3.1. Weaknesses in Resource Allocation and Use

Many of the weaknesses in budgeting reflect the failure to address linkages between the various functions of budgeting. The following factors contribute to budget systems and processes that create a disabling environment for performance in the public sector, both by commission and by omission:

♤ Almost exclusive focus on inputs, with performance judged largely in terms of spending no more, or less, than appropriated in the budget;

♤ Input focus takes a short-term approach to budget decision making; failure to adequately take account of longer-term costs (potential and real), and biases in the choice of policy instruments (e.g., between capital and current spending and between spending, doing, and regulation) because of the short-term horizon;

♤ A bottom-up approach to budgeting that means that even if the ultimate stance of fiscal policy was appropriate (and increasingly after 1973 it was not) game playing by both line and central agencies led to high transaction costs to squeeze the bottom-up bids into the appropriate fiscal policy box;

♤ A tendency to budget in real terms, leading either to pressure on aggregate spending where inflation is significant (which was often validated through supplementary appropriations) or arbitrary cuts during budget execution with adverse consequences at the agency level;

♤ Cabinet decision making focused on distributing the gains from fiscal drag across new spending proposals;

♤ Cabinet and/or central agencies extensively involved in micro-decision making on all aspects of funding for ongoing policy;

♤ Weak decision making and last-minute cuts cause unpredictability of funding for existing government policy; this is highlighted to the centre by central budget agencies on the alert to identify and rake back “fortuitous savings;”

♤ Strong incentives to spend everything in the budget early in the year and as quickly as possible, since the current year’s spending is the starting point for the annual budget haggle and the fear of across-the-board cuts during execution;

♤ Existing policy itself (as opposed to its funding) subject to very little scrutiny from one year to the next. (This and previous point epitomize the worst dimension of incremental budgeting);

♤ Poor linkages between policy and resources at the centre, between the center and line agencies, and within line agencies because of incremental budgeting;

♤ A lack of clarity as to purpose and task and therefore poor information on the performance of policies, programmes and services, and their cost because of poor linkages;

♤ The linking together (in association with the point above) within government departments of policy advising, regulation, service delivery and funding and an aversion to user charging; and

♤ Overall, few incentives to improve the performance of resources provided.

♤ Weak parliamentary control over finances, as the accountability is number driven. Therefore, the ruling party, having the majority in Lok Sabha, has its say in budget making.

♤ The goals in the budget are very difficult to quantify and measure. As a result the accountability of the executive to the legislature remains weak.