Acuité Ratings believes that the increasing risks of human and economic losses due to extreme weather events and natural catastrophes can be addressed through efficient utilisation and planning of funds earmarked for infrastructure creation, disaster management and capacity building by state governments. A study conducted by Acuité on state finances reveals that states which have a poor track record of utilisation of capital grants and other funds for various developmental schemes witnessed larger human and economic losses taking place in some regions of India due to natural disasters. The data available on three states – Bihar and Assam – which had been significantly impacted by floods in July 2019 and West Bengal – which has been impacted severely by Cyclone Amphan in May 2020, indicate that the average fund utilisation for various grants and capital schemes have been fairly low as compared to states such as Gujarat and Orissa. In Acuité’s opinion, the key challenge in our federal governance mechanism is not so much of the quantum of funds or grants but of their utilization, planning and quality of the expenditure.

Climate change and environmental damages have radically increased the incidence of extreme weather conditions in India and across the world. In India, almost every year we witness flood or drought in at least 3-4 states leading to significant losses of life, property and livelihood. While any natural calamity is not under human control, surely there are ways for effective mitigation through creation of proper disaster management plans and adequate water management infrastructure (dams etc.).

Last year in Bihar, flash floods caused by heavy rains in the catchment areas of the rivers and in adjoining Nepal affected 12 districts with heavy impact in the district of Sitamarhi and Madhubani. Reports stated that around 100 lives had been lost and the damage to crops and property had been extensive. In Assam, the death toll was estimated to be around 60 with 24 districts and 1.5 lakh hectares of crop land been impacted by the floods, not to mention the damage to the Kaziranga National Park. Due to the Cyclone Amphan in 2020, a reported 72 people have lost their lives in West Bengal along with significant property damage.

Acuité notes that a major impact of 2019 floods had been on districts such as Baksa, Barpeta, Cachar, Hailakandi and Moregaon in Assam along with Araria, Darbhanga, Katihar, Purnia and Kishanganj in Bihar. All the abovementioned districts are categorised as India’s 250 most backward. Until the delinking of the Backward Regions Grant Fund (BRGF) from direct central sponsorship, these districts have collectively received around Rs. 2600 Cr over an eight-year period (FY07 to FY14) from the Government of India. The fund allocations under the BGRF scheme were provided under the heads of capacity building and development grants, focusing on the creation of basic infrastructure and capacity development at the panchayat level. In this time period, however, these state governments could on an average utilise just 54 per cent of the aggregate allocation in this BGRF. While utilisation levels of funds under development grants was below average at best, capacity building fund release was at a dismal 35 per cent on average among effected states.

As per the most recent CAG report on state finances (tabled on 16^th March 2020), the state of Bihar has not been able to utilise Rs. 46,397 Cr out of total grant/ appropriations amounting to Rs. 1.87 lakh Cr. This implies that the state was unable to spend 25 per cent of the provisions under various heads distributed among revenue, capital and loans and advances categories/ expenditures. Interestingly, Rs. 10,789 Cr were unutilised for 31 grants under the capital category. Under these heads, the fund under-utilisation level of Disaster Management Department (39[i]) and Planning and Development Department (35) stand out in particular with 66 per cent and 26 per cent, respectively. Literally, the state Government managed to spend just Rs. 2,599.8 Cr on disaster management against a provision of Rs. 3,962.6 Cr in the fiscal year (FY18). With regards to planning and development, under which Rs. 361 Cr was spent as against a provision of Rs. 1391.3 Cr. Even in the supposedly important departments such as Rural Development (42), the un-utilisation levels were to the tune of 49.8 per cent, i.e. just Rs. 5,203.2 Cr were spent as against the provision of Rs. 10,369.8 Cr for rural development. Since the epicenter of the floods lay in the northern rural districts of Bihar, efficient and higher utilisation of these available funds could have mitigated the impact of the disaster.

Even in Assam, the situation is no different. As per the recent CAG report, it is reported that the state could not utilise Rs. 24,891 Cr or 30 per cent of provisions in the specified timeframe i.e. the state spent only Rs. 58,178 Cr as against a provision of Rs. 83,069 Cr. As regards capital expenditure provisions, the state managed to spend just Rs. 5,502 Cr or 46 per cent of grants/ appropriations in this category as against a provision of Rs. 11,877 Cr for the fiscal year. Among grants that remained un-utilised over Rs. 200 Cr, the heads under the departments of ‘Forestry and Wildlife’ and ‘Rural Development – Panchayat’ (56) are prominent which have recorded a fund utilisation of 57 per cent and 33 per cent, respectively. This lack of efficient fund utilisation may have a direct bearing on the devastation of wildlife at the Kaziranga National Park, not to mention loss of human life and property. Among important grant heads, ‘Water Supply & Sanitation’ and ‘Road & Bridges’ recorded a fund utilisation level of 52 per cent and 60 per cent respectively, while ‘Water Resources’ recorded it at just 24% per cent.

Even though, West Bengal had only one district, West Madinipur in the BRGF list, the state has remained vulnerable to natural calamities such as the current Amphan Cyclone, which resulted in over 70 deaths and significant loss of property. As per the most recent CAG report, overall savings amounted to Rs. 50,416 crores out of total allocation of Rs. 2,11,172 crore in the year considered. In other words, 24% of the funds allocated remained unutilized by the state that could have used in better planning and building necessary disaster mitigation infrastructure. Moreover, the state of West Bengal has surrendered Rs. Rs. 322 crores, despite incurring excess expenditure (which was a result of a lack of planning during the budgeting phase). This according to the CAG report is a lack of financial prudence in budgetary management on the part of the state. Therefore, for such states, which despite investing heavily in capacity building - planning and preparation of fiscal funds seems to be an Achilles heel.

CAG’s probe into the persistent underutilised provisions revealed that much of it was due to lack of timely approvals. When one compares these states with the better performing peers, the differences are significant. Going by the same CAG report series on state finances, it is revealed that Gujarat utilised 85 per cent in the considered timeframe, reflecting Gujarat’s superior fiscal management. The benefit of better capital expenditure is reflected by the state’s persistent under-utilisation under its ‘Relief on Account of Natural Calamity’ head over a five-year period. Even fiscally weaker states such as Orissa has seen a better track record having utilised 95 per cent of the funds under capital expenditure.