Billions of dollars in social welfare funds, donated by private companies or granted by states, including the European Union are lying unspent in dormant accounts in India, Italy and a number of eastern European countries, Geneva Solutions has learned.
Why is it important? The Albert Hirshman Centre on Democracy, has shed light on a massive governance problem amplified by the Covid-19 crisis - with some of the funds repurposed with limited control. Funded by the Swiss National Fund, their six months old ongoing research, “The puzzle of unspent funds”, unveils a system whereby funds that should benefit poor and vulnerable communities remained dormant due to administrative restrictions, weak accountability, and frequent incompetence. Says Centre Director, Shalini Randeria:
“This dysfunctional governance has huge implications. Covid-19 was only the catalyst. These funds should be released immediately.”
At the same time, after officials in India were informed of the large outstanding reserves, the government indeed began to tap into some of the dormant accounts during the present Covid-19 emergency - and that has also raised new concerns about accountability for how funds are actually spent and used, she said.
A breakthrough. The hidden booty was first uncovered in late 2019, while the Centre was conducting research on India’s mining industry. The team (two staff based in Geneva and two in India) found that large amounts of funds donated by private corporations for the benefit of communities affected by mining activities, following the sector’s privitization, had not been used for years:
“To our absolute surprise, the companies seemed completely disinterested in these funds, and the communities supposed to be involved in decision-making were marginalized from fund management.”
“We discovered a similar phenomenon of low spending of structural funds in Europe, especially in Eastern European accession countries and in Italy.”
The Centre found that there was consistent underspending of these special purpose funds, and this could well be the case in other parts of the world like Africa or South America.
Funds’ origins and purpose. In the case of Italy and Eastern Europe, the funds come from the European Union. Unspent, they are either returned to the EU or left in dormant accounts. In India, the funds usually come from special-purpose taxes on economic activity (e.g. company profits, costs of building projects, royalties on mining leases). Hundreds of such special purpose public funds have been created to improve the welfare of low-wage earners and migrant workers in fields like construction and salt-making as well as mining, according to Randeria. In India, where 80% of the labor force is informally employed, and thus not unionized, these funds also may constitute the only social safety net.
“In the absence of work and wages, these poor people will die of starvation because of the strict lockdown under Covid-19. These are funds that can save lives. Welfare funds are for this purpose: to allow for safe drinking water, public health facilities, alternative livelihoods. If we are lucky they could be released quickly to help some people affected by the lockdown.”
Accountability. NGOs and other civil society actors in India picked up the Centre’s research on this topic, and have used it to lobby the Indian government to release monies from the funds to help the most vulnerable during lockdown. However, although the money is now finally being put to use, another danger now looms - that the participatory mechanisms that are supposed to guide and monitor spending, may be sidelined. Randeria:
“Executive decision can bypass all the people’s participation in management of funds. The risk of misappropriation is high. One of our concerns is that these funds are being repurposed under Covid without any mechanism to be able to trace spending.”
Possible explanations. Why did these special purpose public funds remain unspent is a mystery, and the current health crisis makes it even harder to untangle the story. Randeria:
“In India, companies are not interested in what happens to these funds that they see as yet another tax. Government officials have little incentive to spend them because they are not censored for non-utilization. The rules for spending are cumbersome and officials don’t want to be accused of doing something wrong. So, they just sit on the money.”
The Centre also discovered weaknesses in state record-keeping – such as mising data on eligible workers or migrants – that prevented the identification of the beneficiaries.
Public awareness using press and civil society action to help beneficiaries lobby for the money to be spent for their benefit;
A major discussion in government legislatures focusing on annual public auditors’ reports, which generally make note of such unspent funds, but are little-noticed by politicians or the public;
Legal mechanisms – for example, supporting potential beneficiaries to use the courts to exercise their right to benefit from those funds.
Democracy in times of Covid-19. All these avenues are limited by Covid-19, as parliaments remain paralyzed and courts are not meeting in regular sessions. Media is focused on the immediate crisis, while the civil liberties of affected workers may also be curtailed, limiting their lobbying power. Randeria concluded:
“Many of the usual mechanisms of democratic participation are suspended. Power has shifted to the executive, which is difficult to hold accountable under these circumstances.”