lack of planning and preparation may have a direct bearing on the devastation of wildlife at the Kaziranga National Park, not to mention loss of human life and property. Capital expenditure heads such as Water Supply & Sanitation (30), Water Resources (63) along with Roads & Bridges (64) are other anomalies worth considering given their important role in flood control and mitigation. Among these grant heads, Water Supply & Sanitation and Road & Bridges recorded a fund utilization level of 52% and 60%, while Water Resources recorded it at just 24%. There are in fact instances of non-provisioned under 53 grant heads amounting to Rs. 3,334.38 crores mainly pertaining to miscellaneous public works.

CAG’s probing of the persistent savings and underutilized provisions revealed that much of the underutilization was due to overestimation and lack of timely approvals. In the case of Assam, the reasons were again associated with unrealistic budgetary allocations. It was however found by auditors that out of 54 Cos in the state, only 8 carried out departmental reconciliation of budgetary receipts and 24 budgetary expenditure with the books of Accountant General (Accounts and Entitlements) of Assam.

Peer Review: A comparison with better performing peers

When one compares these states with one of the better performing peers, the differences become starker. Going by the same CAG report series on finances for the Gujarat, it is revealed that the western state saved just 15% in the considered timeframe. This was in fact offset to the extant of Rs. 278.1 crores by way of excess expenditure under revenue and capital expenditure heads. Even though overestimation and delays were found responsible in certain savings, the magnitude is significantly lower than both Assam and Bihar and points towards Gujarat’s superior fiscal management. Such has been the success from better planning that Gujarat has been persistently underutilizing provisions under its ‘Relief on Account of Natural Calamity’ head by over Rs. 370 crores on average, over a five-year period.

Even certain poorer states such Odisha have fared much better in comparison to Assam and Bihar. The eastern state has saved just 16% of provisions and appropriations. In terms of capital expenditure, the saving is to the tune of just 5%, which was offset by excess (over expenditure) of Rs. 60.26 crore.

It is consequently clear that districts impacted in the floods have been provided enough opportunities to fortify and develop infrastructure and capacities in order to mitigate future natural calamities. Unfortunately, these districts along with their state Governments have failed despite persistent Government of India support. The states of Assam and Bihar have therefore managed their fiscal affairs ineffectively in this regard. Due importance must be given to mitigation in order to safeguard from future eventualities with utmost urgency.

Parenthesis denotes the assigned number of the respective Grant head