Outcome Budgets, the real thing

Budget management in a time of severe fiscal stress seems to have been construed as an exercise to control fiscal deficit and government borrowing.

Indeed, a large fiscal deficit and consequent increase in Government borrowing depresses private investment due to crowding out, stokes inflation and dents the efficacy of the monetary measures to control prices. It is natural then that the annual budget is analysed and debated more from the point of view of achieving fiscal sustainability.

However, the role of the budgeting system in enhancing allocative efficiency, improving public service delivery, ensuring citizen-responsive decisions, as well as enhancing accountability of administrative departments needs to be acknowledged.

The Budget needs to be seen as a financial mirror of the society’s economic and social choices. Budgeting decisions should address problems such as the divergence between people’s preferences and the actual impact of the Government programmes and policies. This includes the need for controlling the tendency toward excessive public spending in unproductive ways. While attempts were made intermittently over the years to address these issues, the achievements seem to have been fallen short of intent.

NORMS ELSEWHERE

The conventional Budget indicates the resources allocated to various programmes and schemes of the Government, but does not focus so much on the use of those resources to achieve certain agreed results.

Modern budgetary techniques introduced by many countries across the globe have gone beyond these indicators and provide crucial information to the citizens regarding the use of public money in achieving the results. This is usually referred to as concern for ‘value for money’ in budgeting language.

The objective is to provide performance indicators measured in each Government programme in quantitative terms — what is aimed to be achieved by utilising the allocated budgetary resources. The information on services to be provided to the people and the linking of funds to the results is a powerful innovation that defines accountability of the executive.

The practices and models, however, vary across the countries. While New Zealand and UK ensure achievement of results through a contract system, countries such as Sweden and Australia empower their budget managers by providing an enabling environment and flexibility.

SETTING GOALS

There are also differences regarding the ultimate objective of the Government programmes — whether ‘output’ or ‘outcome’ should be considered as the basis to ensure managerial accountability. Outputs like roads to rebuilt, number of vaccinations done, area to be irrigated, and the extent of pupil enrolment, are more tangible and in the control of programme managers.

Outcomes, on the other hand, are indicators showing the progress in achieving programme objectives, such as infrastructure improvement, decline in diseases, improvement in agricultural production, and achievements in education. These are not directly under the control of the programme managers due to the effect of many other extraneous factors.

The differences notwithstanding, the performance-oriented budgets provide information on the use of public resources, as against the conventional budgeting practice of highlighting only allocations under different programmes; funds released are treated as expenditures serving purposes for which allocations are voted. Taking along people of different socio-economic strata as part of an inclusive growth process requires effective use of resources.

WHERE EFFORTS FAILED

Performance budgeting is not new in India. Since 1968, Government departments had been preparing performance budgets trying to link financial aspects to physical results. However, this remained a supplementary device without any perceptible impact on resource allocation. Acknowledging its drawbacks, the Government introduced a revised version called ‘Outcome Budget’ in 2005.

A lot of faith has been placed on this initiative that has the objective of converting outlays to outcomes and bringing about improvements in the quality of governance.

Outcome budgets are separately placed by the departments later in the Budget session. Unfortunately, these outcome Budgets escape the notice of the analysts, while they should have been vigorously debated in public forums.

The management of outcome Budgets requires a strong process — measuring the performance indicators, costing the services and programmes needed to link the funding provided to ministries to the results they are expected to achieve, and ensuring an accountability framework to fix the responsibility on individuals and organisations for the delivery of services.

The crucial factor in this is a management process in the Government organised for achieving results and delivering services, as against a hierarchical structure dipped in a culture of compliance with rules and regulations. The absence of such a management processes and accountability framework proved to be the undoing of the performance Budget in the past.

The building blocks of the outcome budget — measurement of performance indicators, specification of standards, costing of programmes, and a monitoring and evaluation system — are still evolving in India.

The outcome budget is yet to emerge as a robust fiscal instrument to influence the decisions over public finances and provide a framework to judge the performance of the government.

As the regular budget presented in Parliament is a separate process as compared to the Ministry-wise outcome budgets presented later, the question that arises is whether the information contained in the outcome budgets influences the allocation of funds to various programmes.

Performance information contained in the individual outcome budgets should play an active role in programme formulation and resource allocation.

Having said that, we also need to acknowledge that budgeting in Government is a complex process with involvement of many role-players.

Budgetary decision-making has political underpinnings for which the role of political concerns and value judgments cannot be consigned to the background.

The outcome budget in India provides an opportunity, which needs to be strengthened and taken forward. The important factors in this context are the ability to prepare measures under different Government programmes to evaluate results, and utilise this performance information in shaping the Budget decisions, both in programme formulation and resource allocation.

Success of such system requires providing flexibility and incentives to the programme managers to achieve results.

Fiscal discipline is important; but getting value for money from public resources is crucial.

(The author is Associate Professor, National Institute of Public Finance and Policy.)

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