Discusses financial mismanagement in states of North Eastern India and how the Govt. of India could direct its funds to achieving peace in the tinder box of NE India.

1. Financing the Tinder Box in NE India – I: A Dozen Golden Steps
Shantanu Basu
The seven states of North Eastern India present a picture of unparalleled scenic beauty
and diversity of flora and fauna. Yet, such scenic beauty fails to cover the sordidness of
omnipresent unemployment, poverty, grossly inadequate human development indic es,
abysmally low industry and commerce indices, substance abuse, et al. Compounding this is
social unrest arising from illegal migration and from many so-called militant organizations,
many of which may be no more than extortion rackets backed by politica l patronage that are
endemic in this region. All these factors, inter alia, combine into a dangerous social unrest
cocktail that has its logical end in violence and separatism. At the center of it all is the absence
of much meaningful governance in the last seven decades, governance that has been primarily
led by grants-in-aid by successive Central governments with the delivery window(s) left
entirely in the hands of unaccountable deliverers in state governments without any worthwhile
central monitoring. Such deliverers neither had the capacity to productively apply such public
funds nor the will to do so, even today. While the nation’s interest is fixated on recalcitra nt
Pakistan and its involvement in Jammu & Kashmir, events that are playing out in North Eastern
India merit equal, if not more, national attention for NE India is India’s next tinder box.
Therefore the NDA government’s recent budget allocations for NE India are to be welcomed
as is the revamping of the Dept. of NE Region (DoNER). However, there is much preparatory
ground work to be done before the actual flow of central funds commences.
Tribal and religious loyalties having been strong in NE India. State governments have
traditionally been dominated by majoritarian tribal and religious leaders who passed along the
maximum benefit to their constituencies leaving the unrepresented and late entrants with no
more than mere crumpets. The same loyalties also came into play when contracts were awarded
and payments made for material and services by governments. Low penetration of banks in NE
India meant that even government made large payments in cash, a phenomenon that continues
even today. Such liquid cash in private hands made it easy to share and ultimately, find their
way into areas outside NE India in the form of real estate, perhaps even fuel militant outfits
and investment in chit funds, etc. Limited educational opportunities and opaque recruitments
of public servants, again based upon the leaders’ own loyalties, by successive governme nts
ensured that the state civil service did not develop the competencies essential to be part of a
developmental bureaucracy.
The Govt. of India’s limited bureaucracy too was grossly inadequate to provide any
meaningful oversight of public funds released to the States. The end result was the creation of
a privileged upper middle class that comprised and supported their own leadership and
unashamedly profited from it. At the other end, were 30-and-odd million people waiting for
succor that invariably never came. Distribution of largesse by the privileged to subalterns then
created a whole empire of corruption that today stretches down to Rs. 2000-5000 for a post-mortem
report. Howsoever much central Plan schemes tried to remedy anomalies in redressing
public expectations, this only resulted in even more malpractices and moneys not being drawn
at all from the Govt. of India’s coffers. It is only in the last decade or so, improved electronic
communications and roads, local media and public service NGOs like KMSS have emerged
that seek greater accountability in governance. The example of a major NE Indian state,
referred to anonymously as the State in this feature, in the succeeding paragraphs points to the
pitfalls the Central govt. may be reasonably expected to face when the states must necessarily
remain the primary delivery agencies for all Central financial assistance.

2. While 40% of this State’s highways are macadamized & 93% roads single- lane, 71%
fields have markets >5 km from the nearest field. Moreover, the average operational land
holding size is only 1.15 ha that may account for the State having a low deposit: credit ratio of
commercial banks of only 35.6% against 75.1% nationally. The State is yet to reach self-sufficiency
in productivity as well as minimum nutrit ion. Industry, mainly small scale, and the
State suffer from over a 50% shortage of energy. In fact, the overall registration of educated
job seekers as per record of Employment Exchanges increased by 17.25% in 2010. The PDS
Outlet: Population Ratio is adverse at 1:898 and the State has 14 lakh unemployed registered
in employment exchanges with about 75% of all job-seekers being educated. The State also
ranks 26th among all States in literacy rates with 79% for males & 67% for females with 70.44%
rural and 88.88% urban literacy. The sex ratio is heavily skewed at 1000:957 while the State
has India’s highest maternal mortality ratio of 390. The labor force is heavily skewed with 53%
marginal female workers against 15% male. Birth rate of 23.6 per mille against the national
median of national 22.5 per mille and infant mortality of 58 per mille are higher than the
national average of 47 per mille. The State also has a relatively high birth rate of 23.2 and death
rate of 8.2 per mille while it has India’s highest maternal mortality ratio of 390. Yet this State’s
BPL population at 19.70% (Lakdawala) or 34.40% (Tendulkar) is relatively lower when
compared to national averages of 27.5% and 37.20% respectively. The State’s net per capita
income growth of 11.50% is also higher than the national average of 6.50%. In sum, while
incomes have grown and quality of life improved in the State, the State still lacks in basic
infrastructure and development of basic quality of life parameters such as energy, roads &
bridges, hospitals and primary health care, communications and roads and bridges, etc. This
State also suffers 16% power shortage aggravated by 26% T&D losses.
Although the quality of life of people in this State has improved substantially in the
post-2003-04 years, yet it remains one of the poorest in India with the Planning Commiss ion
2011-12 poverty estimates showing 32% of the population of this State below the poverty line.
The State’s GSDP has risen from 3.7% in the VII Plan from 1985-90 to 6.5% in 2007-12 in the
XI Plan against the national median of 5-7-9.1% in the same period. The State’s tax revenues
too have grown on a year-to-year basis by about 9-11% while the major sources of revenue
remain those from commodities (mainly tea & petroleum) and a buoyant services sector (that
grew from an annual 4.5% to 8% against the national median of 7.7-9% in the same Plan
periods) and rising share of income tax from the Govt. of India. Yet the overall contribution of
Special Category States to GDP, including that of this State, remains at a minuscule of 0.78 to
1.78% in 2011-12. Although this State’s GSDP increased by 12.7% in 2011-12, that of other
Special Category States like Uttarakhand and Sikkim (much newer States) fared much better
with 24.7% and 19.24% respectively. Notwithstanding generous funding by the UPA
government at the Centre to a Congress government in the State, the latter was unable to even
draw Rs. 85, 887.87 crore in budget grants from 2002-03 to 2011-12. In effect, the State was
unable to utilize 9.72-38.32% of its budget allocations. In some years unspent balances were
in close proximity to the Annual Plan Outlay of the State.
In 2011-12, this State had unspent balance of Rs. 10128.67 crore against a total
appropriation of Rs. 39,482.69 crore, i.e. 25.65%. From 2009-10 to 2011-12, the State
surrendered/did not draw 23-37% of its gross budget allocation approved by the State
Assembly. Key infrastructure and social welfare departments have showed abnormally high
surrenders in areas such as Social Service (68-90%), Water Resources (57-68%), Social
Security, Welfare & Nutrition (27-57%), Urban Development (57-67%) and Roads & Bridges
(35-38%), Power (55-57%) etc. Within such large overall savings are large capital fund
surrenders, e.g. Water Resources (Rs. 1891.45 crore), Roads & Bridges (Rs. 1292.02 crore) and
Power (Rs. 916.88 crore) from 2009-10 to 2011-12. Cumulative surrenders over 2009-10 and

3. 2010-11 in 14 major budget heads alone were Rs. 11716.40 crore. In fact, in 2011-12, except
for 2-3 budget heads where there was excess spending, in all other budget heads there were
savings and/or unspent balances - a most unusual trend in an era of major budgetary cutbacks
country and worldwide. Such savings also carried with it the distinct possibility of needier
States being underfunded while the revenue deficit of the Centre artificially mounted.
The author is Principal Accountant General (A&E), Assam. His views are personal.

4. Financing the Tinder Box in NE India – II: A Dozen Golden Steps
Shantanu Basu
Of the total Plan schemes’ unspent balance of Rs. 16,951.84 crore from 2009-10 to
2011-12, Rs. 9163.28 crore were on account of major schemes with 75% savings in about a
dozen, 50-74% in 18 and 20-49% in another 19, affecting diverse budget heads such as, but not
limited to, Water Resources, Hill Areas, Social Security/Services, Urban Development, Water
Supply & Sanitation, Roads & Buildings, Rural Development, Medical & Public Health and
others. Even externally funded schemes like those of the North Eastern Council (NEC) showed
savings of Rs. 1,426.72 crore from 2009-10 to 2011-12. Some schemes that showed large
savings include flood control of major rivers, medical colleges and rural family welfare sub-centers,
water supply, child services, mid-day meals for school children, flow irrigation, grants
for backward regions and hill areas, both State and Central, Plan and non-Plan. In addition,
there were large surrenders of revenue allocations, many of which sub serve Plan schematic
expenditure such as Rs. 1,117.36 crore in Medical & Public Health, Rs.1,730.05 crore in Social
Security, Welfare & Nutrition, Rs. 574.16 crore in Welfare of SC/ST/OBC and Rs. 1,602.27
crore in Social Service from 2009-10 to 2011-12. These include unfilled posts of doctors,
teachers, repairs and maintenance of existent capital projects, etc.
Such large surrenders caused an artificial revenue surplus of Rs. 926.85 crore and
artificially lowered the fiscal deficit to Rs. 1,646.05 crore, in 2011-12, i.e. 1.43% of GSDP (of
Rs. 1,15,409.64 crore), less than half the maxima set by the Fiscal Responsibility and Budget
Management (FRBM) Act. However, if 80% of capital allocations were expended, there ought
to have been a fiscal deficit of Rs. 8822 crore in 2011. This, in turn, would have raised the
fiscal deficit to 7.64% of GSDP. Likewise, if 80% of revenue budget allocations were
expended, there ought to have been a revenue deficit of Rs. 4829 crore in 2011-12. Although
the State’s departments report large surrenders and/or unspent balances every year that
invariably leads to an accretion in the cash balance of the State held by the Reserve Bank of
India, this State invested Rs. 5146-8858 crore per annum in short-term Govt. of India Treasury
Bills and earned interest thereon, ranging from Rs. 231-481 crore per annum from 2007-08 to
2011-12. In fine, the FRBM Act has not only failed to achieve its desired objective but,
paradoxically, has become an instrumentality for subversion of prudent financial practices and
accountability.
Even of the amounts drawn from the budget approved by the State Assembly that is
purportedly expended during a fiscal year, this State parked several thousand crore Rupees in
current/savings bank accounts outside the government’s accounts even though these moneys
were drawn by State departments through the State’s Treasuries from the Consolidated Fund
of the State. Large sums were, and are, also parked in a budget head (8443-Civil Deposits)
meant to hold non-public moneys in trust such as earnest money deposits, judicial deposits, etc.
st
that are not part of government funds and can therefore be held for three years beyond 31
March of a fiscal year before lapsing. These are shown as refunded in the following fiscal and
payments made directly therefrom without legislative and/or administrative sanction, without
lawful revalidation/appropriation. Public funds are also held in cash, TDR, CDR, Banker ’s
cheque, etc. outside of the govt. account, mostly in dilapidated strong rooms. None of these
funds were/are subject to any oversight and/or audit and hence prone to fraud or embezzleme nt.
Nor was there sufficient cause to delay expenditure till March-end since this State received
over 90% of all its finances by December of every fiscal.

5. What lessons ought the Central Govt. to derive from the foregoing description of this
State? First, a fresh survey needs to be carried out by the Central govt., along with the State
govt. to identify target populations and individual beneficiaries. Second, an adequately staffed
branch of the Independent Evaluation Office (IEO) needs to be set up in each State capital in
NE India. Third, it should be a pre-condition of release of subsequent instalments of Central
assistance that utilization certificates for each sanction would be vetted by the IEO ’s branch
before being sent to the donor Ministry. Fourth, IEO may be empowered to hire private survey
and evaluation firms for supplementing its efforts in real-time monitoring of all Centrally-funded
schemes. IEO may also be empowered to propose and implement diversion of central
funds from poorly performing schemes to better performing ones upon a quarterly review of
survey reports received by it. Fifth, PSBs may be roped in to pay human service entitleme nts
such as scholarships directly into nominated individual bank accounts. Sixth, Govt. of India
may hire private capacity-building agencies to train implementing officers of the State
governments. Seventh, the first tranche of quarterly Central funds should be released by Apr il
1 of every fiscal year while stiff penalties ought to be incorporated in sanction orders of the
Govt. of India and include time limits for spending and penalties for under/overspending and/or
diverting funds by States.
Eighth, no more than 25% of all central Plan assistance may be allowed to be drawn in
cash and no more than 10% of the total appropriation in the last quarter of any fiscal year.
Ninth, Govt. of India may nominate a State-level committee comprising five senior Central
Govt. officers posted in that State to inspect sites, material, etc. periodically and render
independent reports to the IEO’s state branch office. Tenth, it may be advisable to stop or
progressively reduce some human services delivery schemes where no tangible assets are
created, e.g. the Mid-day Meal Scheme and food supplements under the Integrated Child
Development Scheme and substitute with direct credit to individual bank accounts of parents.
At least the kids would be assured of nutritious and standard food and supplements than face
the caprice of the contractor-politician nexus. Eleventh, the Annual Performance Appraisal
Reports of all policy-making and implementing officers should have a captive column for
performance in implementation of developmental schemes/projects in their respective charges.
Last, but not the least, Govt. of India should direct RBI to issue instructions to all banks not to
accept deposits of any kind by departments of the State govt. without prior authorization of the
donor Ministry for all central funds and report existing ones to the RBI immediately.
Public funds are not in severely short supply as is often made out in the media. It is just
that misgovernance has caused demands to accumulate. Massive corruption by way of
stores/services paid for but not received/implemented, stores at usurious prices and unlawful
diversion of funds without oversight, et al eat hugely into the chain. Ineffective monitoring and
administrative indifference only facilitate such malfeasance. Difficult situations deserve
Draconian solutions if development is to reach the mass of the common citizens of India. Good
governance can restore peace in troubled NE India.
The author is Principal Accountant General (A&E), Assam. His views are personal.