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Business News/ Politics / Evaluating public spending through outcome budgeting

Evaluating public spending through outcome budgeting

Evaluating public spending through outcome budgeting


Outcome based performance budgeting (outcome budgeting from hereon) symbolizes a shift from traditional budgeting in the sense that it goes beyond budgeting by inputs (how much can we spend) towards budgeting by measurable outcomes (what can we achieve with what we spend).

The first step in developing an outcome budgeting system involves the process of defining the desired outcomes (outcomes are essentially more long term and typically are made up of more than one output) for the concerned ministry, department or function. This is followed by the process of identifying the interventions required for achieving target outcomes. Finally, the expenditure required for implementing the identified interventions is estimated, which forms a line item in the budget for that particular year.

Let us try and exemplify this approach for primary education. Assuming that the primary outcome being targeted is an increase in literacy rate from xx% to yy%, the first step would be to identify the various interventions required for achieving this target. These could include a) augmentation of existing school and associated infrastructure, b) implementing special programmes like mid-day meal for attracting children in the target age groups to school, c) undertaking focused community based awareness programmes etc. The final part of the exercise would involve estimating the expenditure required for implementing the identified interventions.

Almost all developed countries in the world have adopted outcome based budgeting techniques in their efforts to provide high quality effective services to their citizens. In fact, even in the developing world, select countries in Africa are venturing in to this area, with requisite technical support being arranged by agencies like the World Bank, African Development Bank and others.

Four years ago, in 2005, India showed its interest in adopting outcome budgeting her interest to join the move towards outcome budgeting with the then finance minister, P. Chidambaram presenting the country’s first ever ‘outcome budget’, which was more in the nature of a pre-expenditure statement, to the Parliament.

Sadly, limited progress has been made in this area since then. India today follows a performance budgeting framework which tracks outcomes at the level of individual programmes.

Consequently, the government specifies (and monitors) key outcomes for all its key development programmes or initiatives (say for example, “number of additional children to be covered under the Mid Day Meal Scheme") together with the envisaged budgetary outlay for the programme.

However, what is missing is the link to overall development indicators for that particular sector (again coming back to the primary education case study cited above, an example of such an indicator would be “literacy rate").

The slow progress on this front has primarily been due to two three key reasons. Firstly, much of the development interventions in India are routed through the state governments. Other than a few progressive states, the key line departments and other organizations in most states are yet to adopt planning and service delivery processes which are oriented around outcomes. There is therefore a need for an appropriate Centre-State institutional framework to standardize a set of outcome/output indicators at the sector (health, education etc.) level and put in place systems and processes for collecting and collating outcome related information together with interventions which are being or are proposed to be used for impacting these outcomes.

Secondly, there also exists limited knowledge and understanding on the linkage between specific Government interventions and the outcomes they are likely to impact. With multiple programmes operating in the same sector, additional statistical analysis based on past data would need to be conducted to understand cause effect relationships better. Also, while there exists today data on key outcomes in individual sectors for all States, there is a need to check the consistency of this data set and also the underlying processes used for collection and collation.

With India ready to stake its claim to becoming a developed country in a few years, the time has now come to put in place the foundations for an outcome budgeting system. Come July, all eyes would be on the finance minister as he stands up in Parliament to present the 2009-10 Union Budget.

The citizens of India, who have time and again expressed a clear mandate for increased governance and accountability, together with high quality seamless citizen services, would be looking up to the finance minister in eager anticipation to see whether the country indeed makes a beginning in its quest towards outcome based performance budgeting.

The author is an executive director with Deloitte in India

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Published: 05 Jul 2009, 12:30 AM IST
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