Government mulls multi-year approach in Budget planning

Budget documents in the future may give a preview of the government's finances for the next few years. The finance ministry is considering moving to a multi-year approach in budgeting to utilise resources better and bring in more transparency in accounting, according to official sources.

The conceived system may enable Budget documents to give revenue and expenditure projections for three years in advance, instead of what is currently just one year.

The idea is in a nascent stage and, thus, will not be implemented in the coming Budget. Even so, it has drawn strength from the recent recommendations of the C Rangarajan panel on efficient management of public expenditure.

The high-level expert committee appointed up by the Planning Commission has suggested a shift in the budgeting approach - from a one-year horizon to a multi-year one. It noted the absence of multi-year expenditure information, saying it was making it difficult to link planning and budgeting.

A piecemeal approach to sanctioning of funds and schemes leads to loss of considerable time and delays in the realisation of objectives. Hence, a multi-year framework may address this problem.

"We can easily provide estimates of subsidy, interest and pension burden for the next few years," says a finance ministry official.

"We can tell Parliament

how much we plan to allocate for a scheme in the next three years. This will help in better utilisation of resources."

At present, the government gives fiscal indicators for three years in the medium-term fiscal policy (MTFP) statement.

For instance, the MTFP statement for 2011-12 shows that besides estimates of 2010-11, budget estimates for 2011-12 and targets for 2012-13 and 2013-14 were given for key economic indicators such as revenue deficit, fiscal deficit, gross tax revenue and outstanding liabilities.

The official says estimates in the Budget could be more detailed and can be put in a more formal structure. The finance ministry would have the option to change the projections in the annual budgeting exercise.

Budgeting for multiple years is done in many countries. Those like Denmark have multi-year investment budgets, enabling carry-over of funds from one budgeting year to the next.

It was in the 1970s that the concept of multi-year budgeting evolved—in many OECD (Organisation for Economic Co-operation and Development) countries. Initially, in most cases, it focused on new programmes, but later it was evolved as a tool for general expenditure control.

The approach, however, came with its own set of problems, as many governments gave forecasts reflecting their political aspirations.

Moreover, ministries started looking at budgetary allocation projections for future years as their political entitlements.