ISGP Performance Based Grant (PBG)

ISGP Performance Based Grant (PBG)

One and half decade prior to 73rd  Amendment of the Constitution, PRIs system was introduced in West Bengal. The Government of West Bengal in an effort towards devolution of power to local bodies has amended Panchayats Act several times and constituted State Finance Commission in order to devolve funds in the hands of PRIs. State Government has also framed and passed the activity road map for Panchayats. All these efforts have been meant for strengthening the degree of autonomy and leadership of the PRIs.

Parallel to political decentralization, effort was initiated for strengthening fiscal position of the PRIs. Funds to PRIs have increased from Rs. 10 billion to Rs 54.69 billion between 2002-03 and 2009-10. The vast majority of increase in funding have been increased through tied schematic funds from both central and state governments. The majority of the funding (approximately 75%) was spent by fixed expenditures or devoted to centrally sponsored, earmarked programs over which GPs have little or no control. The discretionary grants to a GP constituted only 14%. This prognosis highlighted the importance of increasing the GP’s access to discretionary resources to enable them to finance service delivery and infrastructure investments in line with local needs and act as strong, autonomous local bodies.

In the backdrop of the above, untied grants under ISGP Project was designed with the objective among others a) to provide GPs with funding of a quantum and character which will allow them to plan predictably and deliver reliably on their functional mandates in line with local needs and b) to strengthen the PRI fiscal framework in the State by introducing a more rational allocation system. Increased discretionary funding has been made available to PRIs to promote greater autonomy in service delivery, especially at the GP level.

Salient Features of ISGP Project Grant

Linked with individual GP performance

Performance of a single GP within ISGP universe is assessed annually based on set performance benchmark. Unlike other untied funds (SFC, CFC) where the district as a unit has to meet the expenditure criteria of 50% of earlier tranche to access the next tranche, the project grant to a particular GP is solely dependent on the performance of the particular GP against set performance parameters.

Timely and Predictable – Based on the annual performance assessment, announcement of block grant for the following financial year is done generally by September every year which informs each qualifying GP about the quantum of grant it is going to receive. This timely and predictable nature of the grant enables each GP to prepare their annual integrated plans on a more realistic and achievable manner. In case of other untied grants, the allocation is dependent on the utilisation performance of all GPs in the district thereby resulting in highly unpredictable nature of grant announcement and allocation which hampers scheme execution and completion. The timely and predictable announcement has ensured that preparation and approval of integrated plan and budget is in sync with the block grant announcement and release.

Promptness in grant transfer – The block grant is released each year during May and the entire amount  is  routed  to  the  designated  bank  accounts  of  the  District  Panchayats  &  Rural  Development Officer (DPRDO) from where the allocation of each GP is routed to  the  GPs  bank  account.  The  entire process is electronic in nature and the duration   for   transfer   of   grant  from project to GP account is 3 days at the maximum. The process for transfer of other untied grants is cumbersome with allocated fund from Finance Department released from the treasury routed to the Panchayats and Rural Development Department  and  then  subsequently  to Zilla Parishad, block level and then finally to the GP. This results in procedural delays thereby extending the transfer window to 20-62 days.

Simple Allocation formula – The grant allocation model is based on a simple per-capita (as per Census population) formulation. Although the entire grant quantum of a GP is based on per-capita calculation, a floor amount Rs. 12 lakhs (minimum level) of grant is ensured for each of the project GPs to enable them to undertake activities as per the approved plan. In order to ensure allocation of the entire quantum of block grant, a redistribution norm is applied. In the event of a GP not qualifying through the APA, the grant amount for that GP is redistributed amongst the qualifying GPs proportionately. This is in contrast to the other untied grant allocation model where the redistribution model is not undertaken.

Grant release in single installment/tranche – The project has successfully disbursed the performance-based block grants in each of the project years through single installments, except in FY 2011-12 where it was in two installments as per the project design. This ensures that the GP receives the entire grant amount at the beginning of each financial year and hence is able to plan and execute all schemes as per the approved integrated plan. This is in contrast to the release of other   untied   grants   where   grants   are released  in  two  installments.  The  second installment is released only if the district provides a utilization certificate of at least 50% of earlier installment thereby delaying the grant release and hampering scheme implementation by GPs.

The performance linked block grant has acted as the key driver of change in bringing about significant improvement in institutional performance indicators resulting in improved planning and fiduciary systems of GPs with enhanced community participation and creation of sustainable infrastructure for community benefit.

Efficacy of Project Grant Enhanced Institutional Performance – The Annual Performance Assessment linked     project     grant     incentivizes healthy competition which in turn has led to increased number of qualifying GPs for block grants. The number of GPs qualifying for block grants has increased from 483 in FY 2010 – 11 to 987  during  FY  2014-15  against  a  set target of 80% at the end of project. The APA also indicates evidence of significant improvement in key institutional indicators. The four Minimum Mandatory Conditions (MMCs) – 1) Approval of Integrated Plan & budget by 31st January, 2) At least 60% utilisation of untied grants by 3rd quarter, 3) Clean external (CAG) audit report and 4) timely digitisation and upload for public view of financial transactions (through GPMS software application) by GP – are recognised as pillars of institutional capacity. The performance linked grant coupled with capacity building and mentoring support and intensive monitoring has contributed towards improvements in the institutional improvement parameters.

Positive shift in Expenditure discretion – The average quantum of all untied grants for a GP has increased from Rs.14.50 lakhs in 2009-10 to Rs.68.8 lakhs in 2014-15 implying an increase of 368% whereas the average quantum of ISGP block grant for a GP has increased from Rs.4.4 lakhs to Rs.24.04 lakhs implying an increase of 446%. This increase has enabled the GPs to undertake activities which are in line with community aspirations, sustainable in nature and maximize the benefit to the community. It should also be noted that around 15 per cent (Rs.162 crore equivalent to 35 million US$) of the Project cost was designed to come from the counter- part financing State Finance Commission (SFC) grants. Since inception of the Project to February 2016, SFC grants amounted to Rs.565.09 cr. which has already exceeded the target. It should also be noted that the quantum of SFC grants has been on an increase over the Project life cycle.

Timely   and   faster   utilization   of discretionary       grants       –       The performance of the project GPs has reinforced   the   assumption   during project  design  that  increased  fund flow    of    untied    funds    will    not overwhelm the spending capacity of the GPs. This has been proved empirically with a utilization of 85% of all  untied  grants  as  of  31st   March 2015, as compared to 55% during the base year of 2010-11. The project GPs are achieving this fund utilisation with a larger quantum of funds, made possible due to the sustained mentoring support on inclusive planning and implementation aspects.

Reduced Fragmentation of fund and creation of sustainable assets – The sustained mentoring support and availability of large quantum of untied grants has brought a change in scheme planning and implementation process. The GPs are now in consultation  with  community members creating assets which are larger in scale and sustainable in nature. This is in contrast to the pre-project phase when GPs used to divide the entire amount equally amongst the Sansad which resulted in smaller and less sustainable projects. GPs now invest on an average Rs.5 lakhs per activity compared to Rs.0.4 lakhs during project inception.

Performance linked block grants has also ensured integration of untied funds from different sources for usage in new projects. During the beginning of the project, it was observed that new projects were financed by SFC grants while maintenance activities were undertaken from CFC grants. The availability of untied block grant along with continuous mentoring support has not only reduced fund fragmentation but also ensured that GPs are now converging funds from all untied sources to undertake large scale projects for creating sustainable assets such as RCC village road, ICDS centres, safe drinking water facilities, community toilets, solar street lights, proper drainage system etc. to name a few.

You can read untied performance based fiscal transfer here.