Tuesday, May 24, 2011

Burden of unused funds: Unused, misused & abused

IIPM Prof. Arindam Chaudhuri on Internet Hooliganism

Not only is India sitting on unused funds, but is paying fines too

Misuse of funds is a common phenomenon in India. However, the Burden of unused fundseven bigger one is underutilisation of funds. Every year during the budget session, the states and their respective ministers go ga-ga over allocations, – all of them demanding a raise in the sum of funds allocated to their respective ministries.

But the storm gradually calms down and a huge amount of funds is returned back to the Government at the end of the fiscal year. What is really embarrassing is that the funds borrowed from international agencies like IMF and World Bank remain shamelessly unused.

It’s rightly said that history repeats itself. But in our case, even before an issue can be termed as history, it is already repeated. In 2008, it was found that India was paying ‘obligation charges’ to the World Bank and the Asian Development Bank for unused sanctioned foreign assistance. The nation, then, was sitting on Rs 78,000 crores of unutilised foreign aid. The Government has had to pay Rs.124.54 crores to the World Bank and the ADB as commitment charges.

The biggest chunk of this unutilised foreign aid (about 37 per cent) was meant for infrastructure development like the urban road development, water and new energy sources.

Similarly, this year, the Comptroller and Auditor General (CAG) found that India has unutilised foreign aid of around Rs.1 lakh crore which actually boils down to around Rs.1000 per Indian. Most of these funds were meant for development activities and social welfare. Unfortunately, India had to pay commitment charges of Rs 86.11 crore to ADB and World Bank, besides others, during 2009-10 as penalty for not using aid. These unused funds were meant for urban development, road development, water & sanitation and power.

This implies that it was predominantly for development of facilities that would elevate and improve the lifestyle of the bottom of the pyramid. But alas! This aid later became a burden on the exchequer. Given the fact that the obligation and commitment charges are paid through exchequer money, the entire essence and core objective of foreign aid gets diluted.

It would have been better if the aid was directly disbursed to beneficiaries. At least, that would have saved the extra obligation charges. With India trying hard to control their budget deficit, such wastage of foreign aid and the related fines come as a big hurdle. Instead, investment and development initiatives using these aids would have bridged the deficit and development gaps between the different stratum of the Indian society.

For a country where 456 million people live under the global poverty line of $1.25 per day (estimates by World Bank), cities having no access to safe drinking water, and there is no clear focus on how the country is going to meet its future energy demand with the massive economic growth that its going to attract; paying such penalties is heinous and should be considered nothing less than a criminal offence.

It is only the minister's pocket that should pay the funds... and no one else! They have truly justified – India is the land of misused, unused and abused!

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