Budget 2019: Time to rethink introduction of multi-year budgeting, setting rolling targets for desired outcomes

India is a federal country, but the Constitution renders a strong unitary bias in many spheres, including the domain of Centre-state fiscal governance. The institutional measures to augment resources, over the years, including the recent Constitutional amendment on Goods and Services Tax (GST) were steps that have strengthened this hallmark of strong centralisation.

The resource transfer pattern from the Centre to states, too, until very recently, favoured the former, whereby the states, particularly the poorer states, are dependent on the resource devolution from the Centre to discharge their Constitutional obligations.

In consideration of the foregoing, the incumbent government’s initiatives towards strengthening “cooperative federalism” can be said to be moving in the right direction.

Budget 2019: Time to rethink introduction of multi-year budgeting, setting rolling targets for desired outcomes

Representational image. Thinkstock

The higher degree of untied resource devolution from the divisible pool of resources flowing to states, and the increased quantum of grants provided to the local governance units, as per the Fourteenth Finance Commission’s recommendations are praiseworthy attempts.

Along with these changes in the fiscal federal architecture, a host of other budgetary reforms have been initiated at the national and sub-national level during this government’s regime.

We have noticed changes in the nature of budgeting processes, both on planning and programme budgeting in last couple of years.

Measures introduced in the country’s budgeting practices in recent years include merger of plan and non-plan distinction of programme budgeting, focus on administrative and scheme-based budgeting, importance to outcome budgeting and advancing the date of Union Budget presentation. These decisions are going to go a long way in improving the degree of budget transparency in the country.

Following the recommendations of various committees, major policy reforms have been set in during the last couple of years. To list the major ones, channelising resources through state treasuries since 2014-15, re-structuring of the Centrally sponsored schemes, integration of treasury operations with that of banks as part of public finance management system and introduction of direct benefit transfers (DBT) on several schemes are significant here.

Initiation of the above reforms in order to make the PFM (public finance management ) system in the country robust has been welcomed by various quarters from the lens of transparency and accountability towards advancing good governance in the country.

More reforms are on the cards in order to introduce multi-year budgeting and change the budget year (fiscal year); these would be important attempts towards addressing the gaps in the Indian budgeting practices at this juncture.

Since the enactment of Fiscal Responsibility and Budget Management (FRBM) legislation, a number of disclosure statements are produced and put in the public domain to enhance a transparent system of budgeting.

There is a huge potential for analysis of the immensely useful information shared in these statements in the course of policy discourses. One such statement, the medium-term expenditure framework which is prepared every year as part of the requirement under the FRBM Act 2003, has been the most useful for understanding the expenditure priorities of the Union government for the next couple of years.

What’s missing is a discussion on the resource augmentation strategies and projection of the same in a multi-year perspective, which can be considered as a multi-year budgeting framework.

A close look at the overall expenditure of the ministries and departments of the Union government, including schematic allocations in the latest statement reveals that the government has been following incremental budgeting, without explaining justifications of such an increase in the coming years.

It is important to mention that a multi-year budgeting framework provides fiscal projections both on resource augmentation and expenditure priorities for various sectors, which are of great significance for decisions on investment destination (expenditure priorities) with clear strategies to achieve specific development outcomes. The essential feature of a multi-year budgeting framework is to include revenue forecasts and expenditures estimates for two or three years beyond the current year.

Many countries have moved to develop their annual budget process in a strategic multi‐year budgeting framework. It has been argued that with the enactment of FRBM legislation, India has been producing a medium term expenditure framework (MTEF) which can be considered a partial multi-year budgeting exercise).

However, the framework is presented to the Parliament as a tool of monitoring the extent of expenditure and not setting expenditure projections for various purposes in the coming years. It is well-documented that a multi‐year dimension of planning and programme budgeting is not only a fiscal policy management tool, but also valuable for effective delivery of public services and monitoring of public provisioning.

However, there are capacity issues pertaining to preparation of a multi-year budgeting; having a robust framework in place would require overhauling the entire process of institutional arrangements and also substantial time and energy.

The time has come to rethink on introducing multi-year budgeting and setting rolling targets for administrative departments to achieve desired outcomes. This would go a long way in enhancing budget transparency in the country.

(The writer is research coordinator with Centre for Budget and Governance Accountability)

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Updated Date: Jan 29, 2019 14:01:06 IST

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