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WASH Dialogue on budget tracking and policy in India

Published on: 04/08/2016

Tracking budgets and actual expenditure in WASH are essential to ensure sustainable water and sanitation services. Planning and budgets have to capture the activities and costs supporting ongoing services beyond the creation of infrastructures.

As part of the WASH Dialogues, the Centre for Budget and Governance Accountability presented their work on tracking WASH budgets in seven States of India. In their presentation (see download below), they also highlighted the changes in the WASH sector with the acceptance of the 14th Finance Commission’s recommendations.

The tax revenue in India is lower compared to other developing countries pointing to the country’s limited fiscal policy space.  As a federal system, the central government controls two third of the tax revenue, the remaining one third is allocated to the States. The total cess (=tax) collected through the Swachh Bharat Cess, Education Cess, Krishi Kalyan Cess is kept separate from the usual tax revenues, these are kept entirely with the Centre.

To determine the financial relation as well as facilitate the intergovernmental transfer of resources between the national and the sub-national governments, every five years, a Finance Commission (FC) is appointed by the President of India under Article 280(3) of the Indian Constitution. The Commission comprises of a Chairman and four members who could be state ministers, sector experts, ex-bureaucrats, eminent economists and policy makers.  The key responsibility of the FC is to provide inputs on the mechanism of how to share tax revenues and lay down the principles for giving out grant-in-aid to States and other local bodies. The 14th FC, under the Chairmanship of Shri Y. V. Reddy, former RBI Chairman, prepared its report that was submitted in 2015, which recommended the method for sharing central resources between the States for the period 2015-16 to 2019-20.

One of the key recommendations of the 14th Finance Commission in 2015 was the transfer of 42 percent of the divisible pool of central taxes to the States which was an increase of 10 per cent . This increased devolution of funds from the central government to the States will allow States greater autonomy in financing and designing schemes as per their needs and requirements. This will give more power to States in determining how they spend this money.

The devolution of funds implies a change in composition of funds provided by the central government to the States. There is a change in composition in tied and untied funds. Tied funds are those linked to specific central government (such as the Clean India Mission) programmes/schemes and untied funds are free to use for any purpose the State deems fit. Overall this has led to higher revenue being transferred to the States. However, there has been a cut in the allocation of certain tied funds. The risk here for poorer States is that the state government can choose to use untied funds for large infrastructure projects, instead of social development programmes.

The institutional architecture and fund transfer mechanisms for WASH vary from State to State. The fund flows for seven States are available online.

In recent times, some States have started direct fund transfers to beneficiaries, which is a preferred option by finance departments. However, the infrastructure for these transfers still needs to be created to address issues around bank accounts of beneficiaries and internet connection for these transfers to name a few. Some States have also progressed to online treasury information, but this still needs work for actual transparency.

For rural water supply, the budget decreased by almost 80% in 2015-16 compared to the previous budget of 2014-15, the reason for this being that India had met its MDG on access to water. For organisations working in the water sector this is a major concern, as state governments will have to make investments to ensure sustainable water services.

The Clean India Mission has created significant momentum with increased sanitation allocations in all States. There have been concerns about the decrease in funds (from 15% to 8%) for the information, education communication (IEC) component, but with the increased total budget the 8% still gives an overall increase.  For the water and sanitation sector there are issues around delays in fund release, under-utilisation of funds (inability to provide Utilisation Certificates in order to receive the next instalment of funds) and various other procedural and systemic bottlenecks.

While this is a good start to understanding the budget for the WASH sector, we still need to gather more information on the breakup of these allocations into capital expenditure and operational expenditure to move beyond ticking coverage to actually investing in sustainable services.

For better efficiency around investment in the sector, it will be useful to compare service levels in water and sanitation with the break-up of these budget allocations. Only then will organisations working on WASH be better equipped to understand where and when to engage with relevant administration to ensure that coverage is universal and services are continuous. Joint efforts of organisations working on WASH and finance can help in understanding the processes around budget planning, requests, allocation, fund release, and actual expenditures to provide proper inputs at the right time.

IRC together with Wetlands International and Akvo as partners in the Watershed project will be looking into some of these aspects.