Concerns of Equity, Efficiency, Security, Fairness, Privacy & Accountability

Public Policy Design & Operations Coherence & Convergence Government Economists at work : OR What is the value addition of IES ? Concerns of Equity, Efficiency, Security, Fairness, Privacy & Accountability (Knowing, Understanding, Application & Skills) Facts vs. Fiction A Presentation to Probationers of Central Services at Dr. MCR HRDI AP 29th October, 2012

Role of government ? A provider or enabler in…. Creating wealth? Delivering welfare? Disclosing entitlements? Defining empowerment? Determining property rights? Qn: How significant is the initial endowment ? Issues: Problem recognition, measurement, diagnosis, solution and implementation

What we do at work ?simplify, supplement, support, standardize ! sabotage ? • We take decisions w.r.t to Legal framework • We help others to take decisions • We correct others’ mistakes in their decision • We communicate decisions • We implement decisions • We finance decisions & implementation • We audit decisions & operations • We spend money & raise funds via tax or debt or aid • We dispense power to empower or disempower others • We match resources used with Results • We need information, analysis, and arguments & not rhetoric

Complexity, conflict of interests and moral hazard Citizen: How to get more from Government by paying less Vs. Government: How to give more to citizens while taking more from them, and also balancing special interest effect and shortsightedness effect Discussion point: Reactions to policy solutions & reforms Perversity thesis: Futility thesis: Jeopardy thesis

Policy process cycle Issue: Policy cycle being neither a logically, sequentially, structured or a uniform process.. Sourced from Australian Policy cycle model http://www.premiers.qld.gov.au/About_the_department/publications/policies/Governing_Queensland/Policy_Handbook/cycle/cycle/at

Public Policy Issues w.r.t distribution of Challenge is in evolving options that yield widespread benefits with widespread costs transparently. Risk is in defining, measuring, and ensuring the spread of the costs and benefits unambiguously. Issues: impact on visible voters, future voters, unborn voters, influential voters, indirect voters Productive Functions: Efficient action produces more benefits than costs for the individuals of the economy Inefficient action produces more costs than benefits to the individuals of the economy (Issues: externalities, public goods, information problems, unintended consequences ) Protective Functions: Maintenance of a framework of security and order i.e., rules, institutions, property protection, contract enforcement, market regulation, social security, pensions, investor protection, administration of justice

Some key Principles in Public Policy • What belongs to you, you tend to take care of; what belongs to no one or everyone tends to fall into disrepair. • Sound policy requires that we consider long-run effects and all people, not simply short-run effects and a few people. If there is vagueness or subjectivity in the terms and conditions inviting tenders it may result In unequal and discriminatory treatment. It may violate doctrine of level playing field – Supreme Court of India on 17th Sept, 2007 in Reliance Energy case relating to Mumbai Trans-Harbour Sea link Projects Key issues: Equity, Efficiency, Effectiveness, Economy, Entitlements Ref: CAG’s Performance Audit Guidelines, and UK Government Green Book

Key Principles • Nobody spends somebody else's money as carefully as he spends his own. • Government has nothing to give anybody except what it first takes from somebody, and a government that’s big enough to give you everything you want is big enough to take away everything you’ve got.

Budget&the Citizen b citizen States c a Depts., g d e f Not on Constitutional strength but by practice Railway budget is separate, but Constitutionally, Railway receipts are part of CFI Non Tax Revenue Four* Services Tax Revenue Grants /Donor support P L A N N O N P L A N CFI Other Receipts Market Borrowings P S U S 4 3 C A P I T A L Interest receipts R E V E N U E Loan repayment Taxes, Fee& Savings, 2 1 Consolidated Fund Of India Application of Funds 1/3/202002/07/07 9 *Economic Services Fiscal Services Social Services & Other General Services

Indian Structural Reforms • Liberalization and regulation of specific markets • Trade Liberalization • Public Sector Management • Restructuring and privatizing utilities • Public expenditure reforms - economy, efficiency, transfers, user charges • Tax reforms • Public debt management • Monetary policy –Central bank independence • Financial Sector Reforms • Private and Public Governance Reforms • Decentralization and intergovernmental reforms • Civil Service Reforms • Land Reforms • Labour Reforms • Environmental Regulations Issues: Is market system necessary for democracy: Democracy and Market system = Mass control over elite: Collective outcome Vs. Market outcome. Government decision makers are like ordinary decision makers in market: influenced by their interests and bias but work in different incentive structure. ( eg: Distribution of income and power)

Legislative Objective of fiscal responsibility and budget management “To Provide for the responsibility of the Central Government to ensure inter-generational equity in fiscal management and long-term macro-economicstability by achieving sufficient revenue surplus and removing fiscal impediments in the effective conduct of monetary policy and prudential debt management consistent with fiscal sustainability through limits on the Central Government Borrowings, debt and deficits, greater transparency in fiscal operations of the Central Government and conducting fiscal policy in a medium term framework and for matters connected there with or incidental thereto.” 1/3/2020 11

Goods and Services(Reform policy challenge is to move right goods/services in the right box at a right time) A B D C

Transparency & Public Policy • Transparency can help reduce the scope for discretion since decisions are more likely to be reached on the basis of observable data and replicable methods, and poor decisions will be more open to challenge. • Transparency can also increase the legitimacy of decisions, thereby reducing the risk of future policy reversals (anticipation of which will tend to undermine the intended response). • Transparency works even when incentives can’t

Implementation challenges or Political economy considerations • Not being sensitive to the view of the majority • Free riding • Coordination failure • Information failure • Status- quo bias • Time Inconsistency.

Thank you Questions Comments Suggestions d.prasad@nic.in or prdprasad@gmail.com

GDP & Fiscal Indicators Y=C+I+G+(X-M) • GDP: Gross Domestic Product • indicates annual national wealth production (value added at every stage of production of goods & services: CSO brings out Advance, Quick and Quarterly estimates) • Economic Growth - GDP Growth: indicates how fast a nation is getting richer(Real Vs. Nominal Growth & WPI) Issues: What causes higher GDP growth - Increase in Output: What causes increase in Output – Increase in productivity & employment:. What causes increase in productivity – increase in efficiency. What cause increase in efficiency - enhanced/effective technology & raised skills: What raises investment and skills - Creative people with money; How to do that - Help more people to be creative & help them to have access to more money. (Note: The above slide and issues are framed using publicly available sources)

GNP = Cp+Ip+G+X-M = Cp+Sp+T+R (Ip-Sp)+(G-T)=(M-X+R) Large prolonged deficit lead to external current account imbalance Fiscal policy impacts savings and investments of private sector Budget deficit respond and influence external balances Cp-private consumption; Ip-private investment; G-government spending; X-exports of goods and services; M-imports of goods and services; Sp-private savings; T-government revenue; R=net current transfers to abroad.

Budget performance Concepts, Systems/Management styles Costs V A L U E For M O N E Y Traditional Budget Economy E C N O M I C A L L Y E F F I C I E N T inputs Output focused Budget processes Technically efficient outputs Outcome focused Budget Effectiveness outcomes Source; IMF Occasional Paper 245

Budget & the Constitution While the following provide for Procedure in Parliament with respect to Estimates … 113 Appropriation Bills … … … 114 Supplementary, additional or excess grants … 115 Votes on account, votes of credit and exceptional grants … 116 Special provisions as to financial Bills … 117 Consolidated Fund … … … 266 Contingency Fund … … … 267 Finance Commission … … … 280 Expenditure defrayable by the Union out of its revenues … 282 Laws/Rules for Custody, etc., of Consolidated Funds, Contingency Funds and moneys credited to the public accounts … … … 283 Borrowing by the Government of India … 292 AFS- Anchor to all documents: Art 112 Trigger to All Documents 19 *Annual Financial Statement

…a stylized peep into the Budget Objectives in Spending, Taxing, Balancing, Investing, Macro-economic stability, growth & global positioning Risks & leaks in pass-thru of public money; contingent liabilities eg: guarantees, PPP terms, legal liabilities Transfer payments transfer objectives, transferring routes, vs. Operational issues Impact on equity*, efficiency** & entitlements*** (excluding charged estimates) *Intergenerational. Regional. Public Vs. Private sectors, Farm & non-Farm sector. Rural Vs Urban. Spenders Vs. Savers. ** Capital Vs. Revenue. Productivity (ICOR) ***States Vs. Union Government. Through Finance Commission’s recommendations. BPL Vs. APL. Children & Aged. Women Vs. Others 20

Together – the Budget Documents… … Answer the questions like: Whether the results matched with the resources used ? How much money will go to health, education, pay, pensions, poverty alleviation, interests payments, defence etc., ? How much money will go for research & development ? How much money will go to pay down the debt ? Will taxes go up or down ? How much money will be borrowed ? What is the fiscal impact of all this ? …reveal Government resources flow & ... 1/3/202002/07/07 21 Would you like to try few more questions ?

India’s FRBM Act – Managing The Mandate Legal Frame work Constitution, FRBM Act, Public Debt Act, etc., Borrowing by the Government of India - Art. 292 The executive power of the Union extends to borrowing upon the security of the Consolidated Fund of India within such limits, if any, as may from time to time be fixed by Parliament by law and to the giving of guarantees within such limits, if any, as may be so fixed.

References: • http://nobelprize.org/nobel_prizes/economics/laureates/1986/buchanan-lecture.html • http://cag.nic.in/html/publi_peraudguid-rc.htm Performance auditing • http://www.hm-treasury.gov.uk/media/5/D/Green_Book_07.pdf (Green Book) • http://www.imf.org/external/pubs/ft/fandd/2000/12/robb.htm (How can poor have voice in policy analysis) • http://poverty2.forumone.com/files/12685_PSIA_Users_Guide_-_Complete_-_High_resolution_-_English_-_May_2003.pdf (A user’s guide to poverty and social impact analysis) • http://siteresources.worldbank.org/EDUCATION/Resources/278200-1099079877269/547664-1099079934475/547667-1135281504040/tools_ED_policy_analysis.pdf (Tools for education policy analysis) • http://www.mackinac.org/archives/2002/sp2002-01.pdf (Seven Principles of Public Policy) • Simon Blackburn: Being Good; A short introduction to Ethics • World Bank, The Impact of Economic Policies on Poverty and Income Distribution; Evaluation Techniques and Tools • James D. Gwarthney et al: Macroeconomics Private & Public Choice • Mancur Olson Jr. The Logic of Collective Action Public Goods and the Theory of Groups • IMF, Unproductive Public Expenditure: A Pragmatic Approach to Policy Analysis • Deborah Stone, Policy Paradox, The Art of Political Decision Making • Anthony Weston, A Rulebook for Arguments • Eugene Bardach, A Practical Guide to Policy Analysis: The Eightfold Path to More Effective Problem Solving

Small savings: Flow of funds/returns to citizens through NSSF: Sharing of returns/risks/costs Vs.alternatives Scope blocked Scope open !? To reduce Tax payers’ burden & to raise NSSF’s Efficiency equity 2 States’ CFI 3 5 2 7 Post Offices / Agents 4 NSSF Why & How 1 8 Open the Scope 8 9 7 6 Interests payments 5 Union’s CFI 6 Link to Market & investors/ Lend to SPV / Issue long term bonds 2 2 L e g e n d Numeral indicates the sequence: Arrows indicate the direction Funds: 2,4,5 Taxes: 2 Commissions: 9 Securities: 1,3 Principle Interests: 7,8 Admn. Costs Losses; 6

Concerns of Equity, Efficiency, Security, Fairness, Privacy & Accountability