The Hindu Business Line : Multilateral funding — Whither the management consultant?

Given the right environment, management consultants will indeed be seen to play a key role in putting India firmly on a sustainable growth path and in actively supporting its march to achieving developed country status by 2020.

ANY country's overall upliftment depends on how effectively it uses development finance. Since Independence, development activity in India has been focussed on power, roads and transport, water, education, urban and rural social and health sector, etc. The creation of new facilities or improvement of existing ones requires huge amounts, which have been coming into the country from such international financial institutions as the World Bank, the Asian Development Bank, KfW Germany, Export-Import Bank of Japan, Japan Bank for International Co-operation, the Department for International Development (DfID), UK, and others. The funds from these sources are in the form of either loans or grants (especially in the case of the DfID).

The beneficiaries are Central and State government departments as well as urban civic bodies (municipal corporations, for instance). Appointment of management consultants is a pre-condition in most of the funding for these development projects.

There are two kinds of management consultancy projects related to developmental finance — technical assistance projects and loan projects.

In technical assistance projects, the consultancy fees are not part of the loan/grant and are borne by the funding agencies, with the aim of institutional strengthening and capacity building of the beneficiaries. The financial institutions directly oversee the activities of management consultants. Such assignments are mostly fixed-budget assignments, and the consultants are selected based on the technical assessment (quality) of their proposal.

On the other hand, loan consultancy projects are funded from the loan/grant and, therefore, the government department that receives the loan/grant is the controlling agency for the consultants' activities. Since the consultancy fees in this case comes from the loan, the executing agency (the department) is very cautious about the fund outflow in the form of consultancy fees, and the consultants are selected on a quality and cost-based system.

Now the question arises: Why have management consultants at all? What are the expectations of the multilateral institutions from the consultants? The institutions feel that when any government, especially that of a developing country like India, takes a loan or accept grants for development activities, the capability of the government needs to be strengthened in respect of effective utilisation of funds and timely repayment. Therefore, the mandates for the management consultants are institutional strengthening, capacity building, business and financial restructuring, financial management and staff training. It is expected that management consultants will bring in the best global practices. Therefore, the role of the management consultant ideally should be that a pathfinder — for achieving development at the national level — rather than a preacher in development finance.

Apart from this service, consultants are sometimes appointed for monitoring and controlling developmental projects. In such assignments, the consultants are expected to undertake performance evaluation of other consultants, contractors or executors of the project and undertake gap analysis between the targeted and the real achievement. .

But mere gap identification will not justify appointing management consultants. They are expected to identify the possible reasons for deviations from planning and recommend the steps required to achieve the targeted goal. If required, they may have to do some hand-holding in the implementation phase. Last but not least: Are management consultants fulfilling their roles and responsibilities as desired? Answers in the negative will be more in number than affirmative endorsements.

At the proposal stage, the management consultants' list usually includes a number of heavyweights. Unfortunately, in a number of cases, these persons are never, or only occasionally, visible during the execution of the assignment. There remain a huge gap in terms of qualification and experiences of team members proposed vis-à-vis those actually undertaking the work.

Indian management consultants usually deploy people who lack adequate domain expertise. There is still a severe dearth of international expertise input (the main reason for involving management consultants) from management consultants, especially in the power sector and urban social sector projects. In the process, the raison d'etre of involving management consultants in Indian development finance gets weaker. The reform process remains uneven and incomplete. Government departments and quality of service delivery are yet to achieve the proposed level of efficiency.

While the government is reeling under an ever-increasing burden of foreign debt (either directly or by acting as `guarantor' for State government loans) and spends huge amounts from its loan on consultancy fees, the nation has a 100 per cent right to expect a positive outcome from the management consultant's services.

Only a system of strict performance reviews (monitoring and controlling) by the departments and full commitment from the management consultants can lead to effective use of development finance in India.

(The author is Assistant Professor, Finance, ICFAI Business School, Kolkata. The views are personal.)

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