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| Feb 28, 2000 | ||
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| BUDGETING Budget Busters Profligacy and wastefulness are inherent in the process of budget making in India. By Rohit Saran
Wisdom and discretion have never been the hallmark of government spending in India. But the method of budgetary allocation of funds has reached a stage where it is bereft of all prudent norms of spending. The funds ministries ask for annually are not necessarily what they need. The funds the budget grants to government departments are not what they eventually get. The items on which the budgeted money is spent are not always those it was meant to be spent on. Recently, B.P. Mathur, director of the Faridabad-based National Institute of Financial Management -- an institute set up by the Finance Ministry -- studied the rigidities and flaws in the process of budget expenditure. The results are illuminating on two counts. One, they show how archaic and inefficient is the manner in which funds are spent through the budget. Two, it reveals that subsidies, salaries and interest payments are not the only causes of galloping government expenditure, and many of the budget busters are inherent in the process of budgeting itself. Since expenditure and deficit control are the most important challenges for the forthcoming budget, India today presents five basic flaws in the budgeting process. 1. ASK NOT WHAT YOU NEED, BUT WHAT YOU
CAN BARGAIN FOR It was way back in the '70s that the Administrative Reforms Commission had suggested the introduction of what is called the performance budget. That is, all public expenses must specify functions, programmes and activities they are used for and correlate the output of each with its cost. For formality's sake a performance budget is prepared by each ministry every year, but it serves no purpose since the funds granted to ministries are never linked with the progress of the work or the targets set out in the performance budget. 2. DON'T SAVE EVEN IF YOU CAN, FOR YOU
CAN'T KEEP THE SAVINGS Well, the saving occurs because of the inability of ministries to spend the money granted. That, in turn, happens because even after the expense on a project has been cleared by, say the Planning Commission, it must again be cleared by an agency called the Expenditure Finance Committee (EFC). This process is long drawn and takes anything from a few months to several years. Result: the funds aren't spent. If a ministry hasn't been able to spend the money it is given, it is penalised in three ways: it must surrender the money saved, it gets less funds the following year and the clearing authority may question the ministry for asking too much the previous year. To escape this, each ministry tries to spend as much as it can before the end of the year, leading to what is called the "rush-of-March" situation (trying to exhaust budgets in March so that they don't have to be surrendered). Despite that, a study by NIFM shows that civil ministries of the Central Government (all ministries excluding defence, railways and post and telecommunications) had to return a sum of Rs 15,033 crore in 1997-98 because it was not used. 3. ASK FOR FUNDS TODAY FOR WHAT YOU
MAY DO FIVE YEARS FROM NOW The existing budget system permits neither. The result is an inefficient contradiction: while on the one hand projects get delayed for lack of funds, on the other hand the ministry undertaking the project has to often return annual instalments which it is unable to spend. Countries like the US and Sweden have switched to biennial and triennial budgeting under which funds for long-term projects are cleared and budgeted on a multi-year basis. This also curbs the practice of rush-of-March expenditure which leads to considerable wastage of funds. 4. PRIORITIES ONCE FIXED MUST NOT
CHANGE DURING THE YEAR Obviously, the system was invented to control the erring bureaucrats. To tie them from all sides so that they cannot spend a single rupee more than what was mandated. But as it turns out, the attempt to prevent bad management has made good management impossible. India inherited the system of line budgeting from Britain, but never changed it in the last 50 years. To be sure, ministries have been given limited powers to reschedule some expenses, but the expenses on which such discretion is allowed cannot exceed Rs 1 crore. A quick solution to the problem is granting the ministries and departments the discretion to reallocate funds according to shifting priorities, as long as the overall budgetary expenditure limit for the department is not breached. 5. ALL THAT IS NON-PLAN IS
NON-PRIORITY AND CAN BE NEGLECTED The commission funds a programme for five years after which it is classified as a non-plan activity. Once that happens the funds flow dries up. That's because most ministries do not consider non-plan spending to be as important as the plan expenditure. The consequence: projects built with plan funds are starved of money for maintenance. For years there have been talks of doing away with plan and non-plan distinction in expenditure. Sinha himself promised to do so in 1998. But like other attempts at expenditure reforms, this too remains unattained. These and many more inherent problems in the budgeting process make it clear that the finance minister's job of expenditure reforms should begin from reforming the budget itself. And in doing so, the objective should be to turn the budget into a contract for performance. |
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