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Count your harvest

A focus on the outcome of expenditures in the last budget will help identify key problems, writes Kiran Karnik, President, Nasscom.

india Updated: Feb 17, 2006 14:25 IST

As an inveterate optimist, I define my philosophy as ‘having expectations similar to my hopes’. This, as you can see, equally describes a pessimist, who, of course, would prefer to substitute the word ‘hopes’ with ‘fears’. Let me, therefore, spell out my expectations in the form of hopes: an approach that may satisfy both optimists and pessimists, even if the content does not.

Traditionally, the budget focuses on expenditure. It then seeks to raise taxes and tariffs so as to ensure revenues commensurate with expenditure, keeping in mind the constraints on deficits enunciated in the Fiscal Responsibility Act. Sometimes, new levies are added, as Finance Minister P. Chidambaram did through the fringe benefit tax and the cash withdrawal tax. Expenditures are seen as proof of intent and proxies for policies. Therefore, this government has budgeted large spending on the National Rural Employment Guarantee scheme, Bharat Nirman, urban renewal and rural health — all aimed at signalling its social commitment.

Last year, Chidambaram spoke of the importance of outcomes, rather than inputs. He will, one hopes, remember that this year, especially in the context of large schemes. In the budget document, one would like to see specific mention, for example, of the targeted improvement in infant mortality, in the person-days lost due to ill health, in the maternal mortality rate etc., in relation to the Rural Health Mission, rather than merely the budgeted expenditure or even the output (number of children vaccinated, iron tablets distributed, etc). Not all outcomes are measurable or quantifiable, but a beginning needs to be made on enunciating and monitoring them. A report on last year’s outcomes will be a good starting point for the budget speech.

A focus on outcomes (as opposed to inputs, and different from outputs) is not mere semantics. It will help focus attention on key problems and will be indicative of not only the government’s intent or policy, but also the quality of its governance. I expect this last aspect to engage the government’s attention. The National eGovernance Programme must be energised, funded and closely moni tored on the basis of clearly-defined outcomes. It must tap nationwide expertise, a great deal of which resides — especially in management and IT — in the private sector. Success must be measured through specific metrics for not only service quality or cost reduction, but also for efficiency, transparency and accountability.

Large amounts will be allocated to the employment guarantee scheme. This must include funds for ensuring minimum corruption, prompt payments and monitoring of not only the scheme, but also of the actual work being executed. There are innovative technology solutions to facilitate this. The use of smart cards with biometric identification for ensuring that payments are genuine, and use of digital cameras and automated image analysis to record work and check actual progress, can help to minimise misuse of funds.

Rather than look at it as a dole, this scheme must be imaginatively used to create real assets. Selection of viable projects must be a pre-condition for release of funds. If not, this scheme will become an exercise in digging holes and then filling them. One way of avoiding such a pitfall is to articulate outcomes in the form of productive assets created, and not in person-days of employment provided (the latter is, in any case, guaranteed under the Act). Another way is to encourage private sector projects in rural areas, with government subsidy in the form of payment of wages for local labour (through the scheme).

It is now generally acknowledged that education is not only good in itself, but is a necessary condition for sustained and rapid economic growth. Already, there are signals of shortages of certain skill-sets (most noticeably in the IT/BPO sector).

Such a deficit will affect economic growth. Therefore, a massive increase is needed in the output of all categories of high quality professionals and graduates. Since demand is escalating rapidly, this also means greater output of high quality from schools too.

This calls for a radical re-look at the educational policy, with a focus on quality and a rise in investment. A substantial part of this will have to come from the government, and one expects the budget will reflect this critical need. In the future, education will be as strategic as the military in protecting national interests. A doubling of investment in science and technology education will lay a firm foundation for future growth.

The education cess needs to be more efficiently and imaginatively used. Can the government emulate its approach in the infrastructure sector, where desperate need met innovative business models? One hopes this budget will open up the education sector and use government funds to leverage huge amounts of additional investment, as has been done for infrastructure.

If there is one area in which the deficit is larger than in the budget, it is in infrastructure. The National Urban Renewal Mission and Bharat Nirman are intended to tackle this problem of grossly-inadequate infrastructure. This budget should aim at giving a boost to these efforts through an accelerated programme, involving far greater outlays, but also defined and measurable outcomes. The budget could announce incentives for quick and quality work, to be ensured through innovative contracts that encourage two or three shift work, and annual payments based on maintaining quality.

To secure our future, we need investments not only in education, but also in R&D. The budget should make a 50 per cent increase in R&D outlays, with a commitment to raise this by 25 per cent each year. The impact of outlays should be amplified by putting a proportion of them in a fund that acts as insurance for professional seed and venture capital organisations. This will enable such funding organisations to be less risk averse, thus ensuring greater availability of funding, and kick-starting a major movement to promote innovative and new start-ups.

The recently-announced initiative to make manufacturing more competitive needs to be backed by actual action. The budget could make a small provision of funds to be used for subsidising the interest cost of loans for investment in technology that will make industry more efficient and competitive.

Agriculture, which accounts for a quarter of our GDP and sustains over 60 per cent of the population, needs attention. Investments on irrigation, agricultural research and extension, storage and processing, are inadequate. The budget should address these and, equally important, remove the regulations (e.g., on sale and movement of food grains) constraining growth.

It seems that, like Oliver Twist, I am asking for ‘more’. But the fact is, more is available. Simplification of taxation laws and introduction of a common goods and service tax will not only make things easier, it will also garner more revenues for the government. In addition, substantial additional revenue could be ensured through IT applications in customs, excise and income-tax departments. Work on this is already progressing well. The re-engineering and efficiency enhancement that results will set at rest any worry about where the additional resources — suggested in various ideas above — will come from. Further, economic growth itself should provide substantial incremental revenues.

As an optimist, I believe the budget can help to trigger a virtuous cycle, with growth producing more funds to invest in social, intellectual and physical infrastructure, leading, in turn, to greater growth. The outcome, though, must be happiness: measured by the reduction in people living in poverty, and improvements in health, education, equity and harmony.

(The writer is President, Nasscom)