FinMin sets stage for outcome-based funding

The Ministry of Finance has issued strict directives to central ministries on monitoring fund utilisation. As part of the revised guidelines for framing outcome budgets for 2010-11, it has asked the ministries to develop “indices of performance to measure and assess quality of implementation”.

Expenditure Secretary Sushma Nath, in an office memorandum issuing the guidelines, has made it clear that the next logical step would be to link the release of funds with progress in “achieving monitorable physical progress against commitments made in the outcome budgets”.
 

TOWARDS FISCAL CONSOLIDATION

• Finance ministry has asked ministries 
  to develop indices of performance to measure and assess quality of implementation
• The next likely logical step is to link the release of funds with progress in achieving monitorable physical progress against commitments made
• Ministries have been asked to engage independent evaluators and assessment agencies for scrutiny and evaluation of achievements
• Outcome budgets give the actual performance of the ministries in the previous and current years, and targeted performance the next year
• The moves are part of tightening expenditure in an effort to return to the path of fiscal correction
• Finance Minister Pranab Mukherjee has set a target of bringing down fiscal deficit to 5.5 per cent of GDP in 2010-11

The memorandum has also asked ministries to engage independent evaluators and assessment agencies to scrutinise and evaluate achievements against physical outputs and final outcomes of major flagship schemes.

The directive comes a few months after the Department of Expenditure, under the finance ministry, asked ministries to cut their unplanned expenditure by 10 per cent.

Outcome budgets are prepared by every ministry’s finance wing, which reports to the Ministry of Finance and acts as an interface between the two sides. These documents give the actual performance of the ministries in the previous and current years, and targeted performance in the next year.

The outcome budget would be required to be laid before both the Houses of Parliament by March 20. Even ministries, departments and other authorities exempt from the preparation of the outcome budget have been advised to carry out the exercise for internal use, and voluntarily place it in public domain. The Ministry of Defence, Cabinet, Election Commission and Supreme Court, among others, are exempted from the exercise.

The guidelines said the outcome budget of 2010-11 would cover non-plan expenditure as far as possible. It would cover the physical dimensions of the financial budgets, as also the actual physical performance in 2008-09, performance in the first nine months of the year and the targeted performance in 2010-11. It would have an executive summary and six chapters.

The finance ministry’s moves are part of tightening expenditure in an effort to return to the path of fiscal correction. Finance Minister Pranab Mukherjee has set a target of bringing down the fiscal deficit to 5.5 per cent of the gross domestic product in 2010-11, and further to 4 per cent in 2011-12, from 6.8 per cent estimated for the current financial year.