The government's Budget exercise is all set to undergo a significant change this year. The system of performance budgeting by central ministries, started way back in 1969, is being overhauled.
Performance Budget documents, which used to monitor the utilisation of financial allocations made by ministries as approved in the budget, are being
merged with the Outcome Budget documents.
The Outcome Budget documents were introduced by Finance Minister Palaniappan Chidambaram in 2005-06. They were aimed at capturing the effectiveness of the financial allocations made in the Budget, and not just in terms of their physical output. But the Outcome Budget exercise in 2005-06 and in 2006-07 was half-hearted and its real purpose was not achieved.
This was largely because the government continued to bring out Performance Budget documents even though they did not establish any clear correlation between the financial outlay on programmes and how the expenditure incurred helped the government achieve its goals for which the money was allocated.
For instance, the Performance Budget documents would capture how an outlay of Rs 1,000 crore (Rs 10 billion) on a primary education programme led to the creation of a specific number of schools in different parts of the country or to the appointment of a certain number of teachers. But it would be silent on whether this led to the rise in the literacy levels in the districts where the money was spent.
Now there will be no Performance Budget documents. Instead, the Outcome Budget documents, to be presented to Parliament by the third week of March, will incorporate details on the financial outlay, the actual capacity created as a result and the outcome that is achieved. Thus, it will be relatively easy for analysts to assess the success or failure of
a government scheme.
There are four other new features that will make this a qualitatively superior exercise. One, a single document will now, for the first time, offer details on the financial allocations for the next year, physical performance targets expected to be achieved as a result of that outlay and the actual outcome achieved in the first nine months of the current year.
Two, the same document will list out what are called "tax expenditures". These are the revenues foregone by different ministries while promoting the government's policy objectives. The idea would be to capture the real cost of certain measures that the government takes to implement its policies.
Three, the financial allocations for programmes in the Outcome Budget will also include the resources being pooled in by states and other public sector as well as autonomous bodies. And four, the ministries will have the option to appoint independent evaluators to examine the effectiveness of programmes for which financial allocations have been
made.
In short, the Outcome Budget documents that you will see in March this year will be qualitatively superior to the earlier documents and will offer more information allowing analysts to understand and assess the effectiveness of a budget programme more meaningfully.
You may still be disappointed if you expect Chidambaram to unveil on February 28 a package of big-ticket reform measures in various sectors and industries.
For, the days of big bang Budgets are indeed gone. The Budget for 2007-08 will dwell primarily on the government's revenue and expenditure programmes. If it ventures to talk about reforms, it will do so only in respect of the financial sector or in the areas of taxation.
Thus, you might hear Chidambaram talk about the road map he has finalised for the introduction of a goods and services tax, further reforms in direct taxes or the proposed changes in the pension system and the foreign investment regime for the insurance sector.
But he will not talk about the much-need labour market reforms or divestment of government equity in public sector enterprises.
That is not because Chidambaram is opposed to such reforms. On the contrary, he is one of the few strong votaries of reforms in the UPA government. The problem is that he does not want to announce any reform measures in a sector over which he has no direct ministerial control.
And he is also acutely conscious of the opposition to these measures voiced by the Left and even some sections within his own party.
So, expect a Budget that would stick to only taxation reforms and outlining the government's expenditure programme. Perhaps the only refreshing change would be the Outcome Budget documents with all their new features.