Sandwiched as it is between the rail budget and the union budget, the economic survey often gets lost in the din. The document is the finance ministry’s view of the state of the economy, coupled with policy prescriptions for the upcoming budget. Because it is insulated from the more populist pressures of the union budget, the economic survey can often get away with more radical ideas and proposals – even if they never end up being realised.
In this regard, this year’s economic survey doesn’t disappoint. In its “issues and priorities” section, the economic survey of India calls for nothing short of an entire overhaul of the way India puts its budget together.
The survey demands a shift from the current outlay-based budgeting system, which involves listing out how much the government allocates towards various sectors like health, education and defence, towards what is known as outcome-budgeting. This entails looking at a budget based on measurements of what the money allocated will actually achieve, rather than simply how much has been given to individual departments.
“The focus of a sound budget process would be upon outcomes as seen by citizens and measured by independent bodies, and not the internal activities of departments of government,” the survey says. “Budgetary allocations should be associated with concrete targets for outcomes and departments held accountable for achieving these targets.”
To achieve this, the economic survey offers four basic suggestions:
One-man army: In the older system, the budget for an individual department was put together through a combination of the finance ministry’s allocation process and the Planning Commission’s documents. The economic survey has recommended centralising this, by handing over all responsibility to the finance ministry. This proposal has already been implemented by the Narendra Modi government.
Board exams: The survey also recommends the design of a report card about the work of every ministry that looks at what they have actually achieved with the money allocated. Crucially, it recommends that this is prepared by independent organisations that have technical knowledge in that sector.
Paisa vasool: The ESI calls on the government to formally shift the budget from a pure listing of receipts and expenditure to one that is specifically built around both outcomes, such as the exact kilometres of roads constructed, as well as targets, which would include indicators of infrastructure improvement. This is often called performance-based or value-for-money budgeting.
Carrot and stick: Crucially, the survey recommends a set of consequences for departments that aren’t able to follow through on the planned outcomes and targets they have put together in the budget. “This would provide feedback loops of pulling back resources and modified allocation for expenditure that fails to deliver results,” the survey says.
Such an approach involves a significant shift from the way the budget is currently put together. The method used now is based primarily on how much departments are asking for and how much they end up getting, but this runs into a number of problems. These issues are, in fact, easy to see because India has a history of experimenting with outcome budgeting.
The budget documents themselves include a text that covers the status of implementation of announcements made in the previous year, but the evaluation offered is basic – split into categories of “action completed” or “work in progress”, and has little impact. Until 2006, it also attempted to refer to a performance budget, but this was similarly simplistic.
In its place, since 2006, departments and ministries have been maintaining an outcome budget that is then compiled by the finance ministry. A study of this budget, however, revealed one of the practical problems that might crop up if India attempts to move to an output-oriented budgeting system: it will be hard to implement.
“The outcome budgets being produced by ministries are in effect ‘outlay budgets’ only. They are merely a compilation of the intentions of programme divisions in terms of some vague targets, which would often fail to become ‘outcomes,’” wrote Sanjeev Mishra of the Institute of Defence Studies and Analyses, in a paper looking into outcome budgeting.
Another problem is the very question of outcomes. Not all government funding can be easily turned into quantitative data that can then be used as a measure of how much more money needs to be diverted to that department the next year.
For instance, the economic survey of India recommends using the programme for international student assessment (PISA), which measures schooling systems based on maths, science and reading, when dealing with education outlays, but this might not be the ideal arbiter for what counts as success in this field. The model that is used to measure outcomes will then become almost as important as the allocation itself, and prone to abuse, such as with grade inflation.
Mishra nevertheless recommends a move towards outcome budgeting on the lines of what the ESI has proposed for the government of India.
“The scam-prone country needs to evolve ways and means to strengthen its institutions, without undermining them and without permitting institutional cannibalism by preventing illegitimate intrusions,” Mishra concludes. “This re-engineering is essential as in the absence of outcome budgeting, budget system may be ineffective and an ineffective budget management would weaken the public financial management system.”
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In this regard, this year’s economic survey doesn’t disappoint. In its “issues and priorities” section, the economic survey of India calls for nothing short of an entire overhaul of the way India puts its budget together.
The survey demands a shift from the current outlay-based budgeting system, which involves listing out how much the government allocates towards various sectors like health, education and defence, towards what is known as outcome-budgeting. This entails looking at a budget based on measurements of what the money allocated will actually achieve, rather than simply how much has been given to individual departments.
“The focus of a sound budget process would be upon outcomes as seen by citizens and measured by independent bodies, and not the internal activities of departments of government,” the survey says. “Budgetary allocations should be associated with concrete targets for outcomes and departments held accountable for achieving these targets.”
To achieve this, the economic survey offers four basic suggestions:
One-man army: In the older system, the budget for an individual department was put together through a combination of the finance ministry’s allocation process and the Planning Commission’s documents. The economic survey has recommended centralising this, by handing over all responsibility to the finance ministry. This proposal has already been implemented by the Narendra Modi government.
Board exams: The survey also recommends the design of a report card about the work of every ministry that looks at what they have actually achieved with the money allocated. Crucially, it recommends that this is prepared by independent organisations that have technical knowledge in that sector.
Paisa vasool: The ESI calls on the government to formally shift the budget from a pure listing of receipts and expenditure to one that is specifically built around both outcomes, such as the exact kilometres of roads constructed, as well as targets, which would include indicators of infrastructure improvement. This is often called performance-based or value-for-money budgeting.
Carrot and stick: Crucially, the survey recommends a set of consequences for departments that aren’t able to follow through on the planned outcomes and targets they have put together in the budget. “This would provide feedback loops of pulling back resources and modified allocation for expenditure that fails to deliver results,” the survey says.
Such an approach involves a significant shift from the way the budget is currently put together. The method used now is based primarily on how much departments are asking for and how much they end up getting, but this runs into a number of problems. These issues are, in fact, easy to see because India has a history of experimenting with outcome budgeting.
The budget documents themselves include a text that covers the status of implementation of announcements made in the previous year, but the evaluation offered is basic – split into categories of “action completed” or “work in progress”, and has little impact. Until 2006, it also attempted to refer to a performance budget, but this was similarly simplistic.
In its place, since 2006, departments and ministries have been maintaining an outcome budget that is then compiled by the finance ministry. A study of this budget, however, revealed one of the practical problems that might crop up if India attempts to move to an output-oriented budgeting system: it will be hard to implement.
“The outcome budgets being produced by ministries are in effect ‘outlay budgets’ only. They are merely a compilation of the intentions of programme divisions in terms of some vague targets, which would often fail to become ‘outcomes,’” wrote Sanjeev Mishra of the Institute of Defence Studies and Analyses, in a paper looking into outcome budgeting.
Another problem is the very question of outcomes. Not all government funding can be easily turned into quantitative data that can then be used as a measure of how much more money needs to be diverted to that department the next year.
For instance, the economic survey of India recommends using the programme for international student assessment (PISA), which measures schooling systems based on maths, science and reading, when dealing with education outlays, but this might not be the ideal arbiter for what counts as success in this field. The model that is used to measure outcomes will then become almost as important as the allocation itself, and prone to abuse, such as with grade inflation.
Mishra nevertheless recommends a move towards outcome budgeting on the lines of what the ESI has proposed for the government of India.
“The scam-prone country needs to evolve ways and means to strengthen its institutions, without undermining them and without permitting institutional cannibalism by preventing illegitimate intrusions,” Mishra concludes. “This re-engineering is essential as in the absence of outcome budgeting, budget system may be ineffective and an ineffective budget management would weaken the public financial management system.”