On How Government Mulcts People Pretending to Help the Poor

CESS, LIES & RED TAPE (The Hindustan Times, Mumbai Edition, April 4, 2007)

By Mahesh Vijapurkar

It is all very well that the Maharashtra government has said it would soon act on reports from the CID and the Revenue Divisional Commissioner on a Rs 251 crore misappropriation of Employment Guarantee Scheme (EGS) funds in Solapur district. The scam was simple — overestimate the funds requirement, record that several poor persons were employed when only a few, if at all, actually were. In some instances it was even simpler: fake it all. EGS pays the poor in distress up to — on record again — Rs 51 per day of manual labour in rural Maharashtra.

Actually, all this is routine stuff. Year after year, reports by the EGS committees, filed with the Maharashtra Legislature, have been routinely listing the rampant shady deals in what is, on paper, a sound poverty alleviation scheme for farmers and farm labour hit by drought. So endemic has this large-scale racketeering become that eyebrows aren’t raised anymore. A probe here, a probe there and everything is wrapped in red tape and forgotten. Solapur is just the iceberg’s tip.

The March 23 promise of action carries no conviction. For the government is itself operating a scam on a mind-boggling scale under the pretext of running the EGS. Here’s how it works: money is collected via taxes and various cesses from you and me, on the promise that it would be used for providing jobs to the rural poor during droughts, for digging wells, building roads, percolation tanks et al. In reality, this money is diverted to other populist schemes. No questions asked.

This money in the kitty for diversion comes from every employee in the organised sector who forks out a profession tax. Then there is tax on trades and callings, additional tax on motor vehicle purchase, a cess on sales tax, a special levy on irrigated farmlands, a surcharge on land revenue and on non-residential urban lands. This constitutes half of what is statutorily the Employment Guarantee Fund (EGF). The other half comes in as government’s matching grant for every rupee collected. That’s a statutory obligation.

Under EGS, if 30 people and more walk up to a tehsildar and ask for work because they have no jobs, he is bound to provide it, be it unskilled and temporary work, as close to their village as possible. But in practice, it works differently. The government is quietly stashing away the cash under EGS. It has a whopping unspent corpus in the Employment Guarantee Fund. At the end of fiscal 2005, the balance was Rs 7,941 crore. On March 31, 2006, it was Rs 9,601 crore. Going by these figures, on March 31 this year it ought to be Rs 11,000 crore and more. What’s wrong in building up a huge corpus, one may ask. There is a catch.

The money is not just unspent; it is also quite hard to trace. On querying government officials, I got a bland but official answer that was actually a shocker: The money could well have been unspent on EGS, but it was “unavailable.” When pressed, a minister, surprised at my naiveté, replied, “What is not spent on EGS is spent on other things.” So, even the estimated Rs 11,000 crore balance is apparently only on paper. One wonders how this passes muster with an auditor.

Every year, therefore, money is being collected on false pretexts — ostensibly to support the EGS, but spent elsewhere. The EGS Act, adopted in 1977 apparently foresaw such dipping into the EGF coffers and stipulated that if any of it is borrowed — officialese for diversion? — it ought to be returned in the next fiscal. That has never happened. In fact, from 2000-01 to 2002-03, the government did not even make its matching contribution of Rs 3,144 crore. The government should stop collecting the EGF. It should either spend the money on creating rural jobs or stop collecting the taxes and cesses. But it is scarcely in a position to do so. It is debt-ridden and any money comes in handy.

However, the government’s defence is that at no time has the EGS been starved of funds, EGF or no EGF. Clever. It would argue that this year too a substantial allocation has been made for EGS (Rs 1,000 for 2007-08) and, as Finance Minister Jayant Patil said in his Budget speech, more would be made available if required. But the government need not worry, because the actual expenditure will assuredly be well below allocation.

The truth is that, except for the years between 1981 and 1989, the expenditure has been about half of the annual accruals. All other years, the collections have been jam-on-butter for a perpetually hard-pressed government.

By continuing with this taxation on false pretexts, the government is fattening the cow every year. Every year, more money flows from the levies and there is more to dip into. Unless, of course, the law is changed and the EGF, instead of being a part of the consolidated fund, is converted into an escrow account which cannot be touched except for the stated purpose, which is to provide jobs to the poor.

Or the government could use the unspent resources — unspent on EGS, that is — to develop infrastructure, which could attract industries and generate employment away from Mumbai, Pune, Nashik, Nagpur and Kolhapur and reduce dependence on farming as a livelihood. That would mitigate any crisis during droughts when demand for work goes up. In 2006-07, a normal year, it touched 8.27 crore mandays, on which Rs 578.91 crore was spent. However, it is worth noting that the total collection for EGF that year was about Rs 2,900 crore.

In other words, even in a year when a sizeable amount was spent on EGS, there was still an excess fund of about Rs 2,300 crore. It is time the government was asked how the surplus funds were spent. Now that the National Rural Employment Guarantee Scheme (NREGS) has become operational, the demands on EGF would go down further, because the Central scheme covers 12 districts of the state. If the NREGS provides 100 days of work as promised, the demand on EGF would drop. EGS has to provide jobs for all 365 days. For all that, the state government shows no inclination to end a steady source of revenue that it has been using for unstated purposes. So what’s Rs 251 crore misspent or misappropriated in Solapur?

Email author: mvijapurkar@gmail.com
Mahesh Vijapurkar is a freelance journalist