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Innovate to fulfil India?s needs

Many federal countries including France, Germany, the US and Australia are moving away from annual budgeting, once considered the only reliable model of allocating public finances.

india Updated: Feb 19, 2006 23:13 IST

Many federal countries including France, Germany, the US and Australia are moving away from annual budgeting, once considered the only reliable model of allocating public finances. While this approach has not been totally discarded, its in-built problems of short sightedness and overspending, have forced countries to either innovate or experiment with newer approaches to budgeting.

Multi- year budgeting is one such innovative model, which includes revenue forecasts and expenditure estimates for two or three years beyond the current year. Several OECD countries, such as Australia, Germany, Britain and New Zealand are already developing their budgets in a multi-year framework. Britain recently decided to adopt an outright three-year budget to make resource allocation more efficient. But the formulation of such an integrated multi- year financial plan is quite complex and administratively very demanding.It requires a strong political and social consensus,with extensive groundwork.

In the last decade, South Africa, Malaysia and Singapore have attempted to establish performance or results- oriented budgets, which focus on how the government spends the money, rather than just the process of controlling such expenditure. Many other countries such as Russia are either debating or have begun performance based budgeting reforms to ensure that public representatives focus on outcomes and outputs. A good example is the South African government’s health budget which reflects the country’s move from a purely itemized budget to a medium term programme budget and finally to a budget with performance based elements in it. The problem: these budgets often fail to identify ‘who ’is responsible for performance and resource use.

The onus to pin accountability is now increasingly been shouldered by various civil society groups through exercises such as public budgets, which are initiatives in the fields of gender, transparency, poverty and accountability. In gender alone, there are currently budget initiatives in 18 countries including Australia, South Africa Switzerland, UK, and USA. These parallel budgets such as the Canadian Alternative Federal Budget have reversed the government’s macro economic framework more than once. But their major drawback is that they require civil society organizations for their sustainability.

This drawback is absent in bottom-up budgets called Participatory or People-Centric budgets. These initiatives, working miracles in Peru and Brazil, explicitly weave in equity, participation and sustainability in their budgeting exercise. But these initiatives require long- term, intensive efforts on the part of the citizens. Further, conflicting demands are bound to arise when the level of participation expands to include all groups in the society.

While every country should review international practices and try to incorporate the principles of fiscal transparency and accountability, it must not do so at the cost of its own fiscal health. To ensure a budget that delivers, the solution lies in context driven innovation rather than blindly adopting any dictated set of principles.