Government Budgets

Ensuring that policy outcome matches the intent

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Dealing with the structural limitations of policy

Context

Policy differences between parties and coalitions arouse heated debates in legislatures and at political rallies. But relatively scant attention is paid to whether the stated policy or enacted law — of any persuasion — delivered the intended outcomes/results.

Issues with annual budget modalities

  • There are limitations in the structural design of the Union and the state governments of India, which either cause or enable inefficient translation of policy intent to semi-realised outcomes.
  • Nowhere is this more obvious than in the annual budget modalities followed by the Union and state governments.
  • The final accounts (FA) for a financial year are generally presented to the legislative body between 18 and 24 months after that year’s budget is approved, most often as a minor artefact along with the main attraction of the budget for the upcoming year and the minor attraction of the Revised Estimate (RE) for the year in progress.
  • In effect, a small fraction of the attention paid to intent (budget) is paid to the outcome (FA) which is only known many months after the year is over.
  • Governments in India adhere to the archaic cash accounting as opposed to accrual accounting, which is the norm for most companies and governments which introduces some strange incentives and behaviours, especially towards the end of the year.
  • As a result, even the final account is not what it seems, with the possibility that significant funds which have been presented to the legislature as spent are still held in off-balance-sheet accounts not visible to the government’s finance department.

Way forward: Lessons from Tamil Nadu government

  • This structural limitation was the basis for the initiative to identify and retrieve unutilised funds that the Tamil Nadu government.
  • New procedures and systems will ensure that such moving/parking of funds (especially as the year ends) cannot happen outside of the finance department’s oversight.
  • On another front, the data-integrity project undertaken to support (among other reasons) the crop and jewel loan waiver poll promise has also produced remarkable results.
  • Many instances of ghost pension recipients and free-rice-entitled category of ration card holders and malfeasance in crop and jewel loan sanctioning have come to light.
  • The rectification of such anomalies will save the government a significant amount of funds, but, more importantly, enable fairer societal outcomes.
  • Tamil Nadu is diligently following the five-step approach: Collect and analyse data to develop a deeper understanding, disseminate results into the public domain and generate a public debate, receive feedback from the debate and inputs from experts, use these inputs to design policies and put into execution, constantly seek feedback and course correct when needed.

Conclusion

We need the thoughtful design of policies and schemes, and their execution, which are vital to achieving our intended goal of benefiting all citizens in a fair and inclusive manner.

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