Corruption Beyond the Spectrum, Outcome Budget, Fiscal Prudence

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Beyond the Spectrum

The enormity and complexity of government budget throw a special burden on CAG

  • The Comptroller & Auditor General of India (CAG) has been in limelight recently for his report on the irregularities and loss of revenue to the Central Exchequer in allotment of spectrum licences.

  • Public awareness & appreciation of the role of CAG, especially in the media, is to be welcomed.

  • Supreme auditor of the government, it is his responsibility to check that collection of revenue and spending of public money is done properly according to rules & regulations.

  • It is a creditable achievement to unravel all the ramifications of this complex transaction & bring out a comprehensive report without fear or favour.

  • This is time to recognise the wider role CAG can play in the larger context of economic development & fiscal consolidation.

  • On behalf of Parliament & public, CAG is responsible to check that public revenue is collected and public expenditure is incurred in the most efficient & lawful manner.

  • India is a welfare state & government is implementing a number of schemes & projects under the five-year plans, resorting to borrowing.

  • The enormity & complexity of government budget throws a special burden on CAG. The budget estimate of revenue receipts for the current year is Rs.6.80 lakh crore & total expenditure Rs.11 lakh crore financed through substantial borrowing.

  • The CAG’s role extends to see that the budget is implemented to achieve the government’s objective of promoting development with fiscal prudence.

  • Two areas for such non-routine audit can be identified –Output /Outcome budget and fiscal responsibility legislation.

  • One major factor in public expenditure of a modern welfare state is the wide range & complexity of functions, schemes & projects undertaken by the government to promote all inclusive economic growth.

  • This has altered the budget formulation in a significant way. The budget is no longer a mere financial budget. Now the emphasis is on what is expected from the large scale spending.

  • Efficiency & effectiveness became the key words. The physical output from the financial input is reflected in the budget.

  • The country has followed this world-wide trend by introducing budgetary reforms. The annual performance budget was introduced to highlight financial and physical aspects of major schemes & programmes of all ministries dealing with development activities.

  • Even after 25 years, this did not bring any significant improvement in efficiency & effectiveness in public expenditure.

  • Presenting the Central budget for 2005-06, the then Finance Minister announced putting in place a mechanism to measure the development outcomes of all major programmes to ensure that “programmes and schemes are not allowed to continue from one Plan period to another without an independent and in-depth evaluation.’’

Outcome Budget

  • The output/outcome budget is a complex task. It involves the following criteria.

  • Defining & measuring the output & the outcome from expenditure.

  • The output refers to physical measure of production & the outcomes deal with the effect of the policy & impact

  • Realistic cost assumptions to link financial budget provision with targeted output/outcome;

  • Designing a suitable system of financial & physical data;

  • System for internal check, monitoring & corrective action when needed

  • Presenting an annual analytical statement –comparing the actual financial and physical performance with that of budget estimates and targets.

  • If the new outcome budget is to fare better than the earlier performance budget and become a practical management tool, a special CAG audit of a few select cases will throw up the problems in adhering to the criteria mentioned above & any system weakness.

  • Omission of substantial non-Plan expenditure such as operation of schools, hospitals, irrigation projects from the output/outcome budget is a major flaw.

  • Expenditure on public private partnership (PPP) & direct transfer of funds to non-government bodies do not come under this output/outcome discipline. CAG can marshal data to draw attention to this lacuna in expenditure management.

Image of Outcome budget

Image of Outcome Budget

Image of Outcome budget

Fiscal Prudence

  • Another important subject for the audit scanner is action or rather non-action to inculcate fiscal prudence in government expenditure.

  • A historic landmark in fiscal history is the enactment of the Fiscal Responsibility & Budget Management (FRBM) Act, 2003, by Parliament.

  • It prescribes targets and ceilings for the budget deficits & thereby borrowings by government to finance expenditure. This is a commendable & timely legislation to control spending on non-priority & non-productive areas by taking loans.

  • It also calls for a long-term view of fiscal prudence and sustainable public debt through Medium Term Fiscal Plan (MTFP) beyond the annual budget. But the implementation of this Act suffers from serious defects.

  • Achievement of quantitative deficit targets is taken an end in itself & not as a means for achieving fiscal prudence.

  • Deficit management has been done with the help of buoyancy in revenue, especially through disinvestment & revenue from spectrum auctions, off budget items & other means.

  • Reform in expenditure policy & management has been put on the backburner.

  • The MTFP presented with the annual budget is not supported by disaggregated data on revenue & expenditure projections & the underlying assumptions.

  • There is no road map based on identification of the numerous specific problems in budget formulation, revenue mobilization and expenditure policy and implementation with a time-bound action plan.

  • An in-depth special audit by CAG of the implementation of the FRBM Act will be timely. CAG has power & access to data for doing this.

  • The Comptroller & Auditor General can recruit any technical staff needed for this non-routine audit. If this audit is done with a proper perspective, it can dispel the mistaken negative impression of audit as only a fault finder of individual irregularities.

Image of Fiscal prudence

Image of Fiscal Prudence

Image of Fiscal prudence

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