Using a method such as the Outlay-Output-Outcome framework can go a long way in assessing the effectiveness of government spending
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On February 1, the Union Finance Minister will present the annual financial statement — commonly called the Union Budget — to the Parliament. Soon after that, TV discussions and newspaper columns will be flooded with conversations on new schemes announced and monies allocated — why didn’t the government reduce subsidies by x per cent, why didn’t the government increase health expenditure by y per cent and so on.
Although such discussions shed light on the government’s priorities in the upcoming financial year, they paint an incomplete picture of government performance. The Budget, after all, is merely a statement of intent by the government. And we all know that there’s many a slip between the cup and the lip — even if we assume near-zero corruption, well-intentioned schemes backed by ever-increasing Budgetary allocations seldom translate into positive change.
So we need another toolkit to analyse the effectiveness of government spending. One such toolkit is the Outlay-Output-Outcome (OOO) framework. Outputs refer to the direct and measurable product of a scheme, often expressed in physical terms or units. Outcomes, on the other hand, are the long-term benefits that a government intervention is designed to deliver. Finally, Budgetary allocations are outlays that indicate the financial resources provided to a scheme.
The utility of this framework can be understood in the context of education. The debate in that field has moved beyond merely budgetary outlays or even outputs such as the number of schools or teachers benefiting from the outlays. Courtesy the Annual Status of Education Reports (ASER), the focus is now on learning outcomes that measure whether a student in a particular grade possesses the literacy skills required for that age. Outcome indicators such as “students of Class 5 being unable to comprehend texts prescribed for Class 2” help guide the focus of the government towards making education spending more effective without necessarily increasing the outlays on education. Such a conversation on outcomes needs to be applied to every rupee government spends.
Using the framework
Fortunately, Budgetary exercises have made a start. Since FY18, the Budget documents also include an output outcome framework for all central sector and centrally-sponsored schemes. For example, for the flagship health insurance scheme, Pradhan Mantri Jan Arogya Yojana (PMJAY), the output is defined in terms of total hospital admissions under the scheme, beneficiary identification (total health cards issued to beneficiaries), claim payment (total amount of claims settled in 30 days), and hospital empanelment (total number of hospitals under the scheme). The outcome is measured in terms of reduction achieved in household health expenditure.
In the din of Budget outlays, this valuable output outcome framework hardly finds a mention. Analysing this document can help in several ways. It gives an idea of the scale of impact a scheme is intended to achieve. It can also help us understand the exact problem the policymakers are trying to solve. For example, the outcome indicators for Mahatma Gandhi National Rural Employment Guarantee programme is to be measured using parameters such as the quantum of micro-irrigation works, afforestation works, etc. The policy community needs to discuss if these should be the most important outcome measures for an employment guarantee scheme. Shouldn’t the primary outcome instead be to smoothen out income fluctuations in rural areas?
The output outcome framework can also tell us how realistic are the projected outcomes. We can evaluate the pre-existing policies’ performance by comparing with the corresponding stated output and outcome. Suppose the performance is sub-optimal, merely spending more is unlikely to lead to better outcomes in the future as well.
Using this framework, a policy that fails to achieve the desired outcomes can mean two things. One, that there was an implementation failure. Insufficient outlays or difficulty in converting outlays into outputs due to corruption are examples of implementation issues. Two, it might also mean there was a theory of change failure which means that the assumed causal linkage between outlays, outputs and outcomes was incorrect.
This distinction is important because, in India, a commonly held notion is that governments have good policies but poor implementation. What’s less appreciated is that policies often fail because the underlying theory of change itself is inaccurate. For example, the expected output of Swachh Bharat Abhiyan (Urban) is measured in terms of individual/community toilets constructed, while the expected outcome is making towns open defecation free. The construction of toilets does not necessarily translate into people using toilets. Factors like low maintenance, lack of water supply, lack of awareness might not have been accounted for. An effort to analyse along these lines can help identify the source of policy failure. It can be used to refine future Budgetary planning processes.
The way forward
Discussions around the Budget need more depth. The output outcome framework provides a good launching pad. Upgrading it to capture every government scheme’s outputs and outcomes can help manage outlays better. Currently, the allocations for such schemes are divorced from the output/outcome indicators. Institutions like CAG audit the schemes, but might not have the expertise to regularly evaluate the output and outcomes or their relevance to a particular scheme. That’s where an institution like an independent Fiscal Council (as also recommended by the 14th Finance Commission) would be of immense use. This council can assess whether the theory of change linking outlays to outcomes has economic merit or not.
Improving the output outcome framework can help bring in much-needed transparency and accountability measures and elevate budget-related discussions.
(Sarthak Pradhan and Pranay Kotasthane conduct research on public finance at the Takshashila Institution, an independent centre for research and education in public policy)
Disclaimer: The views expressed above are the authors’ own. They do not necessarily reflect the views of DH.