[Solved] Effective utilization of public funds is crucial to meet development goals. Critically examine the reasons for under-utilization and mis-utilization of public funds and their implications ( UPSC GS-4 Mains 2019

[Solved] Effective utilization of public funds is crucial to meet development goals. Critically examine the reasons for under-utilization and mis-utilization of public funds and their implications ( UPSC GS-4 Mains  2019)

The Importance of Efficient Use of Public Resources:

 Effective utilization of public resources is critical to meeting development goals. Key programs in education and health are overwhelmingly conducted within the public sector. And although private provision of infrastructure has expanded in areas like telecommunications and energy, private investors remain wary of socially-oriented sectors such as water and sanitation, and also show little willingness to invest in the poorest countries. At present, though, research indicates that increases in public spending are only weakly correlated with the achievement of development outcomes in most developing countries.

 Government ineffectiveness — in the form of waste, inefficiency and corruption — is largely responsible.

 Reasons of poor utilisation of resources:

 • Poor resource usage is due in part to the fact that public spending is a complex, multifaceted process, which is not naturally transparent to the general public. Budgets typically pass through a sequence of stages, including formulation by ministries, scrutiny by legislative committees, approval by the legislature, distribution of funds to ministries, further distribution to state and local authorities, and end-point delivery. Accountability is hampered by deficiencies that include closeddoor discussions, limited documentation, and poor data reliability.

 • Weakly-performing public institutions, in turn, can seldom be expected to reform themselves in the absence of external pressure. Unlike private companies, public bodies face no direct competitive pressures, and political systems – especially in developing countries – are often inadequate at mobilizing public pressure for specific institutional reform.

 Weaknesses in public finance management can contribute to ineffective resource use through a number of channels. Corruption can often take a significant toll, but even in countries where government personnel are mostly honest, they can be hobbled by poor systems, inadequate training, or other deficiencies. Wherever allocation decisions are taken outside informed independent scrutiny, societies more powerful and articulate groups tend to sway those decisions – to favor urban areas over rural, middle-class subsidies over pro-poor programs, and certain ethnic/cultural groups over others.

 • Under-utilization of Plan outlays by the States can be attributed to the institutional and procedural bottlenecks in the process of implementation of schemes and deficiencies in the planning process being followed at the district level.

 • The deficiencies in decentralized planning being carried out in the schemes, resulting due to insufficient staff for undertaking planning activities, inadequate attention to their capacity building and minimal role for community participation in the planning process.

 • Bottlenecks in budgetary processes in the schemes, such as delay in the flow of funds, in releasing sanction orders for spending, decision-making in the States being centralized, insufficient delegation of financial powers to the district/ sub-district level authorities and uniform norms of Centrally Sponsored Schemes for all States. Further, lack of need based budgeting in the schemes, which is often carried out without proper analysis of unit costs on the ground, implied allocations for some of the schemes being decided in a top-down and unrealistic manner.

 • Systemic weaknesses, manifested as shortage of trained, regular staff for various important roles like programme management, finance/accounts and frontline service provision; this contributed to weaken the capacities of the government apparatus in the States for implementation of Plan schemes.

 Few more points will help us to bring clarity in our understanding about this problem:

 • Misutilisation of public funds includes expenditures that are made without proper authorization or that are unlawful or contrary to applicable legislation, regulations, policies and procedures. It also includes purchases that are not necessarily required. e.g.- diversion of public funds towards publicity and advertisements rather than utilizing them for core structural reforms the funds are actually meant for.

 • Underutilisation of public funds includes mean-spirited spending of public funds meant to be spent on various projects, policies, schemes etc. or simply, funds not used in their full potential.

 Underutilization of public funds is often seen in institutes of higher education where at the end of the financial year a vast amount of money granted by the government or the UGC lies unspent, thereby compromising with the growth of the institutes. Another recent example of this is the CAMPA fund where increase in funding hasn’t resulted in any significant increase in forest cover.

 Even the SC took note of the serious underutilisation of the CAMPA funds, thereby directing the Central and State government to make efficient utilisation of funds.

  • Underutilisation and misutilisation of public fund leads to blockage in the implementation of various planned schemes and projects. It also compromises with the quality of work done and service rendered to the public. Such handling of public funds also leads to corruption on the part of the authorities concerned.
  •  Misutilisation of public funds also runs the risk of making them reluctant to pay taxes or finds ways to save more on them. Under utilisation and misutilisation of public funds often takes place due to political reasons, ill planed economic policies, improper and careless execution of government schemes, inefficient and corrupt, rigid and complex processes for approval and allocation of funds also lead to underutilisation and misutilisation.
  •  In the long run, this blooms into an unjust development scenario in which all don’t reap the benefits of development. There may be waste of public money or siphoning off by a particular section. This erodes the legitimacy as well as the capacity of state to rule.

 Reasons for under-utilization and mis-utilizations of funds

  • Corruption
  • The large sum of money earmarked fro public activities are taken away by officials as well as politicians in form of bribes. This results in funds not able to contribute towards development.
  • Ex: Money allocated for construction of houses for poor is consumed by corrupt officials.
  • Political rivalry
  • Sometimes political class indulges in act of vendetta where they do not cooperate in allocation or release of funds to their opposition. They hope to reap the anger against their opponents for their political gains.
  • Ex: Government in power not allocating developmental funds to opposition MLAs.
  • Diversion
  • The funds allocated to one activity is diverted to another in order to meet strict control over finanaces.
  • Ex: Funds allocated to road repair is diverted to giving freebies.
  • Red Tapism
  • Colonial bureaucratic attitude sometimes acts as hinderance in carryiong out developmental activities. They complicates the process due to which funds are not properly utilized.
  • Implications
  • Public apathy
  • The public is made to suffer due to under/mis-utilization of funds. The rightful funds do not result in any welfare for society.
  • Rise to extremism
  • The problems of Naxalism, Maoism are a product of such apathy shown by the authorities. The funds even though allocated by government, do not reach people.
  • Instability
  • This cycle of vendetta politics result in stalling of political progress in the society. The political blame game results in only instable conditions but does not prove fruitful for the society.
  • Public funds allocated for everything ranging from food grain to cancer research inexplicably ends up being under-utilised or misappropriated. This can be observed in many policies and schemes. All this lead to a stage of public funds and failure of social cause for which public fund was issued. Misutilisation, underutilisation and misappropriation are major problems that lead to public fund wastage.

 Misutilisation:

  • Misuse of public funds includes expenditures that are made without proper authorization or that are unlawful or contrary to applicable legislation, regulations, policies and procedures.
  • Purchases that are wastefully unnecessary and that are not in keeping with the business or operational needs of the organization may also constitute a misuse of public funds.
  • Misuse of public assets includes making inappropriate or unauthorised use of government property, and also includes a failure to safeguard such assets.
  • Under-utilisation:
  • Under-Utilisation of Plan expenditures by the States can be attributed to the institutional and procedural blockages in the process of implementation of Plan schemes and insufficiencies in the planning process being followed at the district level.
  • The deficiencies in decentralized planning being carried out in the schemes, resulting due to insufficient staff for undertaking planning activities, inadequate attention to their capacity building and minimal role for community participation in the planning process.
  • Blockages in budgetary processes in the schemes, such as delay in the flow of funds, in releasing sanction orders for spending, decision-making in the States being centralized, insufficient delegation of financial powers to the district/sub-district level authorities and uniform norms of Centrally Sponsored Schemes for all States.
  • Further, lack of need based budgeting in the schemes, which is often carried out without proper analysis of unit costs on the ground, implied allocations for some of the schemes being decided in a top-down and unrealistic manner.

 Misappropriation:

  • Misappropriation of public funds includes MPs investing MPLAD funds in private trusts and societies created by them.
  • Recommending projects that are prohibited, insisting on choosing the implementing agencies and handing over the cheques to them, wanting to control payments to contractors and constantly resisting transparency and accountability, all add up to misappropriation.

 In 2012, the CAG revealed that the then governing body had allocated 216 coal blocks to public and private enterprises illegally between 1993 to 2006. The amount of public money misused led to massive public and media outrage. Similarly in various advertisements by government, schemes and policies public funds are wasted and utilised in an improper way.

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