Outcome budgets and budget outcomes

The finance minister does not even talk about the issue of identifying the requisite inputs for achieving any of the outcomes

On February 28, 2005, Finance Minister P. Chidambaram accepted the challenge of reforming the management of the Government of India8217;s expenditures. Since then, he has presented to the Parliament Outcome Budget: 2005-06 and Outcome Budgets 2006-2007 of the Flagship Programmes, with individual ministries/ departments of the government separately presenting their outcome budgets for 2006-07. Although the Outcome Budgets 2006-07 are better in certain respects in that they recognise the futility of the distinction between plan and non-plan expenditure than the earlier exercise, they do not go far enough. Indeed, they suffer from several weaknesses.

To begin with, the finance minister needs to be clear whether the government 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? One can argue that it ought to be the former, with the government allocating the outlays that will be required to achieve the identified outcomes.

Secondly, given an intended outcome 8212; say reduction in the infant mortality rate IMR 8212; should it be one target for the country as a whole, or different targets for different districts? One can argue that the latter approach will be more appropriate. The finance minister may like to mull over this. Thirdly, as things stand, outcomes are supposed to be related to a ministry8217;s/department8217;s Plan expenditure, plus its non-Plan expenditure plus its complementary extra-budgetary resources. Now consider, for example, the outcome of reducing IMR to 30/1000 live births by 2010. Should the achievement of this outcome be related only to the outlays of the GoI8217;s Department of Women and Child Development, the concerned department? One can raise such a question about at least some, if not all, the outcomes that people are concerned with.

Fourthly, the finance minister does not even talk about, let alone address, the issue of identifying the requisite inputs for achieving any of the outcomes. Consider again the outcome of reducing IMR to 30/1000 live births by 2010. Achievement of this outcome requires not just one input but a package of several inputs. What8217;s more, the package of inputs for Orissa, which had the highest IMR of 83 in 2003 may differ from that for Kerala, which had the lowest IMR of 11 that year. 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 for reducing IMR in a district or state is, we cannot estimate the funds required.

Fifthly, once the funds required for achieving a given outcome have been allocated, how will the GoI ensure the flow of the right amount of money? 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: 8220;Ensuring flow of right amount of money at the right time to the right level, with neither delay nor 8216;parking8217; of funds.8221; One expects the finance minister to be articulate about what he proposes to do to ensure this.

Sixthly, conversion of public expenditure into certain specified outcomes is a new ball game for public officials. They need to be equipped with the skills/ attitudes required to play this game. Seventhly, the finance ministry has asked each ministry/department to indicate the 8216;risk factors8217; for each scheme/programme included in the outcome budget, with no clarification on what these risk factors could be. All government operations have risks which need to be identified. And once a ministry/department has identified them, it needs to assess those risks, evaluate each of the options available to address them, and indicate how it proposes to manage them. This is not happening.

Finally, the finance minister needs to take the requisite steps to ensure that future governments don8217;t go back on commitments. The UPA government8217;s initiative to present an outcome budget every year has, according to A. Premchand, a public expenditure management expert, 8220;all time relevance, and is now more relevant than ever before. But if it is not to be considered as a case of 8216;ambition outrunning understanding style of innovation8217; to borrow the felicitous phrase 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 OB8221;. I totally agree.

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The writer is currently director, Economic Management Institute, New Delhi. He was professor of Economics at IIM, Ahmedabad