Based on other studies in this series commissioned by DFID and the World Bank this draft report outlines a tentative proposal for a new fiscal transfer to Gram Panchayats (GPs) to phase in, as the current DFID project (Strengthening Rural Development, SRD) phases out in 2011. According to current discussions, two primary goals of the new grant appear to be 1) improvements in the organizational capacity of GPs and 2) improvements in accountability and financial management. If the new grant is to rely on the village development committees (GUS) for identification of service needs, the annual funding would have to be at least US$ 2 per capita to allow improvements in education or child/maternal health services in every village over the four-year lifespan of the program. If the aim of the project is to have all participating GPs improve service delivery in each of the four main sectors (child/maternal health, education, water supply, and roads) in each village over the lifespan of the program, then the aggregate level of funding has to reach US$ 12 per capita over the entire project period. The latter can include dove-tailing of the BRGF funds (US$ 1-2 per capita per annum) and State Finance Commission grants (US$ 0.5 per capita per annum). The World Bank Project Concept Note envisions the universe of around 800-1000 targeted GPs. Based on criteria of need and “leveraging off the foundations established by other programs,” as much as half of the targeted GPs could be selected from the current 462 recipients of SRD grants. To make use of the technical support infrastructure, the remaining half of the targeted GPs can be selected from BRGF districts. Having all districts of a division included within the program would allow for monitoring and evaluation to occur during the quarterly development meetings. The most pragmatic approach to determine entitlements for specific GPs would be allocating a fixed amount per capita, possibly adjusted upwards each subsequent year. However, to allow any meaningful projects in GPs with tiny population, some minimum size of the grant can be guaranteed regardless of the GP population size. There appears to be consensus among the stakeholders that the new grant should not be used for recurrent expenditures. However, to mitigate the risks to sustainability and the ultimate impact of the program, revealed by international experiences with similar grants, the grant guidelines can require explicit consideration of operation and maintenance costs in the project planning documents. A consensus appears to have emerged that evaluation of cross-cutting institutional performance should go beyond transaction audit and include a few indicators in each of the following areas: financial management, procurement, participation, accountability, environmental screening, own-source revenue generation, and human resources. Because this grant scheme is to include hundreds of recipients, to be sustainable in the long run, the assessment process will have to rely on desk-reviews of standard reports produced by the existing M&E system, such as inspection by the Panchayat Audit and Accounts Officers (PAAO), rather than field visits by contracted auditors as in other international experiences covering only a few dozen recipients. In the short run, however, private contractors might have to be brought to perform annual performance assessments possibly engaging PAAOs in this exercise as trainees. To implement the grant, a number of regulatory changes (and rules) will need to be effected including the Guideline for Integrated Panchayat Planning, the PAAO report template, and the 2007 GP Accounts, Audit and Budget Rules.
