Program and Performance Budgeting Enthusiasm in India -- IMF Training Course


October 17, 2007

Pune_2_4  An IMF training course in Pune for senior civil servants from India and around the region went into the varied experiences with this “second generation” budget reform. Making program and performance budgeting (PPB) work in the context of capacity constraints and politicians familiar only with traditional line item budgeting led to lively discussions with the 29 participants from India’s central and state governments, and invited representatives of other countries' ministries of finance.

The FAD's PFM 2 Division provided the training course in Pune from October 1-5, 2007. The team of presenters included Messrs. Holger van Eden and Justin Tyson (FAD), Mr. Jack Diamond (FAD panel of experts), and Mr. Aru Rassapan from the Center for Development & Research in Evaluation (CeDRE) in Malaysia. Mr. Sang Dae Choi (World Bank) provided a lecture through video-link on the Korean experience with introducing performance budgeting.

The 29 participants included three senior officials from India’s central government, 18 from state governments, as well as Ministry of Finance (MOF) staff from Pakistan, Bangladesh, Nepal, Sri Lanka, Maldives, Kenya and Tanzania. The course was organized jointly by the Joint India-IMF Training Program (ITP) in Pune, India and FAD. The ITP is a cooperative venture of the IMF and the Reserve Bank of India. Its facilities are brand new, fully compliant with the most modern training requirements, and able to house all participants in a very comfortable setting. Given the enthusiastic response, the course will be held again in Pune in July 2008. [Download Pune_Agenda.pdf]

Ever since the US President, Lyndon Johnson, announced the introduction of program budgeting in the US federal government in the 1960’s on national television as the next best thing since sliced bread, the expectations of this budgeting system have been very high. PPB would help politicians allocate resources to the most effective and efficient programs, and align with the political priorities of the government of the day. It would also help government managers use resources more efficiently and provide incentives to be flexible on how and with what human, capital and other resources to deliver desired societal outcomes.

Line item budgeting has been a tough adversary to vanquish, however. That is not only evident in developing world, but also in many OECD countries, where a performance orientation to budgeting has only been introduced with some success since the early 1990’s. Earlier attempts in the 1960s and ‘70s largely failed to undermine the incrementalism which is so enduring in government bureaucracies. For developing countries with problems running their cash-based line item budgets, the question is if taking the step towards PPB is really a first priority. The presenters argued that while countries need to make sure that the basics of good public financial management need to be in place, PPB can have important spin-offs. In many developing countries the rationale of using scarce resources efficiently is even more important than in the developed world. Moreover, important gains can be made by taking initial steps in introducing PPB. The introduction of a well-defined program classification can have important consequences for allocative efficiency at the macro-level, i.e. for letting Cabinet know for what purpose government resources are being spent.    

The lectures part of the course introduced basic concepts of program and performance budgeting (PPB) [ Download diamondoverview_of_performance_budgeting.pdf], such as program and program classification design, performance indicators and measurement systems, the use of evaluation systems and cost accounting under program budgeting, and the linkage of performance information with the budget process.

The course then turned to pre-conditions and sequencing of PPB implementation, including necessary institutional and cultural change to reap the full benefits of PPB. [Download van_eden_preconditions__prioritization_sequencing.pdf]

These lectures were combined with presentations on the performance budgeting systems in the UK, Malaysia, Singapore, and Korea. Presentations on the UK and Malaysia can be downloaded here.

Download tyson_uk_case_study_the_public_service_agreements_system.pdf

Download rasappan_implementation_strategies_lessons_malaysia.pdf

Exercises covered the topics of program design, program classification, performance indicators, and national (and state) implementation approaches.

Many of the participants indicated that the course was highly relevant for their work as the Indian central government has taken its first steps in developing PPB by requiring line ministries to present an “outcome budget”, in parallel to the traditional line item budget, as part of the budget planning process. This “outcome budget” does not really play a role yet in budgetary decision-making. State governments may follow the lead of central government in the coming years and a number of states as Kerala, Gujarat and Maharashtra are already taking independent initiatives. Participants from other countries aslo mentioned ongoing reflection on possible PPB reforms in thei home countries.

Posted by Holger van Eden