The Hindu Business Line : `Inflation targeting will not work here'

Thiruvananthapuram, Sept. 1 Inflation targeting, which commits the Governor of a central bank to an annually fixed number, works best under the larger framework of `outcome/impact budgeting' at the federal level.

But this is not suited for an economy of India's size and complexities, according to Dr M. Govinda Rao, Director, National Institute of Public Finance and Policy.

He was delivering the keynote address at a two-day seminar on `Impact Budgeting', being organised here by the Kerala State Finance Department. Both these concepts have been successfully put into practice by New Zealand, and later Australia and the UK. The Governor of the central bank would be asked to resign for failure to adhere to the committed level of inflation.

This itself is derived from the concept of `contractualisation' of goods and services, which is the highlight of outcome/ impact budgeting.

GOVT DECISIONS

The intricacies involved rule out the replication of this form of budgeting in the Indian context. For instance, spending decisions by the Government are linked to specific outcomes.

The Government enters into a contract with the bureaucracy and its various departments for purchase of goods and services.

The Secretary, or the head of the Department, is bound to deliver for a cost that is provided for in the outlay. The Secretary, in turn, buys goods and services from lower levels in the hierarchy on the basis of a `valid' contract, and so on.

In this manner, a specific job will have been assigned to each individual member in the Government.

At the beginning of each accounting year, thousands of contracts are entered into by various individuals and departments in the Government to ensure effective delivery of goods and services across the board.

There has to be system in place for a clear and regular flow of resources to achieve various outcomes under this budgeting regime. Also needed are robust information flow and a proper monitoring and evaluation system.

Flaws in budget

According to Dr Rao, union budgets in India, over the years, have suffered from lack of comprehensiveness, lack of predictability, opaqueness and politicisation of project selection.

He made a specific reference to mounting off-budget liabilities, which have made a mockery of the notional fiscal deficit levels being bandied about.

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