Public Expenditure Reforms in India

DAVOS/SWITZERLAND, 25JAN07 - Nandan M. Nilekan...

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By Shamima Siddiqui
Director (M&C), PIB, with inputs from the Ministry of Finance, Govt. of India

New Delhi, Dec 21, 2011 (Washington Bangla Radio / PIB India) Public Expenditure in the Government is managed as per the Appropriation Act which is passed by the Parliament every year. Based on the estimates of expenditure as presented in the Annual Financial Statement, Demands for Grants are presented for the approval of the Parliament. Thereafter, Ministries/Departments seek the approval of Parliament on their respective Detailed Demands for Grants (DDG) that gives service wise estimates of expenditure. During the financial year, expenditures are incurred in accordance with the estimates approved in the DDGs.

For the formulation of these estimates to be presented in the Budget, extensive consultations are held with the respective departments/ministries in meetings chaired by Secretary (Expenditure) in which the Internal Financial Units of the respective ministry/department, headed by the Financial Advisers and the functional heads in the ministries/departments participate.

The Central Government has embarked upon a fiscal consolidation programme to bring down its fiscal deficit over a period of time. With the reduction of the fiscal deficit, it is expected that the debt stock of Government would stabilize within acceptable limits. This would further reduce the interest payments that Government has to incur every year, thereby freeing more resources for development spending.

The expenditure of Central Government comprises of certain committed items like salaries, pension, interest payments, Defence etc. One of the important aspects of the salary and pension expenditure of the Government is the impact of revision in the salary structure of employees and the arrears arising out of implementation of Pay Commissions’ recommendations. This usually happens once in ten years when Pay Commission recommendations are implemented with retrospective effect. This aspect was also analysed by 13th Finance Commission (FC) which recommended that awards of Pay Commissions should be made to commence from the date on which the recommendations of future Pay Commissions are accepted by the Government. The 13th FC has further stated that since Finance Commissions are able to present their inter-governmental recommendations without any need for retrospective fiscal transactions, the same should be possible in the case of Pay Commissions as well.

The three major subsidies provided by Central Government are Food, Fertilizer and Petroleum Subsidies. Over the years, the subsidy bill of Government has been increasing rapidly and its share in the total expenditure of the Government has become a matter of concern. At present, the subsidy paid by the Government is routed through the provider of the goods and services that are subsidized. For better targeting of subsidy, the Central Government is moving towards a system in which the subsidy amount is directly given to the intended beneficiary.

To implement a solution to the above and to evolve a model of direct transfer of subsidies on Kerosene, LPG and Fertilizers, by re-engineering existing systems, processes and procedures in the implementation process, designing appropriate IT systems and aligning these with the issuance of UID numbers, and bringing about changes in the administration and supply chain management, the Government has constituted a Task Force under the Chairmanship of Shri. Nandan Nilekani, Chairman, Unique Identification Authority of India (UIDAI).

Government has also constituted a High Level Expert Committee (HLEC) to suggest measures for efficient management of public expenditure under the Chairmanship of Dr. C. Rangarajan. The HLEC has made recommendations on fundamental aspects of public finance that are under consideration.

The Budget of Central Government is a statement of fiscal allocations and has no disclosures on the corresponding outcomes achieved. The disclosure on outcome had been attempted through separate exercises that report on the outcome achievements separately. Outcome Budget was started in Government consequent to the announcement of the Finance Minister in the budget speech for 2005-06. Detailed guidelines for the Outcome Budget presented by every Ministry in respect of every demand, except those explicitly exempted from doing so, for plan as well as non plan expenditure, are issued by Department of Expenditure every year.

The Performance Monitoring and Evaluation System (PMES) is a system of performing management and reporting which was started from the year 2009-10. Under PMES, each department is required to prepare a Results-Framework Document (RFD). RFD provides a summary of the most important results that a department/ministry expects to achieve during the financial year. This document has two main purposes: (i) move the focus of the department from process-orientation to results-orientation, and (ii) provide an objective and fair basis to evaluate department’s overall performance at the end of the year. These measures have increased the transparency in reporting of performance on outcomes.

For improving quality of expenditure on schemes, it is very important to ensure that there is robust performance evaluation and reporting mechanism that is tightly linked with the budgeting process and financial decision making. In long term, this would ensure that scarce public resources are optimally utilized for those activities that provide maximum benefit with least cost. The Plan expenditure of the Government can be divided into Central Plan and Assistance to State Plans. Central Plan consists of Central Plan  Schemes and Centrally Sponsored Schemes (CSS) that are implemented by States. There is a need to rationalize schemes within a Ministry and across Ministries. Rationalisation of both plan and non plan schemes would require dropping of schemes which have out lived their utility, while taking up new schemes.

Regular Monitoring and Evaluation of schemes and incorporating changes required to address issues observed during evaluation is extremely essential to ensure that the quality of expenditure is maintained. There are various initiatives taken at Central Government level that have this objective. Programme Evaluation Organisation of the Planning commission regularly evaluates the programmes of Government. It has various Regional and Programme Evaluation Office in the country. Towards this objective, Cabinet, in November 2010 has approved setting up of an Independent Evaluation Office attached to the Planning Commission. The Comptroller and Auditor General of India also conducts performance audit of the activities of the Government, which analyses the aspects of economy, efficiency and effectiveness of Government activities.

Monitoring and evaluation also includes monitoring the trend and pace of expenditure on schemes. The Central Plan Scheme Monitoring System (CPSMS), which provides real time information on the status of plan schemes of the Government, is an important initiative in this regard. There is a need to strengthen this system to provide more information on expenditure and utilization under plan schemes.

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