DEVELOPING A CONCEPTUAL FRAMEWORK FOR PREPARING THE GOVERNMENT OF INDIA’S OUTCOME BUDGET:  SOME THOUGHTS[*]

 

 

ANAND P. GUPTA[†]

 

 

 

            About nineteen months ago, on February 28, 2005, Finance Minister P Chidambaram accepted a major challenge: to reform the management of the Government of India’s expenditures, with the focus on improving the efficiency and effectiveness of its expenditures.  He stressed that outlays did not necessarily mean outcomes and that the people of the country were concerned with outcomes (Government of India, 2005a, p. 22).  Since then, he has presented to the Parliament Outcome Budget: 2005-06 (Government of India, 2005b) and Outcome Budgets 2006-2007 of the Flagship Programmes (Government of India, 2006b),[1] with the individual Ministries/Departments of the Government of India (GOI) separately presenting their outcome budgets for 2006-07.

 

            Prior to the presentation of Outcome Budgets 2006-2007 of the Flagship Programmes by the Finance Minister and the presentation of outcome budgets for 2006-07 by the individual Ministries/Departments, detailed guidelines were issued by the Ministry of Finance’s Department of Expenditure (Ministry of Finance, 2005), requesting the Ministries/Departments, except those exempted, to prepare detailed outcome budgets for 2006-07 and performance budgets for 2005-06.[2]  These guidelines, issued on December 30, 2005, constitute a major step in developing and articulating the conceptual framework for preparing the GOI’s outcome budget:

 

·         These guidelines clearly recognize the futility of the distinction between Plan expenditure and non-Plan expenditure[3] and assert that outcomes be related to both Plan and non-Plan expenditures.  This is what the guidelines say:   “The non-Plan expenditures are necessary to maintain the basic infrastructure without which the Plan interventions are bound to fail in meeting the intended objectives.  Role of non-Plan expenditure  is therefore supplementary and facilitative.  Hence, outcomes cannot be categorized as Plan outcomes and non-Plan outcomes” (Ministry of Finance, 2005, p. 3).  The guidelines go on to say that “Schemes/items in the Statement of Budget Estimates having only non-Plan expenditures , which can be linked to certain deliverable outputs, should find mention in the Outcome Budget” (Ministry of Finance, 2005, p. 3).  With the Outcome Budget: 2005-06 limiting the exercise to only Plan expenditures (Government of India, 2005b, p. ii), this represents a major improvement in the conceptual framework for preparing the GOI’s outcome budget.

 

·         The guidelines talk about including the contribution of private parties in the case of public-private partnership projects as part of the GOI’s outlay (Ministry of Finance, 2005, p. 3).  The guidelines also talk about building the requisite capacity for including “tax expenditures” as well (Ministry of Finance, 2005, p. 3).  These are excellent ideas.

 

            But the guidelines do not go far enough; indeed, they suffer from several major weaknesses.  Firstly, we need to be clear whether it ought to be budgeting for achieving the intended outcomes, or converting the budgeted outlays into the intended outcomes.  That is, is it outcome to outlay, or outlay to outcome?   The guidelines talk about the latter.  One can argue that it ought to be the former, with the government allocating the outlays that will be required to achieve the identified intended outcomes.  Incidentally, the guidelines specifically exempt as many as 30 demands/appropriations, adding up to a substantial amount, from the purview of outcome budgeting without articulating the rationale for these exemptions.[4] 

 

            Secondly, given an intended outcome, say reduction in infant mortality, should it be one target for the country as a whole, or different targets for different districts, with higher reduction targets for districts with higher infant morality rates?  One can argue that the latter approach will be more appropriate.  The guidelines do not address this issue. 

 

            Thirdly, according to the guidelines, outcomes are supposed to be related to a Ministry’s/Department’s Plan expenditure + its non-Plan expenditure + its complementary extra-budgetary resources (such as matching share from the State Governments for Centrally Sponsored Schemes, internal and extra-budgetary resources of central public enterprises and contribution of private parties in the case of public-private partnership projects).  Now consider, for example, the outcome of reducing infant mortality to 30/1000 live births by 2010 (Government of India, 2006b, p. 6).  Should the achievement of this outcome be related to only the outlays of the GOI’s Department of Women and Child Development which is the concerned department for this outcome?  Do state and local governments’ outlays on women and child development play no role in reducing infant mortality?  And, for that matter, does private spending on women and child development play no role in reducing infant mortality?  One can raise such questions about most, if not all, outcomes that the people of the country are concerned with.  India needs an outcome budget that addresses all such questions. 

 

            Fourthly, the guidelines do not even talk about, let alone address, the issue of identifying the requisite inputs for achieving any of the outcomes.  Consider again, for example, the outcome of reducing infant mortality to 30/1000 live births by 2010.  Achievement of this outcome requires not just one input but a package of several inputs.  What’s more, the package of inputs for Orissa, which had the highest infant mortality rate of 83 in 2003 (the latest year for which data on infant mortality are currently available) may differ from that for Kerala which had the lowest infant mortality rate of 11 in that year (Government of India, 2006a, p. S115).   Indeed, one can argue that the package may differ from one district in a state to another district in that state.  And if we do not know what exactly the package of inputs required to reduce infant mortality in a district or in a state is, we cannot estimate the funds required for reducing infant mortality and then allocate them.

 

            Fifthly, once the funds required for achieving a given outcome have been estimated and allocated, how will the GOI ensure the flow of right amount of money at the right time to the right level, with neither delay nor “parking” of funds? The Finance Minister, in his foreword to the Outcome Budget 2005-06, had listed some of the important steps in the conversion of outlays into outcomes, with one of them being: “Ensuring flow of right amount of money at the right time to the right level, with neither delay nor “parking” of funds” (Government of India, 2005b, p. ii).  Given that availability of right amount of money at the right time to the right level is critically important for converting outlays into outcomes, one expected that the guidelines, issued over four months after the presentation of the Outcome Budget 2005-06, would articulate what the GOI had done in this area during these over four months, or at least articulate what it proposed to do.  Unfortunately, the guidelines are silent on this.

 

            Sixthly, the guidelines say that “converting ‘outlays’ into ‘outcomes’ is a complex process addressing “value for money” concerns; being more a management process than merely a financial process; and admitting possibilities of different approaches and modalities, which may differ from Ministry to Ministry and programme to programme” (Ministry of Finance, 2005, p. 1).   Conversion of public expenditures into certain specified outcomes is a new ball game for public officials in India.  They urgently need to be equipped with the skills and attitudes required to play this game.  Most of them currently do not have these skills and attitudes and, as a consequence, our record on achieving certain outcomes is very poor.  Consider, for example, what the Planning Commission said recently (June 2006) in this context: “The 10^th Plan aimed at providing essential primary health care, particularly to the underprivileged and underserved segments of our population.  It also sought to devolve responsibilities and funds for health care to PRIs.  However, progress towards these objectives has been slow and the 10^th Plan targets on MMR & IMR have been missed.  Rural health care in most states is marked by absenteeism of doctors/health providers, low levels of skills, shortage of medicines, inadequate supervision/monitoring, and callous attitudes.  There are neither rewards for service providers nor punishments to defaulters.  As a result, health outcomes in India are adverse compared to bordering countries like Sri Lanka as well as countries of South East Asia like China and Vietnam” (Planning Commission, 2006, paragraph 4.2).[5]  This presents an extremely difficult, if not the most difficult, challenge to the GOI.  Unfortunately, the guidelines do not reflect it.

 

            Seventhly, the guidelines ask each Ministry/Department to indicate the “risk factors” for each scheme/programme included in the outcome budget, but do not clarify what these risk factors could be.  “All operations in governments”, as Premchand (2005, pp. 5-6) has put it, “have risks, some that can be anticipated and contingent plans prepared, and some that cannot be anticipated…. Risks are of two types- macro dealing with the macroeconomic situation, and micro associated with specific programmes. The former can have an immense impact on the availability of the financial resources and the funding of programmes, while the latter can have the impact of altering the focus and the content of a programme.”  Once a Ministry/Department has identified the risks that a given scheme/programme may face, it needs to assess those risks, identify the options available for managing those risks, evaluate each of the options, and indicate how it proposes to manage each of those risks.   

 

            A look at, for example, the GOI’s Department of Elementary Education and Literacy’s website reveals that the Department doesn’t say anything at all about risk factors for its Sarva Shiksha Abhiyan, one of the GOI’s flagship programmes.  And this is what the Department says under “Remarks/Risk Factors” about the Mid-day Meal Scheme, the GOI’s another flagship programme:  “Bihar, J&K, Punjab and West Bengal are yet to confirm about universalisation of MDM scheme.  HRM reminded Chief Ministers and Governor of Bihar vide DO letter dated 17.6.2005.” Clearly, the Ministry of Finance’s Department of Expenditure has a job to do here: it urgently needs to clarify what risk management means.

 

            Finally, something needs to be done to ensure that the future governments do not go back on what is sought to be done now.  The current UPA Government’s initiative to present an outcome budget every year has, according to Premchand (2005, p. 7), “all time relevance, and is now more relevant than ever before.  But if it is not to be considered as a case of “ambition outrunning understanding style of innovation” (to borrow the felicitous phrases of Hirschman), then clearly more needs to be done. If the effort is to be serious then the government should make a political commitment in the form of a comprehensive budget legislation that inter alia includes the specification of the process and procedures for an OB.”  I totally agree.