Managing the Conversion of Outlays Into Outcomes

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MANAGING THE CONVERSION OF OUTLAYS INTO OUTCOMES:

A CASE STUDY[*]

ANAND P. GUPTA[]

The Finance Minister, in paragraph 100 of his February 28, 2005 budget speech, has

committed the Government of India to improve the management of its expenditures, with

focus on strengthening the outlays-outcomes link. This is what he said in this paragraph: At

the same time, I must caution that outlays do not necessarily mean outcomes. The people of

the country are concerned with outcomes. The Prime Minister has repeatedly emphasized the

need to improve the quality of implementation and enhance the efficiency and accountability

of the delivery mechanism. During the course of the year, together with the Planning

Commission, we shall put in place a mechanism to measure the development outcomes of all

major programmes. We shall also ensure that programmes and schemes are not allowed to

continue indefinitely from one Plan period to the next without an independent and in-depthevaluation. Civil society should also engage Government in a healthy debate on the

efficiency of the delivery mechanism (Government of India, 2005a, p. 22).

Subsequently, the Prime Minister wrote a letter to all Government of India (GOI)

ministers on March 17, 2005, in which he stressed the importance of converting financial

outlays into physical outcomes, with fixed quarterly measurable and monitorable targets, to

improve the quality of implementation of development programmes (cited in Government of

India, 2005c, p. i) and requested them to carry out this exercise. In response, the GOIs

Ministries/Departments have worked out the targets or intermediate outputs/outcomes in

respect of their Plan outlays. These data were analyzed by the Planning Commission and the

Ministry of Finance, with the resulting output presented by the Finance Minister as the GOIs

outcome budget for 2005-06 (Government of India, 2005c) on August 25, 2005.

The Finance Minister, in his foreword to the outcome budget, says: Converting

outlays into outcomes is a complex process, which differs from Ministry to Ministry and

programme to programme. Some of the important steps in this conversion process are as

follows:
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Outcomes to be specifically defined in measurable and monitorable terms;

intermediate outputs should also be defined wherever required.

Standardising unit cost of delivery.

Benchmarking the standards/quality of outcomes and services.

Capacity building for requisite efficiency at all levels, in terms of equipment,technology, knowledge and skills.

Ensuring flow of right amount of money at the right time to the right level,

with neither delay nor parking of funds.

Effective monitoring and evaluation systems.

Involvement of the community/target groups/recipients of the service, with

easy access and feedback systems.

Efficient conversion of outlays into outcomes would, therefore, require making the

delivery systems effective with appropriate structures and processes, strengthening

financial management systems, increasing use of information technology, and meaningful

involvement of all the Ministries, Para-statals, State Governments, Local Bodies, PanchayatRaj Institutions, Self Help Groups etc., in critical decision making and implementation

processes (Government of India, 2005c, pp. i-ii).

What all this really means is that it is the situation at the micro level which determines

whether an outlay will be converted into intended outcome and, if yes, to what extent: an

outlay on a given scheme in a district may produce the intended outcome, but an equal

outlay on the same scheme in another district may fail to produce the intended

outcome. Given this, it will be extremely useful to look at the available empirical evidenceon what currently happens to a given outlay. Does it achieve the intended outcome in the


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most efficient way? If not, why,[1] and how the outlay-outcome link can be

strengthened? What is the structure of incentives governing the behavior of those

responsible for managing it? Who is accountable for it? If the accountability is weak, why,

and how can it be strengthened?

This paper looks at one such recent evidence: the Comptroller and Auditor General of

Indias (CAGs) performance review of the Swarnjayanti Gram Swarozgar Yojana (SGSY), a

centrally-sponsored scheme, in Orissa since its launch on April 1, 1999 (Comptroller and

Auditor General of India, 2003, pp. 129-41). Launched to overcome the inherent problems

of the Integrated Rural Development Programme (IRDP) and allied programmes (e.g., lack of

focus on the substantive issue of sustainable income generation, and absence of desired

linkages among IRDP and allied programmes), the SGSY aims at bringing the assisted rural

poor families above the poverty line through the development of income-generating activities

in rural areas, which are based on the ability of the poor and the potential of each area. It is

funded by government grants and bank credit, with the government grants shared between theGOI[2] and the concerned State Government in the ratio of 75:25. Bank credit is the critical

component of the SGSY, with government grants being a minor and enabling

element.[3] The government grants are used for financing the subsidy component of the

projects implemented under the SGSY, as also for taking care of the costs involved in skill

upgradation, technology transfer, marketing support and infrastructure development,[4] with

a view to ensure the financial viability of these projects and thereby develop the rural poor

into successful entrepreneurs.

The SGSY is monitored by institutional mechanisms at three levels: Central Level

Co-ordination Committee at the GOI level, State Level SGSY Committee at the State

Government level, and District Level SGSY Committee at the district level.

According to the CAGs performance review, the total expenditure on the SGSY

during the period April 1, 1999-March 31, 2002, reported by the Government of Orissa

(GOO), added up to Rs. 233.78 crore, of which Rs. 74.58 crore was incurred during 1999-

2000, Rs. 97.81 crore during 2000-01, and Rs. 61.39 crore during 2001-02. Of the total

expenditure of Rs. 233.78 crore, the expenditure test checked during audit amounted to Rs.97.10 crore (41.53 per cent). Year-wise break-up of the test-checked expenditure is not

available. The test checks covered records of the GOOs Panchayati Raj Department and

those of eight District Rural Development Agencies (DRDAs), 34 Block Development

Offices (BDOs), 34 Banks and 38 Gram Panchayats (GPs) in Orissa.

The performance review has revealed that as much as 62.17 per cent of the

expenditure test checked during audit was irregular, with 19.87 per cent deposited into

Personal Ledger Accounts[5]/Personal Deposit Accounts/Banks, 13.03 per cent lying

unutilized, 12.49 per cent disbursed as advances and treated as final expenditure, 6.15 percent misused/diverted to unrelated activities, 2.13 per cent incurred on works not permissible,
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and the remaining 8.51 per cent accounted by other irregularities (Comptroller and Auditor

General of India, 2003, p. 130).

The performance review claims that 37.83 per cent of the expenditure test checkedduring audit was incurred on the programme (Comptroller and Auditor General of India,

2003, p. 130).

The CAGs revelation (that as much as 62.17 per cent of the expenditure test checked

during audit was irregular) and its claim (that the remaining 37.83 per cent of the expenditure

test checked during audit was incurred on the programme) raise several extremely important

questions. To begin with, what is the district-wise break-up of the SGSY money deposited

into Personal Ledger Accounts and Personal Deposit Accounts and with banks, why and

when was this done,[6] and what happened to this money after it was so deposited? In case ithas been used, partly or wholly, when was it used, what was it used for, and what were the

internal controls that the expenditures financed through this money were subjected to? These

are extremely important public policy questions, but the CAGs performance review does not

answer them. One doesnt know why. There is a very strong case for tracking these deposits

and for tracking the expenditures financed through these deposits. Given that the totalexpenditure on the SGSY in Orissa during the period April 1, 1999-March 31, 2002

amounted to Rs. 233.78 crore, and given that 19.87 per cent of the expenditure test checked

during audit was deposited into Personal Ledger Accounts and Personal Deposit Accounts

and with banks, one can argue that these deposits add up to as much as Rs. 46.45 crore. This

money, which was supposed to be used for lifting the poor in Orissa above the poverty line,

must be thoroughly tracked to discover what really happened to it.

Secondly, how did the irregularities like advances treated as final expenditure and

SGSY funds misused/diverted to unrelated activities, happen, and what is the structure of

incentives governing the behavior of the people responsible for these irregularities? The

estimated amount involved in these irregularities during the period April 1, 1999-March 31,

2002 adds up to as much as Rs. 98.89 crore (42.3 per cent of Rs. 233.78 crore).

Thirdly, given the huge scale of the irregularities that the CAG has revealed, what is

the credibility of the elaborate institutional mechanism that has been put in place to monitor

the SGSY?

Fourthly, what actions have been taken against those responsible for the irregularities

that the CAG has documented, and what has been the effect of these actions?
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Finally, what exactly does the CAGs claim that 37.83 per cent of the expenditure test

checked during audit was incurred on the programme, mean? Does it mean that 37.83 per

cent of the expenditure test checked during audit achieved the intended outcomes? Given

that the SGSY aims at bringing the assisted poor families above the poverty line by providing

them income-generating assets through a mix of bank credit and government subsidy, the

outcome of the outlays on the SGSY should be measured in terms of the number of poorfamilies lifted above the poverty line and the cost involved in achieving this.

But the performance review does not tell us how many poor families under the

jurisdiction of the eight DRDAs, 34 BDOs and 38 GPs, whose records were test checked

during the audit, were lifted above the poverty line through the SGSY. What it says is that

220,037 families were covered under the SGSY during 1999-02, against the target of 252,432

families (Comptroller and Auditor General of India, 2003, p. 133). But these numbers relate

to the entire State of Orissa, not to the eight DRDAs, 34 BDOs and 38 GPs whose records

were test checked during the audit. Further, mere coverage of a poor family under the SGSYdoes not necessarily mean that it was lifted above the poverty line.

However, the CAG has done some excellent government expenditure trackingwork. This has resulted in some extremely useful empirical evidence:

The selection of key activities for the beneficiaries in three DRDAs (Ganjam,Jajpur and Khurda) did not involve the village sarpanch and the rural

poor. Further, 18 project reports of four districts (Ganjam, Jajpur, Khurda and

Mayurbhanj) did not discuss the components like training, credit, technology

and marketing (Comptroller and Auditor General of India, 2003, pp. 134-35).

Against the sanctioned bank loans of Rs. 51.45 lakh in seven blocks (Balasore,

Jaleswar, Remuna, Bhawanipatna, Golamunda, Kesinga and Junagarh), only

Rs. 36.02 lakh were disbursed to 231 swarozgaris, with reasons for the non-

disbursement of the balance amount not available on the records. Further, thedelay in disbursement of the loans by the banks in seven blocks (Balasore,

Bangiriposi, Betonati, Jashipur, Kaptipada, Kuliana and Remuna) during

2000-01 ranged between two and seven months (Comptroller and Auditor

General of India, 2003, p. 135).

Assets of Rs. 1.77 crore in 15 blocks (Begunia, Bhawanipatna, Chatrapur,

Golamunda, Hindol, Jashipur, Jaipatna, Junagarh, Kaptipada,

Kesinga, Khaira, Khurda, Nilgiri, Odapada and Remuna) were either not

created or only partly created by 961 swarozgaris. Further, 113 assets of Rs.


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21 lakh in Chatrapur block were in a damaged/defunct condition (Comptroller

and Auditor General of India, 2003, p. 136).

Of Rs. 5.75 crore allotted to the eight test-checked districts (Bolangir,Balasore, Dhenkanal, Ganjam, Jajpur, Kalahandi, Khurda and Mayurbhanj)

for training during 1999-02, only Rs. 0.94 crore were utilized for training

(Comptroller and Auditor General of India, 2003, p. 139).

The scrutiny of 140 beneficiary assessment reports (Bolangir: 40; Balasore: 7;

Dhenkanal: 20; Ganjam: 20; Jajpur: 10; Kalahandi: 33; Khurda: 4; and

Mayurbhanj: 6) revealed that none of the swarozgaris had achieved the desired

monthly income of Rs. 2,000. The verification by the block development

officers in three blocks (Hindol, Khaira and Begunia) revealed the monthly

income to be between Rs. 200 and Rs. 1,800 and it generally did not exceed

Rs. 1,000 (Comptroller and Auditor General of India, 2003, p. 136).

All this clearly suggests that even 37.83 per cent of the expenditure test checked

during audit which, according to the CAG, was incurred on the SGSY, has failed to achieve

the intended outcomes. The performance review does not provide the required data that

would allow us to assess the relative ineffectiveness of the eight DRDAs, whose records were

test checked, in achieving the intended outcomes.

Where do we go from here? The performance review can serve as an excellent

building block for a detailed survey to track the government expenditure on the SGSY in

Orissa, that needs to be organized. Gupta (2005) suggests that the survey, in order to be

meaningful, will require considerable field work to capture the intended beneficiaries

perceptions about the SGSY. The CAG has the mandate for doing the required field

work.[7] He may also have the capacity for doing the required field work, but he may lack

the incentive to do so because of his perception of the risks involved in doing this work. In

that event, the CAG may consider engaging reputed independent consultants for this work.[8]

Based on the results of the above survey, the GOI will need to develop a strategic

action plan, including the requisite incentive-creating, institutional-strengthening and

capacity building measures, for converting the budgetary outlays for the SGSY in Orissa into

intended outcomes, and implement the action plan. Given the CAGs comparative

advantage in tracking government expenditures, it can play an extremely important role in

developing this action planand, for that matter, in developing the action plans for

reforming the management of other government expenditures.
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Given the public finance crisis that India currently faces, and given the critical

importance of strengthening the outlays-outcomes link for dealing with this crisis, one hopes

the GOI will use the CAGs expertise in tracking government expenditures as it prepares

itself to fulfil its commitment to reform the management of its expenditures.

Managing the Conversion of Outlays Into Outcomes

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