The global recession has brought the term 'stimulus' in vogue; however government aid is nothing new. Government financing of business is at least as old as the 19th century - the Pacific Railway Act passed by the US Congress in 1862 authorised the government to float Bonds to finance railway projects.
Government aid is distinct than government spending; spending is the regular expense on civil and defense infrastructure development and upkeep - including spending on social welfare programs such as health care and education. However, aid is usually in form of special grants given usually to non-profit institutions to conduct activities which the government cannot conduct but requires to get conducted. Some examples of such requirements are:
In India we have the Planning Commission programs which while can't be classified as Government Aid, are surely also not a part of "routine expenditure". The tyranny however is that several of the programs are nothing but an extension of routine government expenditure. Take for example a scheme like Sarva Shiksha Abhiyaan (SSA - सर्व शिक्षा अà¤ियान); it funds expenditure in rural schools to ensure that adequate educational infrastructure is available across the country.
Technically, the same could have been achieved by ensuring that expenditure on education by local government is increased - but instead the SSA becomes a scheme funded from the top as a separate vehicle to implement educational reform and development top down - driven from Delhi.
All this sounds like all fuss for nothing - after all how does the method of execution matter - whether schools are set up by local government or funded through a Central program? The problem with Government stimulus is that there is lesser measurement of the outcome of the stimulus at the micro level. Its far too difficult for a ministry in New Delhi to measure if a school was constructed or teachers were paid or even more if they taught well at the school (or did they teach at all) than for the local panchayat or municipality to monitor this and hence utilize funds properly.
There have been attempts by the Central government to manage this by deploying technology. One example is setting up of Central Planned Schemes Monitoring System (CPSMS) for monitoring of disbursements under the Central Plan Schemes. Such systems help establish an information system to monitor expenditure - however they will not eliminate the fundamental flaws of using Government stimulus in place of regular community spending.
Stimulus, as the name suggests is a time-bound 'shot in the arm' kind of financial aid meant to achieve a short term goal. Hence, its objectives (and in turn monitored outcomes) are myopic and do not serve long term development goals.
Finally, managing government stimulus leads to sprawl of bureaucracy - again, let's take the example of SSA. Spending on education which otherwise would require the same government machinery at the central, state, district and village levels to implement nothing but regular education spending, now need to be replicated by setting up of a dedicated Program Management Units across the board for the part of the fund spent through SSA program. Add to it the infrastructure like offices, canteens and resulting manpower employed by them.
The point I am trying to make here is that Government stimulus should be the last resort to sort out systemic problems and used sparingly only for specialized one time activities requiring a last impetus from the government - one example would be Pulse Polio campaigns.
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Government aid is distinct than government spending; spending is the regular expense on civil and defense infrastructure development and upkeep - including spending on social welfare programs such as health care and education. However, aid is usually in form of special grants given usually to non-profit institutions to conduct activities which the government cannot conduct but requires to get conducted. Some examples of such requirements are:
- Outreach programs in remote areas where government machinery is not present
- One time exercises requiring large manpower such as Pulse Polio Campaigns
In India we have the Planning Commission programs which while can't be classified as Government Aid, are surely also not a part of "routine expenditure". The tyranny however is that several of the programs are nothing but an extension of routine government expenditure. Take for example a scheme like Sarva Shiksha Abhiyaan (SSA - सर्व शिक्षा अà¤ियान); it funds expenditure in rural schools to ensure that adequate educational infrastructure is available across the country.
Technically, the same could have been achieved by ensuring that expenditure on education by local government is increased - but instead the SSA becomes a scheme funded from the top as a separate vehicle to implement educational reform and development top down - driven from Delhi.
All this sounds like all fuss for nothing - after all how does the method of execution matter - whether schools are set up by local government or funded through a Central program? The problem with Government stimulus is that there is lesser measurement of the outcome of the stimulus at the micro level. Its far too difficult for a ministry in New Delhi to measure if a school was constructed or teachers were paid or even more if they taught well at the school (or did they teach at all) than for the local panchayat or municipality to monitor this and hence utilize funds properly.
There have been attempts by the Central government to manage this by deploying technology. One example is setting up of Central Planned Schemes Monitoring System (CPSMS) for monitoring of disbursements under the Central Plan Schemes. Such systems help establish an information system to monitor expenditure - however they will not eliminate the fundamental flaws of using Government stimulus in place of regular community spending.
Stimulus, as the name suggests is a time-bound 'shot in the arm' kind of financial aid meant to achieve a short term goal. Hence, its objectives (and in turn monitored outcomes) are myopic and do not serve long term development goals.
Finally, managing government stimulus leads to sprawl of bureaucracy - again, let's take the example of SSA. Spending on education which otherwise would require the same government machinery at the central, state, district and village levels to implement nothing but regular education spending, now need to be replicated by setting up of a dedicated Program Management Units across the board for the part of the fund spent through SSA program. Add to it the infrastructure like offices, canteens and resulting manpower employed by them.
The point I am trying to make here is that Government stimulus should be the last resort to sort out systemic problems and used sparingly only for specialized one time activities requiring a last impetus from the government - one example would be Pulse Polio campaigns.
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