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Public Policy Design & Operations Coherence & Convergence
Government Economists at work : OR What is the value addition of IES ?
Concerns of Equity, Efficiency, Security, Fairness, Privacy & Accountability
(Knowing, Understanding, Application & Skills)Facts vs. Fiction
A Presentation
to Probationers of Central Services
at Dr. MCR HRDI AP
29th October, 2012
Role of government ?Role of government ?
A provider or enabler in…. A provider or enabler in….
Creating wealth?Delivering welfare?
Disclosing entitlements? Defining empowerment?
Determining property rights?
Qn: How significant is the initial endowment ?Qn: How significant is the initial endowment ?Issues: Problem recognition, measurement, diagnosis, Issues: Problem recognition, measurement, diagnosis,
solution and implementation solution and implementation
What we do at work ?simplify, supplement, support, standardize ! sabotage ?
• We take decisions w.r.t to Legal framework• We help others to take decisions• We correct others’ mistakes in their decision• We communicate decisions • We implement decisions• We finance decisions & implementation• We audit decisions & operations• We spend money & raise funds via tax or debt or aid• We dispense power to empower or disempower others• We match resources used with Results• We need information, analysis, and arguments & not rhetoric
Complexity, conflict of interests and moral hazard
Citizen: How to get more from Government by paying less
Vs.
Government: How to give more to citizens
while taking more from them, and alsobalancing special interest effect and
shortsightedness effect
Discussion point: Reactions to policy solutions & reforms
Perversity thesis: Futility thesis: Jeopardy thesis
Policy process cycle
coordination
Decision
consultation
implementation
EvaluationIdentifying
issues
Policy analysis
Policyinstruments
Issue: Policy cycle being neither a logically, sequentially, structured or a uniform process..Sourced from Australian Policy cycle model http://www.premiers.qld.gov.au/About_the_department/publications/policies/Governing_Queensland/Policy_Handbook/cycle/cycle/at
Public Policy Issues w.r.t distribution of
Benefits
Costs
Widespread Concentrated
Widespread Type 1 Type 2
Concentrated Type 4 Type 3
Productive Functions: Efficient action produces more benefits than costs for the individuals of the economyInefficient action produces more costs than benefits to the individuals of the economy
(Issues: externalities, public goods, information problems, unintended consequences )Protective Functions: Maintenance of a framework of security and order i.e., rules, institutions, property protection,
contract enforcement, market regulation, social security, pensions, investor protection, administration of justice
Challenge is in evolving options that yield widespread benefits with widespread costs transparently. Risk is in defining, measuring, and ensuring the spread of the costs and benefits unambiguously.
Issues: impact on visible voters, future voters, unborn voters, influential voters, indirect voters
6
Some key Principles in Public Policy
• What belongs to you, you tend to take care of; what belongs to no one or everyone tends to fall into disrepair.
• Sound policy requires that we consider long-run effects and all people, not simply short-run effects and a few people.
Key issues: Equity, Efficiency, Effectiveness, Economy, EntitlementsRef: CAG’s Performance Audit Guidelines, and UK Government Green Book
If there is vagueness or subjectivity in the terms and conditions inviting tenders it may result In unequal and discriminatory treatment. It may violate doctrine of level playing field –
Supreme Court of India on 17th Sept, 2007 in Reliance Energy case relating to Mumbai Trans-Harbour Sea link Projects
Key Principles • Nobody spends somebody else's money as
carefully as he spends his own.
• Government has nothing to give anybody except what it first takes from somebody, and a government that’s big enough to give you everything you want is big enough to take away everything you’ve got.
04/19/2302/07/07 9
Non Tax
Revenue
Grants/Donor support
MarketBorrowings
Other Other ReceiptsReceipts
Tax Revenue
CFICFI P
S
U
S
PLAN
NNOONN
PPLLAANN
RREEVVEENNUUEE
CAPITAL 2
34
FourFour*ServicesServices
1
Application of Funds
States
Depts.,
citizen
Budget && the Citizenthe Citizen
a
b
c
d
ef
g
**Economic Services Fiscal Services Social Services & Other General Services
Railway budget is separate, but Constitutionally, Railway receipts are part of CFI Not on Constitutional
strength
but by practice
Taxes,
Fee &
Saving
s,
Interest receipts
Loan repayment
Consolidated Fund Of India9
Indian Structural Reforms
1. Liberalization and regulation of specific markets2. Trade Liberalization3. Public Sector Management 4. Restructuring and privatizing utilities5. Public expenditure reforms - economy, efficiency,
transfers, user charges6. Tax reforms7. Public debt management8. Monetary policy –Central bank independence9. Financial Sector Reforms10. Private and Public Governance Reforms11. Decentralization and intergovernmental reforms12. Civil Service Reforms13. Land Reforms14. Labour Reforms15. Environmental RegulationsIssues: Is market system necessary for democracy: Democracy and Market system = Mass control over elite:
Collective outcome Vs. Market outcome.Government decision makers are like ordinary decision makers in market: influenced by their interests and bias
but work in different incentive structure. ( eg: Distribution of income and power)
Legislative Objective of fiscal responsibility and budget management
“To Provide for the responsibility of the Central Government to
ensure inter-generational equity in fiscal management and long-term macro-economic stability by achieving sufficient revenue surplus and removing fiscal impediments in the effective conduct of monetary policy and prudential debt
management consistent with fiscal sustainability through limits on the Central Government Borrowings, debt and deficits,
greater transparency in fiscal operations of the Central Government and conducting fiscal policy in a medium term
framework and for matters connected there with or incidental thereto.”
04/19/23 1111
Goods and Services(Reform policy challenge is to move right goods/services in the right box at a right time)
Paid for byPaid for by
PP
RR
OO
DD
UU
CC
EE
DD
BB
YY
Consumer
purchaser
Tax payer or
3rd party
Private
Enterprise
Apples, Oranges, TVs, Housing, Food, Clothing, Bollywood films, private
schools, medicines
Food through PDS, Oil, Gas, Supporting Private
Schools, CGHS, BPL insurance
Government Enterprise/ Contracting
Posts, Rail, Water, Electricity, toll roads,
Hospital services, Public transport
National defence, Law & Order, Administration of Justice, Public Schools, Universities, Highways
(non-toll), Debt management
AA BB
CCDD
Transparency & Public Policy
• Transparency can help reduce the scope for discretion since decisions are more likely to be reached on the basis of observable data and replicable methods, and poor decisions will be more open to challenge.
• Transparency can also increase the legitimacy of decisions, thereby reducing the risk of future policy reversals (anticipation of which will tend to undermine the intended response).
• Transparency works even when incentives can’t
Implementation challenges or
Political economy considerations
• Not being sensitive to the view of the majority• Free riding • Coordination failure• Information failure • Status- quo bias• Time Inconsistency.
16
GDP & Fiscal Indicators
• GDP: Gross Domestic Product– indicates annual national wealth production (value
added at every stage of production of goods & services: CSO brings out Advance, Quick and Quarterly estimates)
• Economic Growth
- GDP Growth: indicates how fast a nation is getting richer (Real Vs. Nominal Growth & WPI)
Issues:What causes higher GDP growth - Increase in Output:
What causes increase in Output – Increase in productivity & employment:. What causes increase in productivity – increase in efficiency.
What cause increase in efficiency - enhanced/effective technology & raised skills: What raises investment and skills - Creative people with money;
How to do that - Help more people to be creative & help them to have access to more money.(Note: The above slide and issues are framed using publicly available sources)
Y=C+I+G+(X-M)
GNP = Cp+Ip+G+X-M = Cp+Sp+T+R
(Ip-Sp)+(G-T)=(M-X+R)
•Large prolonged deficit lead to external current account imbalance•Fiscal policy impacts savings and investments of private sector•Budget deficit respond and influence external balances
17Cp-private consumption; Ip-private investment; G-government spending; X-exports of goods and services; M-imports of goods and services; Sp-private savings; T-government revenue; R=net current transfers to abroad.
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Costs
inputs
processes
outputs
outcomes
VALUE
For
MONEY
Technically efficient
ECNOMICALLY
EFFICIENT Effectiveness
EconomyTraditional Budget
Output focusedBudget
Outcome focusedBudget
Budget performance Concepts, Systems/Management styles
Source; IMF Occasional Paper 245
19
Budget & the Constitution
While the following provide for
• Procedure in Parliament with respect to Estimates … 113
• Appropriation Bills … … … 114
• Supplementary, additional or excess grants … 115
• Votes on account, votes of credit and exceptional grants … 116
• Special provisions as to financial Bills … 117
• Consolidated Fund … … … 266
• Contingency Fund … … … 267
• Finance Commission … … … 280 • Expenditure defrayable by the Union out of its revenues … 282
• Laws/Rules for Custody, etc., of Consolidated Funds,
Contingency Funds and moneys credited to the
public accounts … … … 283
• Borrowing by the Government of India … 292
AFS- Anchor to all documents: Art 112 Trigger to All Documents
*Annual Financial Statement
19
20
…a stylized peep into the Budget
• Objectives– in Spending, Taxing, Balancing, Investing, Macro-economic
stability, growth & global positioning
• Risks & leaks – in pass-thru of public money; – contingent liabilities eg: guarantees, PPP terms, legal liabilities
• Transfer payments– transfer objectives, transferring routes, vs. Operational issues
• Impact on equity*, efficiency** & entitlements***
((excluding charged estimates)excluding charged estimates)
*Intergenerational. Regional. Public Vs. Private sectors, Farm & non-Farm sector. Rural Vs Urban. Spenders Vs. Savers. ** Capital Vs. Revenue. Productivity (ICOR) ***States Vs. Union Government. Through Finance Commission’s recommendations.
BPL Vs. APL. Children & Aged. Women Vs. Others
20
04/19/2302/07/07 21
Together – the Budget Documents…
… Answer the questions like:
• Whether the results matched with the resources used ?
• How much money will go to health, education, pay, pensions, poverty
alleviation, interests payments, defence etc., ?
• How much money will go for research & development ?
• How much money will go to pay down the debt ?
• Will taxes go up or down ?
• How much money will be borrowed ?
• What is the fiscal impact of all this ?
…reveal Government resources flow & ...
Would you like to try few more questions ? 21
Legal Frame work
Borrowing by the Government of India - Art. 292
The executive power of the Union
extends to borrowing upon the security of the Consolidated Fund of India
within such limits, if any,
as may from time to time be fixed by Parliament by law and to the giving of guarantees within
such limits, if any, as may be so fixed.
Constitution, FRBM Act, Public Debt Act, etc.,
IndiaIndia’’s FRBM Act s FRBM Act –– Managing The Mandate Managing The Mandate
22
References:
1. http://nobelprize.org/nobel_prizes/economics/laureates/1986/buchanan-lecture.html
2. http://cag.nic.in/html/publi_peraudguid-rc.htm Performance auditing
3. http://www.hm-treasury.gov.uk/media/5/D/Green_Book_07.pdf (Green Book)
4. http://www.imf.org/external/pubs/ft/fandd/2000/12/robb.htm (How can poor have voice in policy analysis)
5. http://poverty2.forumone.com/files/12685_PSIA_Users_Guide_-_Complete_-_High_resolution_-_English_-_May_2003.pdf (A user’s guide to poverty and social impact analysis)
6. http://siteresources.worldbank.org/EDUCATION/Resources/278200-1099079877269/547664-1099079934475/547667-1135281504040/tools_ED_policy_analysis.pdf (Tools for education policy analysis)
7. http://www.mackinac.org/archives/2002/sp2002-01.pdf (Seven Principles of Public Policy)
8. Simon Blackburn: Being Good; A short introduction to Ethics
9. World Bank, The Impact of Economic Policies on Poverty and Income Distribution; Evaluation Techniques and Tools
10. James D. Gwarthney et al: Macroeconomics Private & Public Choice
11. Mancur Olson Jr. The Logic of Collective Action Public Goods and the Theory of Groups
12. IMF, Unproductive Public Expenditure: A Pragmatic Approach to Policy Analysis
13. Deborah Stone, Policy Paradox, The Art of Political Decision Making
14. Anthony Weston, A Rulebook for Arguments
15. Eugene Bardach, A Practical Guide to Policy Analysis: The Eightfold Path to More Effective Problem Solving
NSSFPost Offices / Agents
States’CFI
Union’sCFI
Funds: 2,4,5
Securities: 1,3
Taxes: 2
PrincipleInterests: 7,8
Scope blocked
Open the Scope
Scope open !?
To reduce Tax payers’ burden & to
raise NSSF’s
Efficiencyequity
Why
& How
Link to
Market &
investor
s/ Lend
to SPV /
Issuelong term
bonds
Interests payments
Commissions: 9
Admn. CostsLosses; 6
Small savings: Flow of funds/returns to citizens through NSSF: Sharing of returns/risks/costs Vs.alternatives
Legend
23
1
4
5
5
6
6
7
7
9
8
8
2
2
2
Numeral indicates the sequence: Arrows indicate the direction
24
