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IMPROVING THE EFFICIENCY AND EFFECTIVENESS OF PUBLIC EXPENDITURES IN INDIA: HOW TRACKING OF PUBLIC EXPENDITURES CAN HELPDr. Anand P. Gupta, Ph.D. (University of Florida) Director, Economic Management Institute, New DelhiFormerly Professor of EconomicsIndian Institute of Management, AhmedabadLandline: (91 11) 2613 2204; Mobile: (91) 98111 10720 anand@EconomicManagement.comPresentation at the training programme for senior officials of the Controller General of Accounts, Government of India, organised at the National Institute of Public Finance and Policy, New Delhi, May 25, 2012.
1. Introduction • According to the Planning Commission’s High Level Expert Committee on Efficient Management of Public Expenditure, improving public expenditure management boils down to putting in place institutional arrangements that influence outcomes at three levels: aggregate fiscal discipline; allocation of resources in accordance with strategic priorities; and efficient and effective use of resources by the implementing agencies. • The focus of this presentation is on institutional arrangements for efficient and effective use of resources by the implementing agencies.
2. Tracking of Public Expenditures by the CAG: A Case Study The CAG did a performance review of the Swarnjayanti Gram Swarozgar Yojana (SGSY), a centrally sponsored scheme, in Orissa since its launch on April 1, 1999. The review covered a period of three years (April 1, 1999-March 31, 2002). According to the performance review, the total expenditure on the SGSY during this period, reported by the Government of Orissa, added up to Rs. 233.78 crore. Of this, the
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) expenditure test checked during audit amounted to Rs. 97.10 crore (41.53%). The test checks covered records of the Panchayati Raj Department and those of eight District Rural Development Agencies (DRDAs), 34 Block Development Offices (BDOs), 34 Banks and 38 Gram Panchayats (GPs) in Orissa.
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • The performance review has revealed that as much as 62.17% of the expenditure test checked during audit was irregular, with 19.87% deposited into Personal Ledger Accounts/ Personal Deposit Accounts/Banks, 13.03% lying unutilized, 12.49% disbursed as advances and treated as final expenditure, 6.15% misused/ diverted to unrelated activities, 2.13% incurred on works not permissible, and the remaining 8.51% accounted by other irregularities.
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) The performance review claims that 37.83% of the expenditure test checked during audit was incurred on the programme. The CAG’s revelation (that as much as 62.17% of the expenditure test checked during audit was irregular) and its claim (that the remaining 37.83% of the expenditure test checked during audit was incurred on the programme) raise several extremely important questions.
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • One of these questions is: what exactly does the CAG’s claim that 37.83% of the expenditure test checked during audit was incurred on the programme, mean? Does it mean that 37.83% of the expenditure test checked during audit achieved the intended outcomes? Given that the SGSY aims at bringing the assisted poor families above the poverty line by providing them income-generating assets through a mix of bank credit and government subsidy, the outcome of the outlays on the SGSY should be measured in terms of the number of poor
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • families lifted above the poverty line and the cost involved in achieving this. • But the performance review does not tell us how many poor families under the jurisdiction of the eight DRDAs, 34 BDOs and 38 GPs, whose records were test checked during the audit, were lifted above the poverty line through the SGSY. What it says is that 220,037 families were covered under the SGSY during 1999-02, against the target of 252,432 families. But these numbers relate to the entire State of Orissa, not to the eight DRDAs, 34 BDOs and 38 GPs whose records were test checked during the audit. Further, mere coverage of a poor family under the SGSY does not necessarily mean that it was lifted above the poverty line.
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • However, the CAG has done some excellent public expenditure tracking work. This has resulted in some extremely useful empirical evidence: • The selection of key activities for the beneficiaries in three DRDAs (Ganjam, Jajpur and Khurda) did not involve the village sarpanch and the rural poor. Further, 18 project reports of four districts (Ganjam, Jajpur, Khurda and Mayurbhanj) did not discuss the components like training, credit, technology and marketing.
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • Against the sanctioned bank loans of Rs. 51.45 lakh in seven blocks (Balasore, Jaleswar, Remuna, Bhawanipatna, Golamunda, Kesinga and Junagarh), only Rs. 36.02 lakh were disbursed to 231 swarozgaris, with reasons for the non-disbursement of the balance amount not available on the records. Further, the delay in disbursement of the loans by the banks in seven blocks (Balasore, Bangiriposi, Betonati, Jashipur, Kaptipada, Kuliana and Remuna) during 2000-01 ranged between two and seven months.
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • Assets of Rs. 1.77 crore in 15 blocks (Begunia, Bhawanipatna, Chatrapur, Golamunda, Hindol, Jashipur, Jaipatna, Junagarh, Kaptipada, Kesinga, Khaira, Khurda, Nilgiri, Odapada and Remuna) were either not created or only partly created by 961 swarozgaris. Further, 113 assets of Rs. 21 lakh in Chatrapur block were in a damaged/defunct condition. • Of Rs. 5.75 crore allotted to the eight test-checked districts (Bolangir, Balasore, Dhenkanal, Ganjam, Jajpur, Kalahandi, Khurda and Mayurbhanj) for training during 1999-02, only Rs. 0.94 crore were utilized for training.
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • The scrutiny of 140 beneficiary assessment reports (Bolangir: 40; Balasore: 7; Dhenkanal: 20; Ganjam: 20; Jajpur: 10; Kalahandi: 33; Khurda: 4; and Mayurbhanj: 6) revealed that none of the swarozgaris had achieved the desired monthly income of Rs. 2,000. The verification by the block development officers in three blocks (Hindol, Khaira and Begunia) revealed the monthly income to be between Rs. 200 and Rs. 1,800 and it generally did not exceed Rs. 1,000. • All this clearly suggests that even 37.83 per cent of the expenditure test checked during audit which, according to the CAG, was incurred on the SGSY, has failed to
2. Tracking of Public Expenditures by the CAG: A Case Study (contd.) • achieve the intended outcomes. The performance review does not provide the required data that would allow us to assess the relative ineffectiveness of the eight DRDAs, whose records were test checked, in achieving the intended outcomes.
3. Where do we go from here? • I strongly believe that public expenditure tracking work must go beyond determining how much of the expenditure incurred on a scheme is regular and how much of it is irregular. It must also go beyond tracking whether right amount of money flows at the right time to the right level, with no parking of funds. • In order that public expenditure tracking work is meaningful, it must help in substantially improving the efficiency and effectiveness of public expenditures. In other words, it must help in developing the culture of measuring performance in terms of the delivery of the outcomes that people are concerned with.
3. Where do we go from here? (contd.) • This will necessitate that before we begin tracking of public expenditures on a programme, we articulate the theory of change underlying that programme. Once this is done, those responsible for tracking of public expenditures on a given programme will need to (a) check whether money is available according to the requirements of that programme, (b) check whether money has been spent as it was supposed to be spent, (c) identify the missing/weak links in the causal chain of the programme in question -- these missing/weak links may differ from one programme to another, and from one place to another, and (d) report their findings to the programme manager without any waste of time.
3. Where do we go from here? (contd.) • The programme manager will be expected to take appropriate and timely action(s). In case the programme is not producing the intended outcomes because, say, the programme beneficiaries are not behaving the way they were expected to, the programme manager will investigate the reasons for this and take the requisite corrective action(s).
4. Theory of Change: Two Examples • I have articulated the theories of change underlying the Government of India’s initiative of Outcome Budget and the Government of Rajasthan’s Police Reforms Experiment. • The theory of change underlying the outcome budget. No explicit theory of change has been put forward by the Government of India for adopting the OB. But one can articulate the theory of change underlying the OB on the basis of the information provided and various statements that have been made. The theory consists of four assumptions.
4. Theory of Change: Two Examples (contd.) • First, the GoI assumed that issuing guidelines via its Ministry of Finance’s Department of Expenditure will be enough to create the requisite incentives for its various ministries/departmentsto prepare the OB along the intended lines. • Second, the GoI assumed that its ministries/departments had the requisite knowledge and skills to define the intended outcomes of their various interventions and to articulate the production functions for these outcomes. And in case the ministries/departments did not have the requisite knowledge and skills, they would seek the assistance of outsiders for these tasks. The guidelines clearly provided for this.
4. Theory of Change: Two Examples (contd.) • Third, the GoI assumed that its ministries/departments had the requisite incentives and skills to generate credible data required to prepare OB on their own, to validate the data available from other sources, and to seek, if necessary, the assistance of outsiders for generation/validation of the required data. • Finally, the GoI assumed that its ministries/departments will somehow be able to deliver the intended outcomes despite the serious problems that they may face with ensuring the flow of right amount of money at the right time to the right level, and with preventing misuse/ diversion of money to unrelated activities.
4. Theory of Change: Two Examples (contd.) • The theory of change underlying the Government of Rajasthan’s Police Reforms Experiment. Four interventions were chosen for this experiment: freezing of transfers; weekly day off and duty roster system; community observers; and in-service training programme. These interventions were implemented in randomly selected 125 police stations across eleven districts of Rajasthan for a period of one and half years, with 37 police stations, randomly selected in these districts, used as the control group. These eleven districts are: Ajmer, Alwar, Barmer, Chittorgarh, Dholpur, Hanumangarh, Jaipur City East, Kota City, Nagaur, Pratapgarh, and Udaipur.
4. Theory of Change: Two Examples (contd.) • None of the documents available on this experiment includes any explicit theory of change for these interventions. But one can articulate the theory of change underlying these interventions on the basis of the information available in these documents and in the articles/stories that have appeared in the press on this experiment. The theory consists of eight assumptions. • First, the experiment team assumed that police recruitment in Rajasthan will in future be strictly on merit and in a transparent manner and that something will be done to deal with those currently in Rajasthan police who had paid money to get recruited to Rajasthan police, so
4. Theory of Change: Two Examples (contd.) that they do not have to resort to corrupt practices in order to recover, with interest, the money they have “invested” to get recruited to Rajasthan police. • Second, the experiment team assumed that the SHOs will provide their full cooperation during the experiment’s implementation. • Third, the experiment team assumed that the intervention of weekly day off will help in bringing about a positive change in the behavior of a typical police person in Rajasthan who, according to Nina Singh, “is generally overworked and underpaid...lives in pathetic
4. Theory of Change: Two Examples (contd.) conditions with virtually no time for his family...(and tends) to feel that (he is) not looked after well by the system either. This alienation can be expressed in brutal behaviour.” • Fourth, the experiment team assumed that the police stations in the treatment group had the requisite staff capacity to allow the concerned SHOs to implement the intervention of weekly day off without adversely affecting the normal day-to-day functioning of their police stations. • Fifth, the experiment team assumed that the allocation of the various police station level duties to the staff on a
4. Theory of Change: Two Examples (contd.) rotating basis will create a transparent and fair system of work allocation which, in turn, will lower stress among police staff and eliminate favouritism/corruption in the allocation of the various police station level duties. • Sixth, the experiment team assumed that the intervention of freeze on frequent transfers will allow the police personnel at a police station and the people living in the area under its jurisdiction to know each other better and that this, in turn, will help improve service delivery. • Seventh, the experiment team assumed that in-service training in technical and soft skills, if designed and
4. Theory of Change: Two Examples (contd.) delivered by competent people, will have a positive impact not only on the public’s perception of the Rajasthan police but also on the victim satisfaction level. • Finally, the experiment team assumed that the intervention of community observers will ensure that the police personnel at a police station actually practice the knowledge, skills and attitudes that in-service training has equipped them with, and that they do not do anything that they are not supposed to do.
5. Concluding Remarks • The OB has failed. This failure has happened because the assumptions of the theory of change underlying the OB have not been satisfied. It’s business as usual, with no visible improvement in the effectiveness of the GoI’s spending, and with no positive change even in the mindset of those who manage the GoI’s spending. • There is a clear recognition of the OB’s failure in delivering the desired results. P. Chidambaram, the then Finance Minister who launched the OB, is reported to have said: “the Government of India has substantially expanded outlays in sectors like irrigation, education and health, but kept on following the existing ‘tried and
5. Concluding Remarks (contd.) failed’ system, as a result of which the outcome of these enhanced outlays is not visible at the ground level.” • And Montek Singh Ahluwalia, Deputy Chairman of the GoI’s Planning Commission, is reported to have said: “The exercise of outcome budget of manipulating existing data did not get the desired results. It’s easy to evaluate whether investment made in a steel plant has delivered. But measurement of outcomes in health and education are difficult and complex.” • As regards the Rajasthan Police Reforms Experiment,
5. Concluding Remarks (contd.) this is how the experiment team has summarized the experiment: “The program showed some significant outcomes in the short span of 18 months, yet failed to generate robust effect on a broad change in either police performance or public perception of the police.” • This happened because the assumptions underlying the theory of change for the experiment were not completely satisfied: there were major problems with the implementation of the interventions relating to weekly day off and duty roster system and community observers.
5. Concluding Remarks (contd.) • The people in India don’t know what happens to the money that the government spends. They don’t know how much value they are getting for the money that the government spends. They don’t know the answers to the extremely important public policy questions of which of the government’s various programmes/schemes work, under what conditions do they work, for whom do they work, what part of a given programme/scheme works, and is it cost-effective? There is reason to believe that a good part of the public money is simply looted. • This must change. Those responsible for tracking
5. Concluding Remarks (contd.) • public expenditures can play an extremely important role in bringing about this change. But many of them have not played this role. Why? • There could be two reasons for this. First, they were not a part of the team that designed a given programme. Second, they don’t have the requisite knowledge, skills and attitudes (compliance vs effectiveness). These issues must be urgently addressed -- I believe this will be a very cost effective use of public money. • Do you agree? • Let’s discuss.
