Outcome budget

Indian Express, 3 September 2005

q. Why do we need an outcome budget?

Suppose you hired a contractor to spend Rs.5 lakh crore on your behalf. What should you do, and what should the contractor do?

You would take care to very carefully specify what work you want done. You would then verify that the contractor delivers the goods before you pay him.

What the contractor would like best is to be left free, without being held accountable, so that he can spend your money as he likes, lining the pockets of a few cronies, doing nothing useful for you.

The central government is the contractor who is spending Rs.5 lakh crore per year of your money. All these years, this contractor has been running amuck with your money. Most of the money is siphoned off to benefit some few friends of some politicians. Very little of this money is spent on the larger good, to do things which benefit everybody, which is the true task of government. Budget speeches have merely talked about how much money will be spent on some ministry or the other. The contractor likes to say nothing about what he did with your money.

q. What is the first outcome budget presented in parliament like?

It is but a a first small step towards bringing the government under leash. "Outcome Budget : 2005-06", the document released by the Ministry of Finance is rather disappointing. But since it is only a first exercise by the government attempting to link government expenditure to expected outcomes, it must be welcomed. For example, schemes such as the food for work programme fall under the outcome budget. It tells us the the scheme will generate 7,500 lakh mandays of work at a cost of Rs 6000 crore in 2005-06. This fact was never placed in parliament before.

In other words, this 'pre-expenditure instrument' lists what is going to be delivered by the government to the public and by when. The next step should be a review of whether these "quantifiable deliverables" were achieved. The outcome budget presented covers only plan expenditure. The distinction between plan and non-plan expenditure is a meaningless distinction because the most important tasks of the government, which are the police and the judiciary, are in non-plan expenditure. The finance minister has said that in the future outcome budgets will also cover non-plan expenditure.

q. What sort of public spending do we observe under the outcome budget?

There are details of various schemes both big and small. We learn details that have been never mentioned before. For example, under the expenditure for Agro and Rural Industries there is an outlay (2005-06) of Rs 96 crore for Khadi. Out of this Rs 72.76 crore is to provide rebates for sale of khadi. This is news to most taxpayers.

Ideally, the government should be spending money on 3 broad categories of goods -- public goods, subsidies and defence. Public goods should be those that benefit everyone and not just a handful of people. In some countries this is how public expenditure is classified. In contrast, in India, it is difficult to understand what money is being spent and why.

Dr Manmohan Singh has rightly emphasised that this racket cannot go on. The government must be accountable for what it does, and it must talk about the results that have been achieved, not the money that has been spent.

As an example, in the case of education, the best measure of performance is test scores. An education system is successful if it delivers a high performance by the average 15-year old children in India, at an internationally standardised mathematics test. The second best measure is to count the number of children at school. The third best measure is to count the number of schools in operation and the number of teachers that have been hired. The worst measure is to count the amount of money spent on education.

q. How can the usefulness of the outcome budget evolve in the future?

1. The citizenry must now ask whether this set of goals is an appropriate use of Rs.5 lakh crore of our money. The bulk of this money is a system of handouts to a few privileged beneficiaries. This effort on discussing outcomes, however imperfectly done, will increasingly draw the public's attention to expenditures by our contractor on paying benefits to a few chosen people.

Take for instance the spending of the commerce ministry. The outcomes are specified in terms of so many crore of exports under a large number of schemes. What good does this do for the tax payer? Subsidised credit can be provided to exporters and they can export more and make higher profits. It is a transfer of resources from the tax payer to the exporter and to the consumer abroad. Citizens should question this use of tax payer money.

2. This document is weak on talking about outcomes. It is steeped in the bureacratic mentality of describing what a department plans to do with it's money. This needs to shift to an attitude of treating the citizen as a customer. What will this do for me? This is the question that every citizen should ask.

For example, the petroleum ministry spending is about different PSU's spending for their expansion. They will explore, produce and refine oil as commercial enterprises do. Is the tax payer getting his money's worth by this expenditure? Or, would he be better off if the government focussed on giving him better law and order and letting the private sector produce petrol?

3. You would not like a contractor to make claims about what good things he has produced. The task of measuring the work of a contractor has to be given to someone other than the contractor. A monitoring & evaluation system needs to be built, in order to watch the conduct of government at every step, to produce measurement of the benefits to the larger population.

In the outcome budget 2005-06 we see that 5,465 km of roads will be constructed under the NHDP. The quality of the roads constructed must be measured and monitored by an independent agency so that the public is assured that the money is being well spent.

4. Finally, we need to close the loop by linking up the expenditure of money to the production of outcomes. Can we get the same outcomes at a lower price, by changing the way production is done? Can we pay for results - e.g. pay a school for the number of students taught and their test scores, rather than for merely existing? In the case of primary education, for example, could it be better achieved by giving scholarships to students at private schools? Would the students get better scores if Rs.7,800 crore being spent on the Sarva Shiksha Abhiyan, was spent on building more public schools and hiring teachers in them, or by offering scholarships through which students utilise private schools?

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