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 ₹ 6.80 lakh crore & total expenditure ₹ 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.
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.
Fiscal Prudence

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