One of the shadow areas of the Indian development experience has been the widely acknowledged haemorrhaging of expenditure in the implementation of various government schemes and programmes. The pervasiveness of the “leaking pipe syndrome”—of outlays not leading to intended outcomes—had led one of our late prime ministers to famously remark that not more than around 15% of such expenditure finally reached the targeted beneficiaries. While the factual accuracy of this assertion could be debated, there is a broad recognition of the immensity of this problem, which has no easy solutions. This issue is, without doubt, “the elephant in the room” as far as public expenditure management is concerned.
Leakages, in varying degrees, plague government programmes in virtually every developing country. What is significant about the Indian experience is the size and complexity of the problem despite several decades of experiment with performance budgeting (PB). In fact, India was among the first countries in the world to introduce the concept as early as in the 1970s, in an attempt to establish a correlation between inputs and outputs in public sector programmes, and it became incumbent on the various ministries and departments of the Union government to annually place their PBs in Parliament along with their budgetary demands for scrutiny by the ministry-specific parliamentary committees. More recently, following the finance minister’s budget speech in 2005, in which he expressed concern that outlays do not necessarily lead to outcomes, PBs have been replaced by “outcome budgets” (OBs) with improved features.
The change from PB to OB has essentially been one of form rather than substance. There are at least four basic issues that need to be addressed for such an exercise to yield meaningful results. First, clear, logical and causal linkages have to be established in the OBs between the financial outlays and the processes and activities that need to be undertaken to transform the outlays into outputs, namely, goods and services that are necessary to produce the desired outcomes. Second, OBs need to be integrated with the budgetary process via feedback loops—performance in terms of achievement of outputs and outcomes should impact budgetary allocations in some meaningful sense. Third, a transparent accountability mechanism needs to be established for the achievement, or otherwise, of the targets and milestones set out in the OBs—currently, accountability mechanisms focus primarily on processes and procedural compliance rather than on actual results. Without these essential ingredients, the very real potential of OBs being a powerful instrument of management and accountability for improving outcomes of government programmes would remain untapped.
Last, and this is perhaps most important, for such a critical public system reform to have any hope of success, it would be necessary to put in place an institutional framework to enable a credible and transparent facilitation of some of the essential ingredients of a proper OB exercise, such as the establishment of countrywide performance benchmarks and costing norms for the public goods and services supplied; development of measurable performance indicators for the objectives set out; development of performance monitoring systems to regularly collect data on the actual results achieved; independent third-party evaluation of major programmes; and use of performance contracts to enforce accountability of key actors. In the absence of such a framework, progress in these areas has been greatly hampered due to a lack of adequate capacity, due to lack of reliable data of the required quality and periodicity and, above all, due to the lack of commitment of the human and financial resources that are necessary to execute such a major, game-changing reform in public systems, which can hardly be expected to be without costs.
A dispassionate assessment of the Indian experience with PB and OB reinforces the conclusion that there has been little political interest or commitment to fix the “leaking pipe”. While governments have periodically made the right statements in Parliament and elsewhere, little has translated into concrete action. Obviously, those who benefit from such leakages constitute a powerful barrier to any reform as the attempts at social audit of some of the ongoing schemes have repeatedly revealed.
There are no straightforward technical solutions to complex political economy issues. Take the case of the unique identity (UID) scheme, which will certainly eliminate duplication of beneficiaries in government programmes once its implementation is completed. However, to eliminate errors of “inclusion” (wrong people getting benefits) or “exclusion” (intended beneficiaries being bypassed), which are seldom random, other instruments, including political, will be needed to tackle the extant power structure, which is heavily weighted against the disadvantaged.
The time-honoured management principle “what’s measured gets done” holds good— provided there is the will and the capacity to measure as well as hold people accountable for results. Will our governmental system be willing and able to fix the leaking pipe?
Sanjiv Misra is a former expenditure secretary in the finance ministry and a former member of the 13th Finance Commission.
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