Accounting and accountability of capital expenditure projects by government

April 27, 2017 | Ashok Datar (Economist)


Municipal Corporation of Mumbai has a budget bigger than that of some of the smaller states of India. Last year it budgeted a revenue expenditure of Rs.41000 cr, and its budget for capital exp was Rs.12800+ cr. Both in absolute and per capita terms, capex for Mumbai is quite large. Not only that, there are several projects for which money is spent by Railways, state and central governments and their agencies such as MMRDA, MSRDC etc. It is observed that there is little or no discipline at all, about keeping track of each capital project and identify its benefits. What we are told is only the cost of project & broad benefits without clear understanding and the estimated period for completion. We can call this as an investment in improving infrastructure. What applies to a Municipal Corporation, also applies to state and central govts. A proper cost benefit analysis in the beginning as well as after completion of a project is very important and it is almost never even attempted. If you bring transparency and governance, the first beginning should be made in case of capital expenditure projects. Before the start of the project or rather before its approval, then during the implementation of the project and after completion and when the benefits start flowing. We should also compare what was originally envisaged and what actually happened both in terms of cost benefit and impact (+ve as well as –ve).

 

When the benefits are available over a period longer than a year it is considered a capital project. Typically most major public projects take between one to five years for completion. They may require another 2-3 years for full maturity. We have many projects especially w.r.t irrigation projects going on for 10/20 or even more years, while they were initially envisaged to require 2-5 years. Obviously this leads to a huge cost escalation, running into several times the original cost as well as time. This much is fairly known to all of us, but there is also a lack of clarity about the quantitative and qualitative benefits of the project. There are also other important issues such as resettlement of project affected people and whether there are any other negative impact on environment or livelihoods of affected people or some other unintended consequences.

 

Each project should have a principal responsible person and this should not be the President, the P.M. or the C.M. but a minister handling a particular responsibility as well as a designated chief executive officer for a particular project. He should preferably be unchanged barring some specific reasons and not an IAS officer who would be routinely or otherwise transferred and there is a lack of continuous responsibility

 

It is suggested that for Mumbai Metropolitan Area or BMC within it ,government should consider tracking all  projects ( under implementation or on drawing boards) cost of which is estimated at Rs.10 cr or more, major projects with cost beyond Rs.100 cr and mega projects for which the cost is beyond Rs.1000 cr. The projects should not be in the nature of replacement of items such as trucks, buses, rail coaches or repairs of roads, highways, bridges etc. but they should involve a new road/rail link, building a flyover, construction of a metro line/network,or bus priority. Waste recycling, hospitals, schools, colleges ,gardens or administrative blocks or redevelopment of slums or water purification/pumping and dams for water supply are some of the examples for Municipal public projects. Whereas, irrigation, dams, highways, power generation and distribution are some of the examples of state projects. Similar list can be prepared for central govt too. The amounts above which the project would require such systematic comprehensive monitoring beyond just the accounting audit would be higher for state and central govt projects.

 

These reports should be prepared every 6 months both to show the original vs latest revised cost and time estimates, reasons for any major deviation beyond 10% from the previous report should be explained in a satisfactory manner. The reports should be signed jointly by the principal political functionary and an administrative chief. These should not be less than 1000 words and not more than 3000 words in a language which should be understood by anyone who has passed 12th standard. This should be considered an important part of the fiduciary responsibility at each level of government. The report should be on the website within 30 days of the previous semester. We should not cover up any major mistakes in any substantive issues whether previously stated or not. There must be an explicit mention of whether any alternatives were seriously considered or not in the initial project proposal to be placed on the website while inviting comments and suggestions from public. A megaproject like coastal road costing Rs.13000 cr for a 31km length is justified with a glib one liner that “doing nothing is the only alternative, which is not only false but arrogant, because it provides only 2 lakh trips/day-mostly by cars, whereas alternatives like bus priority on WEH can provide at least twice the no.of additional passengers at 1/20th of the cost and with much lower emissions and traffic jams. A.C. coaches replacing first class on western railway can also provide more passengers in better comfort and speed than those who would travel by cars on the coastal road creating a lot of parking problems at destinations. This example illustrates how we are keen for mega projects involving civil engineering rather than systemic solutions.

 

Providing such information right at the beginning is no favour to the public, but it would provide a much more holistic approach to the project itself by those who propose it. This will also reduce the need for use of RTI asking for relevant information & justification for project.

Some more examples of projects that need to be placed in public domain:

  • Any project for water supply/pumping etc. should be accompanied by quantitative information of how many ltrs of water supply will get added to the existing quantity. How many people will be benefited by the availability of additional quantity of water? Is supply meant for residential, industrial or commercial use? (Nothing wrong in providing water for commercial/ industrial purposes.)

  • In case of a road link/flyover within a metro or urban area, the current status of traffic (counts at peak hr peak direction) by various modes, including the no. of people carried as against, what is the new link/flyover envisaged to add. How will it benefit the public transport are the details which should be clearly stated. It is important to provide current modal split and what kind of modal split after the project is completed.

  • In case of footpath building or repairs km of footpath built or repaired should be made available.

Given below are excerpts from budget at a glance for 2016-17 juxtaposed with previous year estimates for roads, bridges & traffic operations for Mumbai.

 

The above table shows large amounts provided for capital expenditure but without a clue. Most large capital projects take more than one year –even up to 5-8 years! Hence there is a need to identify all the projects by name and to show the year of their birth and completion and cumulative expenditure as well as revision in the costs or benefits.

 

Bandra Worli Sea Link was expected to cost Rs.400 cr and require 4 years to complete. It was expected to be used by 125000 toll paying crossing in the second year of operation. The project took 9 years to complete. The cost escalated by 4 times & volume of crossings has not gone up beyond 70000 even after 5 years of successful working.

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