Matching outlays with outcomes

Are more schools = more education?
Are more roads = faster transportation?
Is having a river plan = cleaner rivers?
Is more spending = better governance?

"I must caution that outlays do not necessarily mean outcomes. People are concerned with the outcomes." When the then Finance Minister P. Chidambaram spoke these words in Parliament on February 28, 2005, he almost heralded a revolution in public spending. For decades, government expenditure has been synonymous with waste. Studies have shown that only a tiny proportion of spending on various government programmes reaches the intended beneficiaries or fulfils the intended purpose.

For instance, a recent Planning Commission paper showed the amount spent on poverty alleviation in just one year (1999-2000) would have raised every BPL family in the country (4 crore people) above the poverty line. By offering to come out with an Outcome Budget every year, the United Progressive Alliance (UPA) had paved the way for the "first step towards converting the financial outlays into physical outcomes". In other words, Chidambaram had held out hope that tax payers can look forward to a better monitoring of their money.

Alas, it turned out to be another case of good intentions unable to overcome the grim realities. Five years after the practice of Outcome Budgets began, it turns out that outcomes, as defined by the UPA, aren't really outcomes and are inadequate for judging the efficacy of outlays. The document itself is so obscurely produced that few know of it, and fewer can understand it. Sample this: UPA's idea of the outcome from the Mid-day Meal scheme is the regular provision of meals to 12 crore children (in 2006-07).

The number of children fed is not the outcome, it is output. The outcome ought to be improvement in the levels of enrollment, lower school drop-out rate and better nutrition. "For an Outcome Budget it is first essential to have outcomes coming out of expenditure, which needs targets— both quantifiable and qualitative. There has to be reform of the government itself," says former MP and eminent chartered accountant Suresh Prabhu, who led an Institute of Chartered Accountants (ICAI) committee on Outcome Budgets.

Similarly in the case of the Rs 99,6717 crore–Sarva Shiksha Abhiyan (SSA)—which feeds on the education cess that the government collects on every tax—the outcome should be measured in terms of gains in school-going children's reading and writing abilities and proficiency in arithmetic. Whereas all that Outcome Budgets offers are inane statistics on schools built and teachers hired, which do not tell us the real impact of the SSA. In the case of spending on roads, outcomes should have been measured in terms of reduction in travel time and greater comfort of journey—and not by the kilometres of road built.

There seems to be confusion— genuine or pretended—between the exact definition of the words outlay, output and outcome. The desired outcomes won't come from earmarking outlays alone. Outcomes are equal to outlays plus management, planning, targeting, etc. The committee on Outcome Budgets that included economist Bibek Debroy, Director General of National Council of Applied Economic Research (NCAER) Suman Bery, and Director of NIPFP M. Govind Rao and others concluded in 2008: "The ministries and departments have not defined outcomes in a measurable and monitorable manner." The problems stem from the fact that outcome measurement is carried out by bureaucrats who are also responsible for outlays. Given that Outcome Budget is essentially a tool for measuring the efficacy of the bureaucracy, there is a clear conflict of interest.

Yet all is not lost and the intention of trying to match outlays with outcome can still be turned into reality. The committee report offers some help. It notes: "Transition to outcome focus represents a change in thinking, acting, managing…" Moving away from defining goals in terms of rupees spent on children educated and infrastructure built will take designing hard-to-compute quality indicators and taking into account non-financial factors like public services users' satisfaction. Outlining benchmarks for timeliness, reliability of systems, data collection and verification, risk management, financial discipline and the quality of service and deliverables—a job for the ministry of finance—should have been done before mandating Outcome Budgets. A genuine-yet-tricky problem is what standards can really be used to estimate the outcomes of the money spent on diplomacy.

The 2010-11 Budget is the time when the need to match outlays with outcomes is the highest. As deficit financing of stimulus is almost certain to be curbed, raising the efficiency of spending is one good way to ensure that every buck that government spends yields more bang. This will give the leeway to cut the fiscal deficit (at a 16-year high of 6.8 per cent of GDP) without affecting the stimulus. If it does act now, the UPA will have four years to see the alignment of outcomes with outlays, and achieve what it set out to when it first came to power in 2004.

	Mid-day Meal	APDRP*	Ministry of Road Transport and Highways	National River Conservation Plan
UPA's idea of outcome	Regular provision of mid-day meals to 12 crore children (2006-07), which in fact is the output.	Project completion, investments for reducing aggregate technical and commercial losses, incentivising cash loss reduction by state power utilities.	Kms built per project, timelines for awarding and completing ongoing projects, institutes sanctioned for drivers' safety training, expenditure on campaigns.	Excluded the Plan's most significant component, Ganga Action Plan (2007-08).
Ideal Outcome	Measured in improvement in the levels of nutrition, enrollment, attendance, retention and learning.	Measured in deadlines, percentage reduction targeted in T&D losses, outages and interruptions, etc.	Quantified in terms of gains made in time and comfort of travel.	Interception and diversion of sewage, schemes of low-cost sanitation, schemes of efficient treatment by industrial units and water-quality standards.
*APDRP: Accelerated Power Development and Reform Programme. Source: ICAI committee report on Outcome Budget, BT Research