Budget and Budgeting Innovation_PA 2013_1

7/29/2019 Budget and Budgeting Innovation_PA 2013_1

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Budget

andBudgeting Innovations


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Financial Administration: A Branch of PublicAdministration:

It is concerned with all aspects of financial management of State.

Its object is to make funds available.

Ensure lawful, efficient and economic use of resources.

Components of Financial Administration:Budgeting

Accounting and Auditing

Purchase and supply

Tax AdministrationTreasury Management

Financial Administration deals with the fiscal policy,

Governments role in economic stabilization


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Meaning of Budget:

Budget is a financial plan for rationing scarce

resources among various demands of

expenditure.

French term Bougette which means a leather

bag.

It now refers to financial papers relating

estimates of revenue and expenditures.


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Definitions:

Aaron Wildavsky: Budget is a series of goals with price tags

attached

Paul Leroy: Budget is a statement forecasting revenue andexpenditure

Willoughby: Budget is and should be at once a report, anestimate and a proposal

Eric Lane: Budget is decision making under interdependency.

Interaction between the appropriating authority and therequesting agency

Principal- Agent Framework: Ex-ante perspective and Ex- postperspective

Hiatus between them creates uncertainty and risk.


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Significance: Just a ritual or more than that?

1. Tool of administrative management

2. Tool of legislative control3. Socio- economic implications

a) Helps channel fiscal policy:

Increase rate of capital formation

Reduce economic inequalities

Allows investment in economic and social overheads

Balanced growth

Non-inflationary financing of planned development

Progressive tax structure

Contain/ reduce non-plan expenditure


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Continued

b) A social document:

Affects every strata of society

An endorsement of social objectives

c) An ideological statement: Gives pride of place to inclusive, equitable growth

d) Also about Politics:

Electoral encashing

Immense Potential


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Principles are expected to:

Bring a measure of stability, predictability

Guard against surprises

Accommodate Change

-Naomi Caiden- Rules of budget game are rapidlychanging

Budget environment is changing : Resistance to increasing public expenditure

Tax revolts

Revenue Uncertainty

PRINCIPLES OF SOUND BUDGETING


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Modern Budgets are more complex, less predictable

and difficult to control.

Revenue Uncertainties promote dysfunctional

tactics.

Yet public administrators continue to pay lip service

to principles on which they no longer operate.


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Budgetary Innovations

Nicholas Henry categorises the development of Budget in the

following 7 phases:

Line Item Budgeting

Performance Budgeting

Planning and Program Budgeting

Management by objectivesZero-Base Budgeting

Top-down Budgeting

Budgeting for Results

Contemporary Innovations:

Gender Budgeting

Green Budgeting


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Line Item Budget

Conventional Budget/ Object-wise Classification

Legal and accounting instrument

Rationale:

- Facilitate control and accountability

- Keep track of expenses- Oust financial corruption

Simple, easy to understandcontinues to be used

Weaknesses :

-- Control not related to performance-- Excessive emphasis on procedural considerations

-- Does not indicate the economics of operation i.e.relation between resources and operations.


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Performance Budget (Management

approach to Budget)

1st Hoover Commission (1949) recommended it

adoption

Functional classification- Presentation of budget interms of functions, programs and activities

Focus on agency performance and its measurement

Review of budget by legislature becomes simple

Weakness diffuses organizational responsibility


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Planning-Programming Budgeting

Origins in the defence department of the US in 1960 Sought to connect planning, systems analysis and budgeting

Brought greater rationality and comprehensiveness to

budgetary process

Whereas performance budget concerned with process ofwork and program budget concerned with purpose of work.

Received mixed response

Substantial resistance- unavailability of data

- passion for uniformity and detail

President Nixon finally terminated PPBS in 1971.


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Management by Objective

Projected as a versatile and flexible alternative to PPB

Objectives: Quality enhancement, Cost control, Productivity

improvement and special problem solving

Encourages self management and decentralization in policy

making

Attempt is to set objectives, track the progress and evaluate

its results

Gives stakeholders latitude to deal with problems

Use still widespread


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Zero- Base Budgeting

Analytical and rational approach to Budget

Requires re-justification of everything from ground

zero (minimum level of funding)

3 essentials- decision units, decision packages,ranking of decision packages

Ruthless review of expenditure

Provides clear relationship between money spent

and services provided

Weaknesses: Dollar savings?

Increases paperwork


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1980s: Two Major Concerns

1. Emergence of Uncontrollables

2. Ballooning of Federal Deficit

Implications: Resort to Top-Down Budgeting


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Top-Down Budgeting

Budgeting targets are centralised in ExecutiveBranch. Implementation is decentralised.

Reversal of traditional budgetary process

Re-inforced during Reagan administration as:- Target Base Budgeting

- Cut back Management

Legacy- Re-instatement of President and OMB in budgetary policy

Shift from incremental budget to economic forecasting


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Budgeting for Results

Context: Re-invention Movement

Mission broadened to include making

government more efficient, effective,responsive and accountable

Notable concern with quality of outputs


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Gender Budgeting Began in Australia, 1984 around 40 countries followed the

initiative

Gender Budgeting is Not-

Allocating money to women

Providing for a separate budget for women

Earmarking funds for programs targeted at them

Gender Budgeting is

Dissection of government spending to establish gender

differential impact Transfer of gender commitments into budgetary

commitments

Prioritizing public expenditure to reflect womens concerns

Ensuring greater visibility of womens work


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Assumptions

Budgets are not gender neutral

Gender budgeting goes beyond women

Gender budgeting is not gendermainstreaming


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Green Budget

Attempt to integrate environment concerns intoeconomic decision making

Environment facing unprecedented stress because:

1. Budgets overallocate natural resources2. Negative externalities- you take environment for

granted and hence undervalue it

Green Budget- about turning budget into effectivemechanism for sustainable development.


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Green Budget Initiatives:

Appropriate pricing

Differential taxation

Make polluter pay

Pro-active measures

Community participation

Ultimate aim: to persist and give long term signal forenvironmentally sound economic policies

All these budgeting systems are in use. Governmentsrefine, mix and match various ways of budgeting forproductive results.


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Budgetary System in India

Indian Constitution- Annual Financial Statement

Budget Calendar: 1st April to 31st March

Budgetary Processes:

-- Preparation and Submission

-- Enactment

-- Execution

-- Parliamentary Control

Documents

Budget and Budgeting Innovation_PA 2013_1