FINANCIAL MANAGEMENT FOR IMPROVING PROGRAMME DELIVERY DATE: 20 OCTOBER 2008

It gives me immense pleasure to be here with you this morning. I am thankful to the CGA for inviting me to participate in the Seminar. I am really happy at the theme selected for the Seminar. The appropriate and productive use of public moneys is an indispensable element of any modern, well-managed and fully accountable democratic set up. Programme delivery is at the top of Governments agenda. Efficient delivery of public services, proper management of public resources, high level of accountability and transparency are its key concerns. Efficient management of financial resources is vital for ensuring improved programme delivery. The core of public financial management generally includes budget planning and preparation, appropriations by the Legislature, expenditure monitoring and control, financial reporting, audit and evaluation. The objective of the financial management is that the requirements of resources and its availabilities are correctly estimated; necessary appropriations are obtained 1) and used legally, efficiently and effectively for achievement of the intended outcomes of the programme. Allocative priorities: Every Government raises resources to perform its sovereign functions and maintain and upgrade the network of delivery of social and economic services through capital expenditure and investments. Correct assessment of priorities for application of resources is of paramount importance

in

financial

management

system.

Increased

focus

on

programme delivery requires higher allocations under plan schemes in different sectors to provide basic minimum services of reasonable quality to the citizens. The trends in spending of the Union Government indicate that though there has been an increasing trend in allocations for plan expenditure, the plan expenditure continues to be less than 25 per cent of the total expenditure during the last three plan periods. The overall allocation to social sector has been less than one per cent of GDP in the past and it has merely crossed one per cent in the last 3 to 4 years. Within the sphere of economic services, there has been a considerable increase in expenditure on rural development, energy and agriculture. However, the overall expenditure on economic services continues to be around 6 per cent during the last 3 plan periods. A significant positive shift in rural development programmes reflects the Governments overwhelming priorities for the sector particularly in the context of generating employment opportunities in rural areas. Efforts towards re-prioritization of outlays need to be continued for expansion and strengthening of social and economic services in the country. 2) Encouraging financial accountability: Government of India agencies and NGOs for implementing various transfers large amounts of funds every year directly to various district developmental programmes and schemes. The release of funds directly to the implementing agencies is a paradigm shift to

facilitate

speedy

programme

delivery.

Each

implementing

agency maintains its funds in a separate bank account outside the Government account and are responsible for proper financial management of public resources. The number of such societies and agencies in different states implementing different programmes at different levels is quite large and the number of bank accounts in which Government funds are kept is also enormously high. Ensuring proper financial management in such a highly decentralized set up is quite a challenging task. 3) Focus on outcomes: There have been rapid changes in the pattern of governmental expenditure and its radical transformation in the wake of increasing outlays on development activities. The Parliament and the public are now more interested to ascertain whether various development and welfare programmes are being executed efficiently and whether they are producing the expected results. A central thrust of development programmes is to place more emphasis on what taxpayers get for their money by focusing on outcomes. However, there may be difficulty in measuring the outcomes if relevant and reliable indicators are not available to measure the success of the initiatives and it may not, therefore, be easy to assess whether intended outcomes have been achieved. Hence, Performance measures are crucial in evaluating the success of these programmes.

4) Improving Financial Management and Accountability in Centrally Sponsored Schemes A common pattern of shortcomings in execution of centrally sponsored schemes is observed such as lack of timely release of fund, multiplicity of schemes with similar objectives, inadequate assessment of beneficiaries, lack of vertical and horizontal linkages and absence of technological and institutional capability. There is an absence of any identified and measurable indicators of performance at each level of implementation of the scheme. Further, funds are released through a variety of channels and tracking of funds down to the end use is almost impossible in the current framework. There is also a common problem of lack of adequate monitoring and evaluation of implementation of such schemes. Any strategy for improving the financial management performance and accountability in centrally sponsored schemes must include issues related to flexibility in design to reflect local level realities, rationalisation of CSSs, setting up a framework for flow of funds and mechanism for tracking of funds down to the end use and ensuring better monitoring and evaluation. Greater efforts are needed to improve governance at district/block/village level. 5) Distortions in financial position Direct transfers to societies are made as grants-in-aid which are treated as revenue expenditure in Union accounts. The state accounts do not register any transaction on account of these

devolutions as the funds transfer does not take place through state accounts. The assets created under various flagship programmes like NRHM, out of funds transferred to the societies at state/district levels are reflected neither in Union accounts nor form part of the State accounts. This may seriously distort the financial position of the Government as fiscal liabilities will not have adequate asset backup. It is essential to evolve a system by which assets created by the implementing agencies are recorded either in the central or state accounts so that the capital expenditure on assets creation is accurately reflected in the accounts of the Government. 6) Integration between project planning and budgeting Prudent financial management practices require an effective integration of developmental planning process with budget process. It is very common to have development plans that are not supported by budgetary resources. This leads to situations where programme execution is seriously hampered due to nonavailability of funds at critical stages. This causes serious time and cost overruns. There are large number of such cases reported in the Audit reports both for centre and states which calls for greater integration of budgetary and planning processes. 7) Public Private Partnership projects There is a large gap in the demand and supply of essential social and economic infrastructure and services. The Government is, therefore, actively promoting Public Private Partnerships (PPPs) in

the key infrastructure sectors. As per the Planning Commissions estimates, around Rs.14.5 lakh crore is likely to be invested in the infrastructure sector in India over the 11th Plan. A large part of this investment will come from the private sector with PPP mode as one of the preferred routes. PPPs entail a sharing of responsibility between government and the private sector. Factors which add value to a PPP proposal include innovations, potential for value for money like lower construction costs, lower operation costs etc, early project delivery, improved asset utilization, and better project management. Therefore, it is important to evaluate whether the above objectives have been efficiently achieved. Besides, there are risks inherent in such partnerships. The Government may not be able to achieve the benefits it seeks to achieve for public services without effectively managing risks. Sound risk management procedures are, therefore, vital. Conclusion: Strengthening financial management systems is at the heart of the reform agenda. It is a part of the overall effort to enable the Government to manage public resources economically, efficiently and effectively. The reforms in financial management system is in need of serious attention and has to be brought out systematically for improving delivery of Government programmes. I am pleased to participate in the Seminar today. I wish the Seminar all success. Thank you.