LESSONS FROM THE PAISA PROJECT

                                                                                                                                                                                                                                                                                       *Avani Kapur

• Introduction

In December 2015, 100 volunteers across 10 districts of India visited 300 schools, 300 anganwadis and around 7500 households to ask a set of 5 basic questions: Did you get your money? When did you get it and did you get the entire amount? Did you spend the money, when and on what? The mission: to understand the processes through which financial resources reached the last mile for key schemes. In this case, we were tracking funds for Sarva Shiksha Abhiyan (SSA), the Integrated Child Development Services (ICDS) and the Swachh Bharat Mission – Gramin (SBM-G).

The exercise was part of Accountability Initiative’s flagship project known as PAISA (Planning, Allocations and Expenditures, Institutions: Studies in Accountability). Since 2009, PAISA has been working to develop a comprehensive picture of the planning, budgeting, expenditure and decision-making systems of elementary education. This year, we expanded our focus from education to include nutrition and sanitation. Moreover, through a partnership with Social Cops- (a start-up motivated to use, collect and collate data for evidence based policy making), for the first time, our team of community volunteers, consisting of students and other enthusiastic youth used technology for real time data collecting and monitoring.

So what is PAISA all about? And what led us to initiate the project? This article will look at some of the reasons why PAISA and PAISA-type studies are required in a country like India, the lessons we have learnt from it and finally some thoughts on solutions that are needed in order to ensure effective delivery of social services, including elementary education.

• The What and Why of PAISA?

The importance of approaches such as PAISA stem from the inherent weaknesses in India’s public finance management systems.

PAISA began at a time when expenditures on core social sectors were increasingly rapidly. Public expenditure on education rose from 3.3 percent of GDP in 2004-05 to over 4 percent in 2011-12. In per capita terms, the increase was over 3-fold from Rs. 888 in 2004–05 to Rs.2,985 in 2011–12.i A bulk of this expenditure was on elementary education. In 2010, the implementation of the Right to Free and Compulsory education Act (RTE), set norms for teachers and basic facilities in schools leading to a further enhancement of resources for elementary education.

Yet, as financial allocations were increasing, Annual Status of Education (ASER) reports regularly highlighted that learning outcomes were stagnant and worryingly, even worsening. According to ASER estimates, in 2010, just over 50 percent of students in standard 5 could read a standard level 2 textii.

Simultaneously, it was clear that the trust between parents and government elementary schools was eroding - with a large number of families, even in rural areas choosing to send their children to private schools. Between 2007 and 2011, the percentage of children in private schools in rural India increased from 19 percent to 25 percenti. Some states such as Kerala had over 60 percent of their children from rural areas in private schools.

While a clear relationship between outlays and outcomes is not always obvious and a number of factors may influence household decisions, this widening gap between financial resources and outcomes and the movement away from government schooling point to systemic failures in accountability.

                                                                                                                                                                                                                                                                                                         [ 27 ]

For accountability to work, two things need to work simultaneously. First, a system of institutions with clear roles and responsibilities designed in a manner that is transparent and incentivised to make accountability possible. And second, an informed and mobilised citizenry that has platforms available for it to engage with the system and voice its demands. Clearly, somewhere the accountability chain in the elementary education system has broken.

PAISA started its work trying to understand what happens with money once it leaves the government treasury. To answer this question we needed to understand the processes of government functioning. Critical to this are the links between plans, allocations, expenditures and institutions. Who plans and is there a link between plans and allocations? How do funds flow through the system to arrive at their final destination? What are the links between school needs and increased expenditures?

However, the process of collecting government data pointed to another inherent weakness - the opaqueness of government fiscal management systems. It is well-recognised that access to information on processes and outcomes of services is a critical component for accountability. Meaningful, accessible and reliable information can help governments identify gaps or bottlenecks that result in accountability failures. Moreover, it can help generate evidence on what works and in so doing, encourage innovation. Government aside, better information empowers citizens and enables them to monitor the effectiveness of government programs and demand accountability.

In India however, data below the national level is neither standardized nor always publicly available. Moreover, data is collated only up to the state level and not to the point where services are actually delivered. Even where data is available, information is collected and disseminated in a very complex manner thereby limiting its effectiveness.

Information however, is only the first step towards creating an accountable system. For information to be a catalyst for change, people need to be involved both in the process of collecting the information but more importantly, the information collected needs to be shared with the actual users and stakeholders of government services. Recognising this need, PAISA launched India’s first large scale citizen led expenditure tracking surveys.

PAISA thus is an exercise in getting citizens to participate in governance processes. Simply put, PAISA aims to connect the implementation processes on the ground (or the micro) with the macro national level resource allocation decisions. Embedded in the approach is the belief that greater citizen engagement with government resources is critical to ensuring accountability for outcomes. As such, we develop practical, scalable, people-friendly tools and use these tools to collect data on fund flows, expenditures and implementation processes. The development and data collection process is accompanied by a capacity building initiative to empower citizens undertake tracking exercises and use data collected to direct and monitor service delivery.i

Over the past 5 years, we have expanded our work to 12 districts across 5 statesii and have built a team of fiscal detectives working on getting more and more citizens to participate in tracking service delivery in social sectors.

Lessons from the PAISA

PAISA studies have broadly pointed to two main inefficiencies in the elementary education landscape. The first, is a design challenge which will require systemic shifts towards a decentralised financial architecture focused on incentivizing learning. The second is a process and implementation challenge – which could be fixed via minor tweaks and using IT-based solutions to build a transparent and efficient public finance management structure. Each of these is discussed in detail below:-

      2. The Design Challenge

Traditionally, elementary education was mainly in the domain of states. In 2001, the Union government launched the Sarva Shiksha Abhiyan (SSA), - a centrally sponsored scheme aimed at universalisation of elementary education. One of the main goals of the scheme was to address the fiscal constraint faced by states by providing them additional resources to enable them to increase their expenditure on elementary education. In order to ensure no state is left behind, the scheme set a series of national benchmarks and SSA norms and guidelines provided the link between the overall objective and actual implementation on the ground.

                                                                                                                                                                                                                                                                                                      [ 28 ]

In 2010, with the coming in of the RTE, SSA became the programmatic vehicle for delivering this fundamental right. The law envisages a decentralized delivery framework. Sections 21 (1) and 21 (2) of RTE mandate the creation of School Management Committees (SMCs) tasked with making annual school development plans and monitoring school level finances and activities. This emphasis on decentralization was anchored in the recognition that delivering a right to education requires a focus on the local – the school and the individual learning needs of children. To quote from the revised framework of the SSA, “the need for the creation of capacity within the education system and the school for addressing the diversified learning needs of different groups of children who are now in the school system” (Ministry of Human Resource Development, 2011).

However, while the programme design of SSA incorporates elements of decentralization such as the creation of SMCs, requirement of micro-planning through School Development Plans` (SDPs), and monitoring of school functioning by the local community; the Act also prescribed a set of defined norms that all schools are expected to adhere to. Moreover, norms for unit costs used for budgeting are set at the national and at times state level with limited flexibility at the lower levels of authority. This creates an inherent tension between the dual goals of financial

centralisation through national norms and a “one size fits all approach” and theoretical decentralisation.

Three examples illustrate this best.

Changing Nature of Financing

First, is with respect to the changing trend of financing elementary education. While SSA was envisaged as a “top-up” to states own elementary education budgets, for some states it has become the primary vehicle of financing elementary education. (See Table 1 below).

Table 1: Predominance of SSA as a mode of financing Elementary Education

Source: Calculations by Accountability Initiative

Given that SSA norms are set by the Government of India (GoI), the increase in both the quantum as well as proportion of SSA budgets has led to increasing centralisation of elementary education financing and compromised the autonomy of the state governments in terms of decision-making. In fact, given that states themselves also have to contribute 35 percent (as of 2015-16, it has been raised to 40 percent) of their state budget to SSA, a significant portion of state budgets are also now tied to GoI determined activities and norms.

                                                                                                                                                                                                                                                                                                    [ 29 ]

The differences between GoI and State priorities can be best understood through an analysis of the differences between proposed and approved allocations under SSA. Under SSA, annual budgetary allocations are finalized through a process of negotiation between GoI and State governments. In February to March every year, state governments present their Annual Work Plan and Budgets (AWP&B) to MHRD who approves the final AWP&B post negotiations. However, the design of the current financing system is such that GoI priorities tend to take precedence over state needs. For instance, with the coming in of RTE and its consequent emphasis on meeting school infrastructure norms, the proposed allocations for schools in Rajasthan received a significant increase with approved allocations constituting 284 percent of initially proposed allocations. Similarly, in Andhra Pradesh, the focus on entitlements has meant

an increase of 216 percent in that component in 2010-11. The differences in GoI versus State priorities were particularly significant in 2013-14 - a year of budget cuts. The quality component was cut across all states. Substantial cuts were also made in school infrastructure (6 percent of proposed allocations were approved in Andhra Pradesh; 10 percent in Madhya Pradesh and Rajasthan).

Uniform norms also mean that resources flow to schools with little consideration of school size. In fact, in 2010, the MHRD’s Joint Review Mission (the MHRDs monitoring committee for SSA) recommended that the government move away from the current system which they described as a ‘one size fits all’ method of determining grant allocations to a system that “…reflect(s) the student strength of the school rather than providing the same grant for all schools, a scale or “slab” system could be devised which would provide larger school grants for larger schools.”i However, till date, this has not been adopted.

Links between school needs and expenditure decisions

While SSA requires that expenditure decisions be taken based on plans made by SMCs that are then aggregated up at the district and state level, evidence suggests that this is often not the case. Directions on spending are usually received from GoI or state governments often resulting in a mismatch between school needs and expenditure decisions. For instance, PAISA surveys in Himachal Pradesh revealed that, the pressure to meet RTE infrastructure requirements resulted in money for boundary walls being sent to all schools despite the fact that construction couldn’t be undertaken due to land unavailability. i

Moreover, SMCs have spending powers over a very small percentage of SSA funds, which are based on fixed norms. In fact, as SSA allocations have increased, the share of funds which are in the inclusive control of SMCs has decreased from 6 percent in 2009-10 to less than 1 percent in 2013-14. Schools thus have little discretion over expenditures incurred.

i Similarly, in Purnea centralized directions were given to buy fire safety equipment and consequently even schools without buildings were forced to buy this equipment.

Incentivising Input Driven Resource Prioritisation

Finally, an inherent weakness in the current design of elementary education financing is its focus on inputs. A breakdown of SSA budget finds that nearly 80 percent of the total SSA budget in 2013-14 was allocated for inputs – teacher salaries and infrastructure activities. Linking resources to inputs inevitably creates incentives for the entire education machinery to focus on meeting input driven targets rather than outcomes. Further, in the absence of clear measurement on outcomes, SSA financing was tied to information collected through the District Information System of Education (DISE) – which only collects information on schooling inputs, further incentivising the system to focus on schooling rather than learning.

1. Implementation Challenges

Design challenges aside the second major area of weakness in the elementary education financial architecture is the process through which funds flow through the system. Some of these are described below

                                                                                                                                                                                                                                                                                                   [ 30 ]

Inefficiencies in the Flow of Funds

For expenditures to be efficient and effective, they must be incurred in a manner that meets needs and priorities. This however is not the case.

SSA funds are expected to reach the state society in two instalments: the first- an adhoc grant is to be released in April and the second in September upon the fulfilment of two conditions – the transfer of the state government share to the state society and progress in expenditure and quality of implementation.

Analysis of the timing of fund releases by both GoI and state governments in the PAISA states suggests that there is no predictability in fund flows. While GoI usually releases the first tranche of around 25 percent funds in May/ June, in Madhya Pradesh for instance, GoI released as high as 41 percent of its share in the last quarter of the financial year 2012-13. Similarly, in Himachal Pradesh, 34 percent of GoI’s share was released in the last quarter of the financial year.

Variations exist even in terms of the quantum of funds released. In 2012-13, 3 PAISA states namely Bihar, Andhra Pradesh, and Maharashtra received close to 60 percent of their approved budget. In contrast, Rajasthan received as high as 92 percent.

Delays at the GOI and state level have a knock-on effect at the lower levels. For instance, Bihar districts of Nalanda and Purnea only received 45 percent and 52 percent of their allocated funds in 2012-13.

Rush to Spend
Delays in fund release has an impact even at the school level. PAISA survey data highlights that many schools do not receive this money, annually. On average, 73 percent schools reported receiving all three school grants in 2012-13. Moreover while school grants are meant to support basic daily expenditure, they often reach schools halfway through the school year. Thus if a school needs funds to fix a leaky roof before the monsoon season but money only arrives in December, school needs remain unfulfilled. Late arrival of funds has two main consequences:- a) rush to spend without consideration of school needs or prioritiesor b) large amounts of unspent balances lying in school accounts. This in turn leads to further budget cuts and delays in the next financial cycle

Layered Bureaucracy and Administrative Weaknesses

Inefficiencies and bottlenecks such as complex paper work, approvals from different authorities, utilization certificates, and technical sanctions, exacerbate the problem. In addition, numerous vacancies in many administrative and financial management postsii often means that expenditure decisions are a consequence of “coping” strategies, rather than an informed decision directed towards achieving a specific outcome. For example, despite infrastructure shortfall, in one district of Maharashtra, civil work activity could not be undertaken due to high vacancies in posts for Junior Engineers.

Solutions: From Tinkering to Restructuring Elementary Education Financing

Over the past few years, PAISA has been trying to advocate for a restricting of elementary education financing. This section describes some of these solutions, focusing first on the “quick fixes” to smoothen the implementation challenges:-

The first important change is in improving the quality of budgeting information by investing in a public finance management system. To address this problem, the government could move towards building a transparent just-in-time system for expenditure management such that each level (schools, districts, or even the state) can receive funds directly in their accounts, on a needs basis. This will eliminate delays of transferring money across different levels of government, and also reduce the large degrees of unspent balances lying at different levels. Further it would ensure greater transparency by enabling regular, real time tracking of funds.

                                                                                                                                                                                                                                                                                                     [ 31 ]

Steps in this regard have already been taken through the creation of a Public Finance Management System (formerly CPSMS). However, greater uptake by state governments would be required and complete integration across implementation units will be needed to ensure its efficacy.

Linked to this is the importance of strengthening the planning process. The unpredictability in fund flows, delays in releases and inability to capture school priorities and needs have eroded the efficacy of the planning exercise. A simple way in which this can be done could be by increasing the planning cycle to a three year cycle. This would allow for enough time to make an effective plan (particularly with respect to infrastructure activities) and give districts the incentive to better estimate their requirements.

Finally however, improvements in implementation aside, the real requirement of moving towards an outcome based financing structure would require a radical restructuring.

Here too there is a significant opportunity. For the first time, GoI embarked on a time-bound consultative process, enabling MHRD to reach out and gain inputs from individuals and other stakeholders across the country on the New Education Policy (NEP). Simultaneously, the NITI Aayog constituted Sub-Group of Chief Ministers on Rationalization of Centrally Sponsored Schemes (CSS) submitted its report calling for a restructuring of CSSs and an integrated approach for education through the constitution of a National Education Mission (similar to the lines of the National Health Mission). These initiatives come at a time when GoI has moved towards greater devolution to states based on the recommendations of the 14th Finance Commission. The stage is thus set to redesign education financing.

One way in which this can be done is to use finances as a lever for ensuring a push towards outcomes by designing a performance-based financing system.

Accountability Initiative’s research has suggested the creation of a three window financing system. The first window could be a block grant to finance states to meet RTE Act norms. Most states have now met their basic infrastructure requirements. Thus this window would decrease over a period of time. The second window could be a formula-based untied grant designed specifically to fund state specific proposals to improve learning goals, against learning targets.

As this is an untied grant, states will no longer need to report on line-item wise expenditures and there would be greater flexibility in designing and spending money. And finally, the third window could be a performance-based incentive to be secured by states that show improvements against targets set. This will also force the central government to invest in measurement and building evidence on outcomes for social sector investments.

Till these changes happen, it is important to continue efforts in creating a community of fiscal detectives that poses questions such as; how does money flowthrough the system, when does it reach its final destination, how it reaches, and finally what actually happens to it.

Key references

Aiyar, Y, A Dongre, A Kapur, AN Mukherjee and TR Raghunandan (2014), ‘Rules vs. Responsiveness: Towards building and outcomes-focused approach to governing elementary education finances’, PAISA, Accountability Initiative, Centre for Policy Research

SSA Portal, Joint Review Missions. Available online at: www.ssa.nic.in

Ministry of Human Resource Development (2011), Sarva Shiksha Abhiyan, Framework for Implementation. available online at:

http://mhrd.gov.in/sites/upload_files/mhrd/files/upload_document/SSA-Frame-work.pdf&embedded=true

Muralidharan K, J Das, A Holla and A Mohpal (2014), ‘The Fiscal Cost of Weak Governance: Evidence from Teacher Absence in India’, Working Paper 20299, National Bureau of Economic Research.

*Avani Kapur works as Senior Researcher: Lead Public Finance, Accountability Initiative at Centre for Policy Research, New Delhi. Her work is focused on public finance & accountability in the social sector.

                                                                                                                                                                                                                                                                                                       [ 32 ]