Budget and Budgeting Innovations

Financial Administration: A Branch of Public Administration:

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 Administration Treasury Management

Financial Administration deals with the fiscal policy, Governments role in economic stabilization

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.

Definitions:
Aaron Wildavsky: Budget is a series of goals with price tags attached Paul Leroy: Budget is a statement forecasting revenue and expenditure

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

Eric Lane: Budget is decision making under interdependency. Interaction between the appropriating authority and the requesting agency Principal- Agent Framework: Ex-ante perspective and Ex- post perspective Hiatus between them creates uncertainty and risk.

Significance: Just a ritual or more than that? 1. Tool of administrative management 2. Tool of legislative control 3. 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

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

PRINCIPLES OF SOUND BUDGETING

Principles are expected to: Bring a measure of stability, predictability Guard against surprises Accommodate Change -Naomi Caiden- Rules of budget game are rapidly changing Budget environment is changing : Resistance to increasing public expenditure Tax revolts Revenue Uncertainty

 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.

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 objectives Zero-Base Budgeting Top-down Budgeting Budgeting for Results Contemporary Innovations: Gender Budgeting Green Budgeting

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.

Performance Budget (Management approach to Budget)

1st Hoover Commission (1949) recommended it adoption Functional classification- Presentation of budget in terms of functions, programs and activities Focus on agency performance and its measurement Review of budget by legislature becomes simple Weakness diffuses organizational responsibility

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 of work 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.

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

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

1980s: Two Major Concerns

1. Emergence of Uncontrollables 2. Ballooning of Federal Deficit
Implications: Resort to Top-Down Budgeting

Top-Down Budgeting
Budgeting targets are centralised in Executive Branch. 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

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

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

Assumptions
Budgets are not gender neutral Gender budgeting goes beyond women Gender budgeting is not gender mainstreaming

Green Budget
Attempt to integrate environment concerns into economic decision making Environment facing unprecedented stress because:

1. Budgets overallocate natural resources 2. Negative externalities- you take environment for granted and hence undervalue it
Green Budget- about turning budget into effective mechanism for sustainable development.

Green Budget Initiatives:

Appropriate pricing Differential taxation Make polluter pay Pro-active measures Community participation

Ultimate aim: to persist and give long term signal for environmentally sound economic policies All these budgeting systems are in use. Governments refine, mix and match various ways of budgeting for productive results.

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