The First Independent Review of Backward Region Grant Fund 1

1. Objective and methodology of review 2. Synthesis of findings from the 8-state review Overall assessment Thematic findings Development Grants Planning Capacity Building Support Programme Management and M&E 3. Options for improving impact of BRGF 2

Mitigate regional imbalances, contribute towards poverty alleviation in backward districts and promote accountable and responsive panchayats and municipalities 3

1. Bridge critical gaps in local infrastructure and other development requirements that are not being adequately met through existing inflows. 2. Strengthen, to this end, panchayat and municipality level governance with more appropriate capacity building, to facilitate participatory planning, decision making, implementation and monitoring, to reflect local felt needs. 4

3. Provide professional support to local bodies for planning, implementation and monitoring their plans. 4. Improve the performance and delivery of critical functions assigned to panchayats, and counter possible efficiency and equity losses on account of inadequate local capacity 5

 Assess progress in the implementation of the programme with respect to objectives;  Highlight what has worked; and  Recommend what needs improvement.  Focus on:  Development fund management  Decentralized participatory planning  PRI and ULB capacity building  Program management and M&E 6

 Preparatory activities:  Reviewed guidelines and secondary data  Prepared the data collection checklist/ questionnaire and report format for 8 state teams  Agreed on the scope and outputs of the assignment with MoPR  Primary data collection in each of the 8 states  Typical state team: World Bank, UNDP, MoPR consultant, state focal points from DoPR and SIRD 7

 Interview stakeholders and collect data in min. 2 districts, 2 Intermediate Panchayats, 2 ULBs and 2 GPs  Reviewed more than 55 projects financed by BRGF  Debriefing and validation of findings with Dept of Panchayati Raj, SIRD, and reps from PRIs/ULBs  Debriefing with MoPR on preliminary findings  Analysis and synthesis  8 state reports and a national report 8

(1) Bridge critical infrastructure gap BRGF financed many small scale investments in public infrastructure of benefits to local communities  The discretional nature of the BRGF development funds to PRIs and small ULBs was the most appreciated feature of BRGF  BRGF provides 5-40 % of the discretionary development funding in ULBs and 50-90% in PRIs 9

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 BRGF allocation is too small to make a dent at local level or address regional imbalance  0.4% of total GoI budget; less than 10% of NREGS Budget  BRGF per capita annual allocation is meagre: Rs 103 nationally; q1=81, q2=111, q3=176; q4=3,162  Most GPs get lakhs per annum (in all states)  Blocks get: 0 lakhs in Rajasthan; 16 lakhs in AP; 55 lakhs in Assam  ZP: 0 lakhs in Rajasthan; 2.5 crore in Assam; 3.9 crore in Bankura in West Bengal; 5 crore in AP;  An average PRI undertakes a very small number of micro projects of Rs 1-4 lakh size; an average ULB undertakes a few projects of Rs 2-6 lakh size 11

In most states, BRGF stimulated grassroots participation in Gram Sabha and bottom-up planning  In other states “petitioning” is a more accurate description of current role of PRIs, with DPC/HPC holding ultimate discretion and line departments absent in local planning  District Planning Cell (technical secretariat) very weak or non-existent  Current convergence examples are mostly PRIs using BRGF as bandages to fix other schemes’ deficiencies  PRIs/ULBs unlikely to play a leading role in integrated planning when its discretionary budget is dwarfed by other players 12

BRGF stimulated capacity building (esp. top-down orientation and training) activities targeted at PRI officials and functionaries; some states are doing much more (e.g., West Bengal, AP); reaching a large number of LG officials through cascading model and satellite  Little progress in filling staffing gaps in PRIs and ULBs  Confusion about using 5% development grant for filling staffing gap  Reluctance to use Plan budget for recurrent costs  ULBs are neglected in capacity building program  PRIs/ULBs do not have much control over capacity building content or intensity 13

 Major bottlenecks in planning and budgeting processes and flow of funds impede utilization of BRGF budget allocation  There is one financial year release back log from GoI to the States (some places 2 years) due to ▪ layers of “approval or review/veto” of development plan ▪ Further delay in state release to PRIs/ULBs (more than 15 days stipulated by Guideline), sometimes related to Model Code of Conduct or Interim Budget for first 4 months ▪ In Rajasthan it took up to 4 months in the first year and 2 months in the second year to release to GP (more than stipulated 15 days) ▪ Subsequent disbursement further delayed by current requirement of submission of UC (100% for Year T-2 and 75% for Year T-1)  Implication of the current fund flow system: PRI/ULB that spends fast and accounts fast will have to wait for slower peers; requiring 100% UC for any year is risky (even one laggard can affect entire district) 14

StateFrom GoI to StateState to PRIs and ULBs AP Jan 7, 2008 March 2008 (1 st release) March 2009 (2 nd release) Assam Release only for one district (Morigaon) during 2009/10 No release yet Bihar January 2008 March and May 2008 for Madhubani and Samastipur respectively (1 st instalments) Chhattisgarh Dec 12, 2008 Feb 16, 2009 & Mar7, 2009 MP Orissa Ganjam – Dec 27, 2007 Dhenkanal – May 8, 2009 Jan 29, 2008 July 3, 2009 Rajasthan March 08 (90%) + 10% March 2009 May 27, 2008 (90%) July 2009 (10%) West Bengal Feb 2008 (90%) Bankura Feb 21, 2008 Pururia Feb 28, 2008

 Despite staffing gaps, considerable absorption capacity was noted at both PRI and ULBs, when funds were released  Time lag between receipt of funds and initiation of project is often less than a month  Implementation often between 3-6 months  The quality of investments observed was generally satisfactory in the states visited or at least comparable with other projects in the area  Supervision and control by various levels of engineers 16

 Planning and budgeting for O&M is weak in all states  Community based O&M was not emphasized in all local bodies; community members perceived O&M to be the responsibility of the PRIs and ULBs  Some ULBs attempted to budget for O&M but their budgets are meagre 17

 No regular learning and adjustment mechanism in program management  No baseline or updated measurement to inform whether BRGF is achieving objectives of building PRI/ULB capacity or addressing regional imbalance  Insufficient staffing for program management at MoPR, state, district levels, particularly in the areas of financial management, planning, M&E, capacity building, communications  State HPC should focus on strategic management of BRGF rather than rubber-stamping or vetoing district plans; ditto for DPC

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Given existing funding for BRGF, what’s a feasible goal?  Can current BRGF funding address regional imbalance?  Is integrated planning at local level feasible when PRIs/ULBs have so little discretionary resource?  Is BRGF the best instrument for financing local investment and capacity building for ULB? ▪ Current BRGF contribution to poverty reduction and capacity building in ULBs is superficial ▪ MoPR and Dept RD&PR have no mandate for ULBs 20

 Addressing regional imbalance within current resource envelope is unrealistic;  As the only gesture by GoI to “empower” PRIs/ULBs, BRGF should focus on the PRI/ULB empowerment goal and do it well  Suggest reframing the goal as: Strengthening LGs so they can proactively deal with local development challenges 21

Simplify planning process:  Give PRIs/ULBs exclusive decision-making power within their mandate and let them be accountable for their decisions  Delete DPC/HPC approvals that add little value: they should not intervene in PRI/ULB priorities; should focus on technical support not control  Clarify planning roles of stakeholders in guidelines  Clarify guidelines for use of funds within the spirit of the BRGF  Clarify a List of non-eligible expenditures (Negative List) prior to the start of planning (and allow PRIs/ULBs full discretion to allocate the BRGF within the provided menu – positive list)  Clarify the use of the 5 % for functionaries (and how the increased staffing costs should be addressed beyond BRGF)  Allow a percentage of the BRGF development grant to be used for O&M  Ex post spot check of compliance and audit rather than ex ante approval  Start the planning process much earlier with announced budget envelope and planning calendar 22

Improve disbursement system:  Change the current disbursement system based on UC submission to e.g., a replenishment system  Front loading of funds with regular replenishments  Allow a higher level of unspent funds  Direct transfer of funds from state to PRIs/ULBs where possible  Consider moving away from ex ante control to ex post audit and monitoring  Better communications 23

 A much more focused CB approach is needed  Every state needs to systematically monitor level of PRI/ULB governance practice capacity in core areas (esp. planning, accounting, engineering, record keeping, asset O&M) and adjust CB interventions accordingly  Create basic staffing strength in core areas  Target training and hands-on support to weak areas  Every state requires a LG CB Coordinator; similarly at district level  Supplement the current supply-driven approach with a demand-driven approach in capacity building program  Give LGs some discretion to manage their own capacity development  State can consider establishing a competitive market for capacity building and focus on stimulating supply and ensuring quality 24

 CB delivery system is weak in many states; funding for CB is NOT the binding constraint  States with weak SIRD need to outsource training providers  MoPR establishes a PRI CB Cell to monitor progress, facilitate experience sharing, peer to peer reviews 25

 Keep the link between development grant and capacity building, but need some gradual introduction of performance incentive to stimulate improvement, e.g.,  Link disbursement of development grant to improvement in governance practice and capacity  Lapse all unspent allocation of each FY  Potentially link allocation of development grant to performance  Reallocate unspent balance of slow PRIs/ULBs to fast ones within FY, or  Allocate a performance bonus based on previous year performance (e.g., absorption and accountability) 26

 Need to establish regular learning and adjustment mechanism in program management  Annual field review of 1/3 of states  Regular desk review of core indicators of PRI/ULB capacity (and backwardness, if it’s a BRGF goal)  Strengthen program management at MoPR, state, district levels, particularly in the areas of financial management, planning, M&E, capacity building, communications  State HPC should focus on strategic management of BRGF rather than rubber-stamping or vetoing district plans; ditto for DPC

 BRGF funding should be increased significantly  to make PRIs/ULBs relevant players in local planning process  to enable PRIs/ULBs to make significant investment in local infrastructure  to possibly expand geographic coverage  BRGF allocation formula needs to be improved to make it an equalization grant  Transparent formula with readily available and widely accepted predictors of poverty as indicators, e.g., agric labor as share of active labor force, % ST/SC population  Current allocation has no poverty targeting 28

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 BRGF has started a process of PRI/ULB strengthening through providing discretionary resource and capacity building support to PRI/ULB  PRIs/ULBs are using discretionary resource to address local needs identified through participatory process  Bottlenecks in BRGF development grant disbursement need to be addressed  BRGF development grant is very small, compared to other schemes, hence slow progress in improving integrated planning  Capacity building component needs major improvement  BRGF objective needs to be clarified 33

 Support a national framework aiming at promoting strong LGs  Support states that are willing to provide LGs with autonomy and capacity building support  Help a few states pilot a LG capacity and performance monitoring system  Help introduce in a few states links between LG capacity/performance and development grant disbursement and/or allocation  Help revise BRGF district allocation formula, if there will be significant increase in Development Grant 34