Q7. Diversion of Funds from National Housing Scheme (NHS)

Q: Rajesh Kumar is a senior public servant, with a reputation of honesty and forthrightness, currently posted in the Finance Ministry as Head of the Budget Division. His department is presently busy in organising the budgetary support to the states, four of which are due to go to the polls within the financial year.
 
This year’s annual budget had allotted 78300 crores for National Housing Scheme (NHS), a centrally sponsored social housing scheme for the weaker sections of society. 775 crores have been drawn for NHS till June.
 
The Ministry of Commerce had long been pursuing a case for setting up a Special Economic Zone (SEZ) in a southern state to boost exports. After two years of detailed discussions between the centre and state, the Union Cabinet approved the project in August. Process was initiated to acquire the necessary land.
 
Eighteen months ago, a leading Public Sector Unit (PSU) had projected the need for setting up a large natural gas processing plant in a northern state for the regional gas grid. The required land is already in possession of the PSU. The gas grid is an essential component of the national energy security strategy. After three rounds of global bidding the project was allotted to an MNC, M/s XYZ Hydrocarbons. The first tranche of payment to the MNC is scheduled to be made in December.
 
Finance Ministry was asked for a timely allocation of an additional 6000 crores for these two developmental projects. It was decided to recommend re-appropriation of this entire amount from the NHS allocation. The file was forwarded to Budget Department for their comments and further processing. On studying the case file, Rajesh Kumar realized that this re-appropriation may cause inordinate delay in the execution of NHS, a project much publicized in the rallies of senior politicians. Correspondingly, non-availability of finances would cause financial loss in the SEZ and national embarrassment due to delayed payment in an international project.
 
Rajesh Kumar discussed the matter with his seniors. He was conveyed that this politically sensitive situation needs to be processed immediately. Rajesh Kumar realized that diversion of funds from NHS could raise difficult questions for the government in the Parliament.
 
Discuss the following with reference to this case:
(a) Ethical issues involved in re-appropriation of funds from a welfare project to the developmental projects.
(b) Given the need for proper utilization of public funds, discuss the options available to Rajesh Kumar. Is resigning a worthy option? (250 words) (20 marks)
 
Answer:                                                                                                       
This is a case where Rajesh has to decide the ethicality of diversion of the funds allocated for building houses for weaker sections of society to the setting up of SEZ and a natural gas processing plant. The construction of houses for the poor can provide immediate benefit to the poor, while the setting up of SEZ or the plant would provide benefit in terms of employment and revenue. In this case, the options available to Rajesh are as follows:
 
1. Allow Diversion of Funds
Rajesh can divert Rs 6,000 out of Rs 78,300crore from NHS to the SEZ and natural gas processing plant project. This will be an unpopular move politically and hence may be rejected by the parliament.
 
2. Self-generation of Resources
Rajesh can propose the SEZ and the PSU to generate their own resources by taking loans or issuing bonds. Since these projects are business projects, they may easily find private investment for the completion of these projects. The government can stand as a guarantee in this case to facilitate resource generation. 
 
3. Public Private Partnership (PPP)
One good option is to complete projects under the PPP mode. This can save the government revenue for completion of the project.
 
4. Resign from the Job or Proceed on Leave
Rajesh can resign from his job or proceed on leave to avoid taking any decision. However, this will not be a right option since it will be an act of cowardice and running away from the responsibility. 
 
Hence, in this situation, the best option is option 2, which will complete the project without diversion of funds meant for housing for the poor.
-(274 words)-
 
Q7. Diversion of Funds from National Housing Scheme (NHS)
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