outcome budgeting

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Outcome Budgeting: Moving beyond Rhetoric?Author(s): Harnita ChowdharyReviewed work(s):Source: Economic and Political Weekly, Vol. 41, No. 25 (Jun. 24-29, 2006), pp. 2515-2518Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4418368 .

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Commentary

Outcome BudgetingMovingbeyondRhetoric?Whiletheadoptionof outcomebudgetingby the uniongovernmentis a step in the rightdirection,important essonsfrom theexperience n developedcountries and India's own work withperformancebudgetingneed to be incorporated nto thegovernment's nitiative.HARNITA CHOWDHARY

utcome udgetingasbeen laimedas a major budgetary reform. Itinvolves a movement beyondinputs and outputs towards outcomes,concerning a macroanalysis of results,accomplishments andimpact. It is a "pre-expenditure instrument" that seeks toeducate and involve external stakeholderson government goals, accomplishmentsand the costs of achieving these results.But important lessons learnt from deve-loped nations as well as the Indian storyof performance budgeting need to beincorporated.OnFebruary28,2005, the union financeminister, P Chidambaram in his budgetspeech promised to put in place amechanism to measure the developmentoutcomes of all major programmes. Hesaid "I must caution that outlays do notnecessarily mean outcomes. The peopleof the country are concerned with theoutcomes." This announcement un-doubtedly signalled the right intentionsof the government to carry the batonforward. However, we surely tend to askwhether we will be moving beyond mererhetoric.Outcome budgeting is ultimately an ex-tension of theperformancebudgeting baseof over 30 years, which however has stillnot really become a reform in the truespirit and sense of the word. De facto weare still following the outdated admini-strative budgeting. In order to develop aninsight into the basic functioning of bud-geting systems in government and thelacunae thereof, one must perforce havesome idea of these systems of budgeting(especially as they exist till date in India).

Let us begin with an overview of thetraditional udget.Traditional Budget

Most of us areawareandin fact takeagreatdealof interestn theconventionalbudgetpresentedby the FM in the Par-liamentevery year.This budget(whichwas first presentedin India by JamesWilson in 1859) is aptlytermedas theadministrativebudget "as it lives by,throughand for the mereadministrativepurposeof the government"Sengupta1990].It is a productof history,not oflogic.Itwasnotsomuch reated sevolved[Wildavsky1978].Infact, t is indicativeof a mindset hat olelyfocusesoninputs,on line-itemisationndon controlout ofthe triumvirateequirementsf the bud-getary ystemofcontrol,managementndplanning.Thissystemwas suitable o faras thestate did not extend its activities verymuch beyond the police or securityfunctions.However,as Indiaattainedn-dependence ndthechallengeof a socio-economic transformation f the nationloomed argebefore hepolicy-makers,tbecameclear hat hissystem,whichhadspread nd aken oots ikea giantbanyantree, suffered from obsolescence - oftime, functionandpurpose. t haddeve-lopeda sortof "budgetocracy" a habitof lookingatthe lines and items and notat the results,a habitof cuttingabudget,and of justifyinga budgetand a habitofcontrol and managementwithout theuse of analytical echniques.Hence, hreelags came to characterisehe system- arecognition ag, a decision lag, and animplementationag.

Surprisingly, his system is still ourbudgetarymainstay, n spite of the factthatIndia is poised for a "take-off' inmost other fields. Nevertheless, itcannotbedenied that the policy-makershad also realised hese deficiencieswaybackandhad urned owards erformancebudgeting,which came as a "breath ffresh air to those workingwithin an ar-chaic systemof financialmanagement"[Doh 1977].Performance Budgeting

In 1953,DeanApplebyconductedhefirst study on the relevance of perfor-mancebudgetingoIndian onditions. n1968,theAdministrative eformsCom-mission submitted a landmark reporttitled 'Finance, Accounts and Audit',whichin fact formstheblueprintorthefurtherextension of the system of per-formancebudgeting.Beginningwiththepresentation of the first performancebudgetsat thecentre, or four ministriesand some organisations nder hem,fortheyear1968-69,gradual houghsteadyprogresshas been achievedboth exten-sively andintensivelyin themovementtowardsperformancebudgetingin In-dia. Presentlymany state governmentslike TamilNadu,Kerala,UttarPradesh,etc, have been preparingperformancebudgets for a number of departmentsand morethan 40 performancebudgetsarebeing prepared tthe centre n addi-tion to the conventionaladministrativebudgets. However, what precisely dotheseperformance udgets epresent ndwhat is theirimportancen the presentIndianscenario?This questionneedstobe addressed.Theperformanceystemof budgeting,alsovariouslyermed soutput udgeting,shifts hefocus from nputs ooutputs ndend-results.Assessment s made of thedirectrelationships f inputsto outputsthroughhemediaof activities. t ssoughtto establishwhetherthe spendingof aspecific quantum f inputs s worththeoutputsdirectlyresultingfrom it. Themanagementorientation hus becomesparamount ere. Performance udgetingtakes ntoaccount hemutual elationshipbetweenhe lowof financial esources ndthephysical argetsandtherebyreflects

Economic and Political Weekly June 24, 2006 2515


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the organisational structure of the insti-tution implementing the budget. It thusrepresents a fruitful blending of threetechniques,namely,managementbyobjec-tives (MBO), "financial and cost control"and "physical performance control".The overall attempt s to meet the dyna-mic needs of the government and trans-form its budget from an annual documentto a comprehensive management system.Though the basic procedure remains thesame as in the administrative budget,performance budgeting emphasises theimplementationandevaluation stages witha stress on the physical aspects too. Itinvolves a modification of the classi-fication, accounting, workload andorgani-sational aspects. However in India, eventill datetheperformancebudgetsaremerelyconversions of the administrative budgetsinto performance type of budgets. Whilethe formalelements are nplace, the systemsuffers from neglect and its penetrationofdecision-making is patchy andsuperficial.Thus in the words of Briones it haslargely been "a reform of mere form, notsubstance" [Toye 1981].

It is against this backdrop hat one has tosee the latest endeavourof thegovernmentof India in the formof outcome budgeting.Outcome Budgeting

In order to measure the developmentoutcomes of all major programmes/schemes initiatedaftertheannouncementofthe union budget, the government, inconsultation with the Planning Commi-ssion, released the outcome budget for2005-06 on August 25, 2005. In thisdocument the various ministries/depart-ments have set out targets of intermediateoutcomes pertaining to plan expenditurein measurable terms. From 2006-07 anoutcome budget for non-plan expenditureis also scheduled andover a period of timeit would replicate the budgetary processin terms of intended outcomes.The outcome budget is basically a pre-expenditure instrument to realise thegovernment' visionthrough learlydefinedoutcomes, which will lendgreater ranspar-ency to the budgetary process. It can beseen as amoreadvanced formof budgetary

scrutiny, which would provide more de-tailed information about progress towardsmeeting the executive's spending priori-ties. At present, budget scrutiny is mainlyconcerned with inputs (the amount ofmoney that is being allocated to a specificdepartment for a specific purpose in theforthcoming year) and outputs (theproducts of public bodies, forexample, thenumber of children taught in schools oroperations performed in hospitals). Out-comes canbe seen as benefitsresultingfromoutputs, which correspond to the ultimateaims of a government. For example, theoutput of health expenditure may be moredoctors, but the outcome of that expendi-ture may be to improve the overall healthof the nation. The emphasis is on shiftingthe focus from mere "release of funds"(outlays) to "actualutilisation for intendedpurposes" (outcomes).Chidambaramhasstressed the"involve-ment of community/target groups/recipi-ents of the service, with easy access andfeedback systems" as one of the importantsteps in the "conversion of outlays intooutcomes". He has also called for the

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Call orPapersSinceederalismasbeenheunderlyingrinciplef he ndianolity,n nternationalonferencefexperts,cademicsndpractitionersromlloverheworldsbeing rganisedtSrinagarocriticallynalyseheworkingf he ndianederalism,tsstrengthsndweaknesses,nd odrawessonsor he uture.Papersnthe ollowinghemes re nvited:i)Role fGovernor,ii)Coalitionndpowerharing,iii)Workingfautonomousouncils,iv)Fiscalederalism,v)Distributionfresponsibilitiesmongederaliers,vi)Mechanismfconflictmanagement,vii)Empowermentf ocal overnments,viii) pecialederalrovisionsfIndianonstitution,ix)WomennGovernance.Abstractsfthepapers otexceeding50wordsmust eachheInstituteatest ythe irstweekofJuly 006.Authorsf he electedapers ill e nvitedoparticipaten heconferencendheInstituteill earheirravelxpenses,boardndodgingnSrinagar.

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"meaningful nvolvement" of all the mini-stries, state governments, local bodies,panchayati raj institutions, self-helpgroups, etc, in critical decision and imple-mentation processes of the schemes[Gopalakrishnan2004].The mindsets of government officialsare expected to change to become moreoutcome,ie, result-oriented, verandaboveoutlay-oriented. They will be forced to dosome macroand creative hinkingeach timethey preparea budget. Converting outlaysinto outcomes will require ensuring theflow of the right amount of money at theright time to the right level with neitherdelays norparkingof funds and effectivemonitoring and evaluation systems.Moving beyond Rhetoric

Given theabove, thepresent stage in theIndianbudgetarypilgrimageseems logical.In fact, the pendulum has moved back inmost developed nations as well (includingthe US and the OECD countries) towardsperformance budgetingand outcome bud-geting. But this is the point where we needto exercise caution. Importantlessons areto be learnt from both the foreign expe-rience as well as our own usage, in casewe want the reform to really deliver bothin terms of spirit as well as substance.Over the past decade, US state govern-ments haveexperimentedextensively withperformance-based budgeting. The basicconclusion reached is that the politicalenvironment becomes critical. Legislatorsare more likely to cite performance mea-sures when they align with constituentinterests and if they are involved in cre-ating them. Further,recognising the limitsof performance-basedbudgeting, US stategovernments have taken other steps toimprove performance[PREM 2003]. Theperspective has been widened to includestrategicgoals aswell asperformancemea-sures and been termed as outcome budget-ing. From a survey administered to budgetandfinance officers, analysts, andauditorsworking in federal, state andlocal govern-ments in the US it was however found thatthere was a lack of an agreement about theconceptual definition of outcome budget-ing across government levels, which wasimpeding tsimplementation.Furthermore,the elements of outcome budgeting,as understood across government levels,differed from the ones embodied in theideal frameworkof an outcome budgetingsystem. Itwas found that an outcome bud-geting system requires: 1) astrategic plan,

(2) an annual performance plan, (3) anannual performance report, and (4) aprogramme valuation.Performanceauditsmay or may not be required and there isno requirement for a multi-year budget.Finally, line-managersare notgranted umpsum allocations to manage as they thinkbest, nor are individuals or group partici-pants given meaningful incentives. Theseincentives include (1) an individual's paydependent upon either an individual's orwork group's performance,and (2) reten-tion of savings by a budgeted unit such asan organisation or programme if the unitachieved the savings in the previous year.However, the last part of the normativemodel has been challenged by otherstudies[Nyogietal . Consonant esults havebeen found in various OECD countries aswell. Campbell (1997) noted thatoutcome-based budgeting systems result only whenperformance measurement has been fullyintegrated into the budget process.In India, performance budgeting unfor-tunately is yet to be integrated within themain system. The major issues related toits success can be categorised as (1) issuesassociated with its introduction,(2) handi-caps relating to its implementation, and(3) problems concerning analysis andevaluation.Issues Associated with ItsIntroduction

Here it has been recognised that ad-equate hybridisation is required togetherwith sincere andcompetent supportbegin-ning at the political leadership level andrightdownthe line inorder o overcome theeconomic-psychological andthepolitical-bureaucratic inertia and resistance.Handicaps Relating to ItsImplementation

The first step lies in identifying appro-priate andadaptablefunctional categorieswhich are not too broad or inconsistent.The next major problem arises in the es-tablishment of properwork units to mea-sure activities. Infact the absence of propermeasures of workload is the Achilles heelof performancebudgeting. Unless suitablenorms andyardsticksaredeveloped, perfor-mance budgeting will be like a castle builton quicksand. This problem is heightenedfor areas such as project design, surveys,research, and foreign affairs, etc, whichdefy standardisation.In the Indiansystemitself nothing substantial has been done in

thisdirection and standardsof performanceare often seen to be based on historicalrecords as against a scientific study of themeasurement of the level of performance.Furthermore,areorientationof the accoun-ting system is needed and a supplementalaccountancy system developed for accoun-ting of performance in physical terms.Another imperative for implementingperformancebudgeting is the requirementof a suitable information system for com-paring the total output, total inputand rateof performance against the standard ncor-porated in the budgets. This informationshould be in addition to the normalbudgetcontrol statements. Sadly, in Indian con-ditions the progress in this area is notsatisfactory because of lack of properintegration. Another point of difficulty sofar as putting the system into operation isthepatternof control. Outputcontrol needsto replace inputcontrol and more reliancewill need to be placed on internalcontrols.Also the budgetary details will have to bereduced and besides budgeting othermeasures of control and tools will have tobe developed and used.Finally, the new system requires propertraining and acquisition of skills by theneeded humanpower. While it is true thatconsiderable efforts are being devoted inIndiato provide training,the programmesare not as extensive as they should havebeen. There were cases where workers atoperational levels were trained but thoseat the policy levels were neglected, andvice versa.Furthermore, mplementing thenew procedures requiredfor performancebudgeting put additional burdens on thebudgetoffice alreadyconstrainedby dead-lines. Thus, what is required is that thoseresponsible for framing personnel policiesshould ensure that suitably skilled andexperienced staff is available, adequateperiods of overlaps are insured when thestaff are replaced and the career develop-mentofcivil servants is rationally plannetl.The present policies characterised byexpediency and inconsistency should beaptly reviewed.Problems Concerning Analysisand Evaluation

The first ssue hereis that heexpenditureclassification used in Indian performancebudgetsistypicallyinstitutional.This needsrectification. Secondly, the indictors ofperformance n Indianperformancebudgetsaresadly inadequate.Further, heclaim thatthe combination of financial and physical

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data is sufficient for the assessment ofperformance s seen to be lacking conclu-siveness. Hence, a fully spent-upallocationalongside figures showing that physicalachievements are exactly on target couldbe a result of an over/underpitching of thephysical or financial targets. On the otherside, aprojectmayhave been well plannedand well managed despite the fact that itfailed to fulfil its physical or financialtargets. The discrepancies may be due toa general price rise or due to newer, moreefficient methods of working. The thirdanalytical problemarises from the fact thatIndianperformancebudgetshave remainedmoreor less static since their introduction.Like an abbreviated version of eachdepartment's obligatory annual report,Indian performance budgets embody de-scription and not analysis of the projectsthat generate government developmentexpenditure. In fact, they have become anexcuse for "information overload".However, having come so far withperformance budgeting, and having builtup with training and experience a degreeof understandingof itspotential, concertedefforts should be made to realise thepotential to serve as a base for outcomebudgeting. The lessons from the devel-oped countries should also be taken intocontext. Logically, the three documents,theadministrativebudget, theperformancebudget and the outcome budget togetherwould definitely impart a much morecomplete pictureof what has been achievedon theoutlays made eachyear.Thegovern-ment would begin with clearly defining itsobjectives andmacro-goals and thengo onto detailing financial and physical targetsand at the end evaluation of what has beenachieved. Thus overall efficiency andeffectiveness would become thekeywordstogether with ensuring discipline atthe working end and transparency at thereceiving end.Thus we may conclude that, like otherbudgeting reforms, outcome budgeting isa tool and not a panacea. Whether it ismanageable universally and does notbecome a mere stopover depends largelyon the skill, imagination, energy andstrength of purpose of the user. U1iEmail: [email protected], J C (1977): 'ConceptualFrameworkof anIntegrated pproachoBudgetingor heESCAPCountries', International Review ofAdministrativeSciences. 42(2), p 39.

Gopalakrishnan,R (2004): 'OutcomeBudgetingof SSI Ministry', The Hindu,August 28.Nyogi, Mwabilu L, GeraldJ Miller and MarcHolzer: 'Outcome Budgeting: ConceptualDefinition',HowardUnversity,WashingtonDCand The State University of New Jersey,Newark.PREM (2003): 'Performance-basedBudgeting:Beyond Rhetoric', Poverty Reduction andEconomic Management, World Bank,

Number78, February.Sengupta, A K (1990): GovernmentBudgetingin Ildia, Print House India, Lucknow, p 9.Toye. John(1981): 'PublicExpenditureReformsin India and Malaysia', Development andChange, Vol 12, pp 124-25.Wildavsky, Aaron (1978): 'A Budget for AllSeasons?Why the TraditionalBudget Lasts',Public Administration Review, Vol 38,November-December,p 501.

JAPAN AND INDIAMaking U p f o rt h e L o s t DecadeWe are witnessinga turningpoint in Indo-Japaneserelations at thediplomatic,political andmilitary evels. How wouldIndiaandJapan ensure that no single Asianpower, notwithstandingtsdominanteconomic andglobalprowess, dominatesanddestabilises the region?VIVEK PINTOIt is now a truism hatJapans "deter-mined to make up for the lost decadein bilateral relations" with India. Thevisits of the Japanese prime ministerJunichiro Koizumi to India in April 2005and of the foreign minister Taro Aso inJanuary2006 indicate that Tokyo is cer-tainly keen on a relationship that goesbeyond the economic to include the poli-tical and strategic dimensions. This isnotwithstanding Japan's earlierbitter andoutspokencondemnationof India's nuclearpolicy, which accounts for the lost decade.It is in this framework and the settingup of the annual bilateral, strategic dia-logue thatduringthe last week of May theIndiandefenceminister,PranabMukherjee,came on a low key visit toJapan o "furtherdevelop the dialogue and exchangesbetween the two countries in the securityand defence fields...with a deep interest inpromoting the security, stability andpros-perity in Asia and in the world at large,as well as in tackling regional and globalsecurity challenges".What is not well known is thatbetweenAso's visit inJanuaryandApril2006 therewere high-profile visits of Japan's threeself-defence force (SDF) chiefs (maritime.army, and air) to India. These unique andsignificant visits need to be underscored

as they all together send a firm signal toAsian countries and the US thatTokyo andNew Delhi have finally squared the pro-verbial circle in theirsecurityrelationsandthat Japan now recognises India not onlyas anemergenteconomicandpoliticalpowerin the region with its own areas of interestand concern, but intends to join forces inpromoting "strategic interests". This is asignificant developmentand aturningpointinIndo-Japanese elationsat thediplomatic,political and military levels. The primequestion is: how would Japan and Indiamutually mine these and other areas oftheirrelations to solidify their emergenceand to ensure that no single Asian power,notwithstanding ts dominanteconomic andglobal prowess andpromise, would domi-nate and destabilise the region?

Securing Oil SuppliesDespite the inauguration of the Japan-India strategic dialogue at the level ofdefence ministers, in the notable absenceof an Indian external affairs minister and

thereby seemingly lacking in policy-levelcontribution from the ministry of externalaffairs(MEA) establishment, much hasyettobe donebyeachparty ogive meaningandmuscle todiplomatic communiquesandgobeyond outlining areas of mutual interestand re-paying cordial visits to each other.

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outcome budgeting

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