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Budget
andBudgeting Innovations
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Financial Administration: A Branch of PublicAdministration:
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 AdministrationTreasury Management
Financial Administration deals with the fiscal policy,
Governments role in economic stabilization
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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.
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Definitions:
Aaron Wildavsky: Budget is a series of goals with price tags
attached
Paul Leroy: Budget is a statement forecasting revenue andexpenditure
Willoughby: Budget is and should be at once a report, anestimate and a proposal
Eric Lane: Budget is decision making under interdependency.
Interaction between the appropriating authority and therequesting agency
Principal- Agent Framework: Ex-ante perspective and Ex- postperspective
Hiatus between them creates uncertainty and risk.
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Significance: Just a ritual or more than that?
1. Tool of administrative management
2. Tool of legislative control3. 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
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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
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Principles are expected to:
Bring a measure of stability, predictability
Guard against surprises
Accommodate Change
-Naomi Caiden- Rules of budget game are rapidlychanging
Budget environment is changing : Resistance to increasing public expenditure
Tax revolts
Revenue Uncertainty
PRINCIPLES OF SOUND BUDGETING
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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.
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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 objectivesZero-Base Budgeting
Top-down Budgeting
Budgeting for Results
Contemporary Innovations:
Gender Budgeting
Green Budgeting
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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.
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Performance Budget (Management
approach to Budget)
1st Hoover Commission (1949) recommended it
adoption
Functional classification- Presentation of budget interms of functions, programs and activities
Focus on agency performance and its measurement
Review of budget by legislature becomes simple
Weakness diffuses organizational responsibility
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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 ofwork 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.
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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
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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
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1980s: Two Major Concerns
1. Emergence of Uncontrollables
2. Ballooning of Federal Deficit
Implications: Resort to Top-Down Budgeting
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Top-Down Budgeting
Budgeting targets are centralised in ExecutiveBranch. 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
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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
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Gender Budgeting Began in Australia, 1984 around 40 countries followed the
initiative
Gender Budgeting is Not-
Allocating 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
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Assumptions
Budgets are not gender neutral
Gender budgeting goes beyond women
Gender budgeting is not gendermainstreaming
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Green Budget
Attempt to integrate environment concerns intoeconomic decision making
Environment facing unprecedented stress because:
1. Budgets overallocate natural resources2. Negative externalities- you take environment for
granted and hence undervalue it
Green Budget- about turning budget into effectivemechanism for sustainable development.
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Green Budget Initiatives:
Appropriate pricing
Differential taxation
Make polluter pay
Pro-active measures
Community participation
Ultimate aim: to persist and give long term signal forenvironmentally sound economic policies
All these budgeting systems are in use. Governmentsrefine, mix and match various ways of budgeting forproductive results.
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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