MANAGING THE CONVERSION OF OUTLAYS INTO OUTCOMES:

A CASE STUDY[*]

 

 

ANAND P. GUPTA[†]

 

 

 

 

The Finance Minister, in paragraph 100 of his February 28, 2005 budget speech, has committed the Government of India to improve the management of its expenditures, with focus on strengthening the outlays-outcomes link.  This is what he said in this paragraph: “At the same time, I must caution that outlays do not necessarily mean outcomes.  The people of the country are concerned with outcomes.  The Prime Minister has repeatedly emphasized the need to improve the quality of implementation and enhance the efficiency and accountability of the delivery mechanism.  During the course of the year, together with the Planning Commission, we shall put in place a mechanism to measure the development outcomes of all major programmes.  We shall also ensure that programmes and schemes are not allowed to continue indefinitely from one Plan period to the next without an independent and in-depth evaluation.  Civil society should also engage Government in a healthy debate on the efficiency of the delivery mechanism” (Government of India, 2005a, p. 22).

 

Subsequently, the Prime Minister wrote a letter to all Government of India (GOI) ministers on March 17, 2005, in which he stressed the importance of “converting financial outlays into physical outcomes, with fixed quarterly measurable and monitorable targets, to improve the quality of implementation of development programmes” (cited in Government of India, 2005c, p. i) and requested them to carry out this exercise.  In response, the GOI’s Ministries/Departments have worked out the targets or intermediate outputs/outcomes in respect of their Plan outlays.   These data were analyzed by the Planning Commission and the Ministry of Finance, with the resulting output presented by the Finance Minister as the GOI’s outcome budget for 2005-06 (Government of India, 2005c) on August 25, 2005. 

 

The Finance Minister, in his foreword to the outcome budget, says: “Converting outlays into outcomes is a complex process, which differs from Ministry to Ministry and programme to programme.  Some of the important steps in this conversion process are as follows:

 

·       Outcomes to be specifically defined in measurable and monitorable terms; intermediate outputs should also be defined wherever required.

 

·       Standardising unit cost of delivery.

 

·       Benchmarking the standards/quality of outcomes and services.

 

·       Capacity building for requisite efficiency at all levels, in terms of equipment, technology, knowledge and skills.

 

·       Ensuring flow of right amount of money at the right time to the right level, with neither delay nor “parking” of funds.

 

·       Effective monitoring and evaluation systems.

 

·       Involvement of the community/target groups/recipients of the service, with easy access and feedback systems.

 

         Efficient conversion of outlays into outcomes would, therefore, require making the delivery systems effective with appropriate structures and processes, strengthening financial management systems, increasing use of information technology, and meaningful involvement of all the Ministries, Para-statals, State Governments, Local Bodies, Panchayat Raj Institutions, Self Help Groups etc., in critical decision making and implementation processes” (Government of India, 2005c, pp. i-ii).

 

         What all this really means is that it is the situation at the micro level which determines whether an outlay will be converted into intended outcome and, if yes, to what extent: an outlay on a given scheme in a district may produce the intended outcome, but an equal outlay on the same scheme in another district may fail to produce the intended outcome.  Given this, it will be extremely useful to look at the available empirical evidence on what currently happens to a given  outlay.  Does it achieve the intended outcome in the most efficient way?  If not, why,[1] and how the outlay-outcome link can be strengthened?  What is the structure of incentives governing the behavior of those responsible for managing it? Who is accountable for it?  If the accountability is weak, why, and how can it be strengthened?  

 

This paper looks at one such recent evidence:  the Comptroller and Auditor General of India’s (CAG’s) performance review of the Swarnjayanti Gram Swarozgar Yojana (SGSY), a centrally-sponsored scheme, in Orissa since its launch on April 1, 1999 (Comptroller and Auditor General of India, 2003, pp. 129-41).   Launched to overcome the inherent problems of the Integrated Rural Development Programme (IRDP) and allied programmes (e.g., lack of focus on the substantive issue of sustainable income generation, and absence of desired linkages among IRDP and allied programmes), the SGSY aims at bringing the assisted rural poor families above the poverty line through the development of income-generating activities in rural areas, which are based on the ability of the poor and the potential of each area.  It is funded by government grants and bank credit, with the government grants shared between the GOI[2] and the concerned State Government in the ratio of 75:25.  Bank credit is the critical component of the SGSY, with government grants being a minor and enabling element.[3]   The government grants are used for financing the subsidy component of the projects implemented under the SGSY, as also for taking care of the costs involved in skill upgradation, technology transfer, marketing support and infrastructure development,[4] with a view to ensure the financial viability of these projects and thereby develop the rural poor into successful entrepreneurs.

 

The SGSY is monitored by institutional mechanisms at three levels: Central Level Co-ordination Committee at the GOI level, State Level SGSY Committee at the State Government level, and District Level SGSY Committee at the district level.

 

According to the CAG’s performance  review, the total expenditure on the SGSY during the period April 1, 1999-March 31, 2002, reported by the Government of Orissa (GOO), added up to Rs. 233.78 crore, of which Rs. 74.58 crore was incurred during 1999-2000, Rs. 97.81 crore during 2000-01, and Rs. 61.39 crore during 2001-02.  Of the total expenditure of Rs. 233.78 crore, the expenditure test checked during audit amounted to Rs. 97.10 crore (41.53 per cent).  Year-wise break-up of the test-checked expenditure is not available.  The test checks covered records of the GOO’s 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.

 

The performance review has revealed that as much as 62.17 per cent of the expenditure test checked during audit was irregular, with 19.87 per cent deposited into Personal Ledger Accounts[5]/Personal Deposit Accounts/Banks, 13.03 per cent lying unutilized, 12.49 per cent disbursed as advances and treated as final expenditure, 6.15 per cent misused/diverted to unrelated activities, 2.13 per cent incurred on works not permissible, and the remaining 8.51 per cent accounted by other irregularities (Comptroller and Auditor General of India, 2003, p. 130). 

 

The performance review claims that 37.83 per cent of the expenditure test checked during audit was incurred on the programme (Comptroller and Auditor General of India, 2003, p. 130).

 

The CAG’s revelation (that as much as 62.17 per cent of the expenditure test checked during audit was irregular) and its claim (that the remaining 37.83 per cent of the expenditure test checked during audit was incurred on the programme) raise several extremely important questions.  To begin with, what is the district-wise break-up of the SGSY money deposited into Personal Ledger Accounts and Personal Deposit Accounts and with banks, why and when was this done,[6] and what happened to this money after it was so deposited?  In case it has been used, partly or wholly, when was it used, what was it used for, and what were the internal controls that the expenditures financed through this money were subjected to?  These are extremely important public policy questions, but the CAG’s performance review does not answer them.  One doesn’t know why.  There is a very strong case for tracking these deposits and  for tracking the expenditures financed through these deposits.  Given that the total expenditure on the SGSY in Orissa during the period April 1, 1999-March 31, 2002 amounted to Rs. 233.78 crore, and given that 19.87 per cent of the expenditure test checked during audit was deposited into Personal Ledger Accounts and Personal Deposit Accounts and with banks, one can argue that these deposits add up to as much as Rs. 46.45 crore.  This money, which was supposed to be used for lifting the poor in Orissa above the poverty line, must be thoroughly tracked to discover what really happened to it.

 

Secondly, how did the irregularities like advances treated as final expenditure and SGSY funds misused/diverted to unrelated activities, happen, and what is the structure of incentives governing the behavior of the people responsible for these irregularities?  The estimated amount involved in these irregularities during the period April 1, 1999-March 31, 2002 adds up to as much as Rs. 98.89 crore  (42.3 per cent of Rs. 233.78 crore). 

 

Thirdly, given the huge scale of the irregularities that the CAG has revealed, what is the credibility of the elaborate institutional mechanism that has been put in place to monitor the SGSY?  

 

Fourthly, what actions have been taken against those responsible for the irregularities that the CAG has documented, and what has been the effect of these actions?

 

Finally, what exactly does the CAG’s claim that 37.83 per cent of the expenditure test checked during audit was incurred on the programme, mean?  Does it mean that 37.83 per cent 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 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 (Comptroller and Auditor General of India, 2003, p. 133).  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.

 

However, the CAG has done some excellent government 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 (Comptroller and Auditor General of India, 2003, pp. 134-35). 

 

·       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 (Comptroller and Auditor General of India, 2003, p. 135).

 

·       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 (Comptroller and Auditor General of India, 2003, p. 136).

 

·       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 (Comptroller and Auditor General of India, 2003, p. 139).

 

·       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 (Comptroller and Auditor General of India, 2003, p. 136).

 

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 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.

 

Where do we go from here?  The performance review can serve as an excellent building block for a detailed survey to track the government expenditure on the SGSY in Orissa, that needs to be organized.   Gupta (2005) suggests that the survey, in order to be meaningful, will require considerable field work to capture the intended beneficiaries’ perceptions about the SGSY.  The CAG has the mandate for doing the required field work.[7]  He may also have the capacity for doing the required field work, but he may lack the incentive to do so because of his perception of the “risks” involved in doing this work.  In that event, the CAG may consider engaging reputed independent consultants for this work.[8]

 

Based on the results of the above survey, the GOI will need to develop a strategic action plan, including the requisite incentive-creating, institutional-strengthening and capacity building measures, for converting the budgetary outlays for the SGSY in Orissa into intended outcomes, and implement the action plan.   Given the CAG’s comparative advantage in tracking government expenditures, it can play an extremely important role in developing this action plan – and, for that matter, in developing the action plans for reforming the management of other government expenditures.

 

Given the public finance crisis that India currently faces, and given the critical importance of strengthening the outlays-outcomes link for dealing with this crisis, one hopes the GOI will use the CAG’s expertise in tracking government expenditures as it prepares itself to fulfil its commitment to reform the management of its expenditures.

 

 

REFERENCES

 

Comptroller and Auditor General of India (2003).  Report of the Comptroller and Auditor General of India for the year ended 31 March 2002 (Civil), Government of Orissa, New Delhi.

 

Comptroller and Auditor General of India (2004).  Performance Auditing Guidelines, New Delhi.

 

Government of India (2005a).  Budget 2005-2006: Speech of P. Chidambaram, Minister of Finance, New Delhi.

 

Government of India (2005b).  Expenditure Budget 2005-2006, Volume 2, New Delhi.

 

Government of India (2005c).  Outcome Budget 2005-06, New Delhi.

Government of India (2005d).  Physical and Financial Progress under SGSY since inception i.e. 1.4.1999 (http://rural.nic.in/sgsy/summary.asp).

Gupta, Anand P. (2005).  “Reforming Management of the Government of India’s Expenditures: Some Thoughts”, Indian Journal of Public Audit and Accountability, Volume 1, Number 1, April-June 2005.

 

Speaker of the Lok Sabha (2005).  “Inaugural Address at the Seminar on Legislature and Audit Interface for Enforcing and Strengthening Accountability Mechanism”, NOIDA, July 22, 2005.

 

World Bank (2004a).  India, Uttar Pradesh: State Financial Accountability Assessment, Washington, D. C.

 

World Bank (2004b).  India – Orissa State:Financial Accountability Assessment, Washington, D. C.