From the Red-fort, the present  PM, an outsider to Delhi durbar,  in a  Schumpeterian frame had announced creative  destruction of  the Planning Commission, and positioning of a new Think Tank in its place.  The risk of any power elite capturing such a Think Tank stands minimised, as the jet setting elite social class, civil society activists, the CEO of corporate entities, Board of Trustees/experts would be contained by the sensible political leadership from the States who are going to be a part of the Think Tank.

The Finance Commission’s job is to recommend a  formula for  sharing  tax receipts between the Centre and the States every five years. Historically,  its work can be successfully seen from the lens of Pareto’s optimality. In contrast, the 5 Year Plans rolled out by Planning Commission, in a way, did not allow the mandate for ‘shared economic governance’ to evolve from the Constitution to position the Centre and the States at an equilibrium. Historically, the expert advise flowing  from the Planning Commission appear to have blinded  the budget managers to  sharpen and use various fiscal tools and evolve robust budget implementation institutions for macroeconomic management.

At the operational level, the job chart of  Planning Commission, as of now,  stands defined under the Allocation of Business Rules (page 157). Henceforth, 4 of the 13 jobs listed therein can go to line ministries; 7 of the 13 jobs require the  use of  fiscal tools and budgetary institutions – effectively  and continuously. However, one job not listed on  page 157 has to be split between various line ministries or retained with DEA. Viz., UNDAF 2012-17, signed by Dy. Chairman and the UN Resident Representative committing all UN entities operating in India.

That said, with or without Planning Commission, the following 2 questions have to be answered by those who decide allocation priorities and monitor the spending quality of  tax payers’ money,  every year.

a) What does the Government of India want to achieve  through central ministries, agencies & state governments?

b) How will it know if it is succeeding or making progress?

If these two questions are asked in countries  like USA, UK, Australia, Canada the respective answers would be        (a) Treasury (Ministry of Finance (MoF)) and (b) National Auditor. In India, both the institutions need to be redesigned to effectively manage the immediate transition and resource allocation strategy, and to create appropriate systems for effective and efficient budget operations  in MoF, and the line departments. It is also critical to raise the capacity  in the office of Financial Advisers (FAs)  in the line Ministries, CGA &  CAG to develop products/formats to monitor budget performance by going  beyond the conventional products currently used by them. It also requires revisiting the Classification codes of Accounts. Fortunately, the two of the four amendment to FRBM Act introduced in 2012-13 are available for immediate use, and with some amendments later. These two amendments are (a) powers of MOF asking the CAG to review implementation of FRBM Act and (b) obligation of MOF to prepare of a Medium Term Expenditure Framework and present it to Parliament.

Meanwhile: 

(a) Reconfigure the Budget Division: As per entry No 40 in the Allocation of Business Rules,  the Budget Division in Dept of Economic Affairs is required to deal with resources for Five year and Annual Plans. From the year 2014-15 RE, the Budget Division would not have the luxury of anchoring their proposals to the inputs from the Planning Commission’s Five year and Annual Plans. It is going to be a challenge to Budget Division, more so because their support system is known to have been better  trained to think,  work, deliberate  and document resource flows like accountants do, and not as economists or finance managers! As such their ability to seek inputs and advice on fiscal matters from DEA as per the  item listed at No 80 in the  AOB Rules stands constrained.

(b) Revise the Budget formats:  Except for the Annual Financial Statement all other budget documents including Demand for Grants show the Budget estimates for Plan and Non-Plan. (eg: Receipts Budget, Expenditure Budget Vol-1 & Vol-II, Detailed Demand for Grants). As such modifying the formats for budget document  for Budget 2015-16 is going to be the first step.  This would mean de nova writing  of the  Budget Circular to be issued in by end of September 2014. Conventionally, budget circular asks the  line ministries to provide information  on Plan and non-Plan expenditure for 2014-15, showing Capital and Revenue  estimates separately.    Revised  Estimates   for 2014-15 and Budget Estimates for 2015-16 also need to  to follow new format without Plan and non-Plan category.  The Line Ministries generally adopt an accountant’s approach to project their financial requirements. The practice of costing of developmental activities almost as good as not existing, except when a consultant is  sponsored by the local offices of the World Bank or UN entities.  As per Rule 49 of GFR in Chapter -3 the Secretary Expenditure discusses only Totality of the estimates with FAs.  Henceforth in the absence of experts  from Planning Commission in the pre-budget discussion, the deliberations have to be held with Financial Advsiers w.r.t to rationale for the proposed allocations in a medium term expenditure framework. This is another immediate challenge.

In the medium term, the Budget tools and implementation practices have to be redesigned to allocate resources  to the priorities  signalled by the new Think Tank.

For example:

a) All the budget data, accounts and  audit reports need to be prepared and presented in  machine readable formats.

b) The Economic and Functional classification of budget, which is presented in the winter session of the Parliament should be prepared at the time of budget itself.

c) The formats for Medium term fiscal policy strategy statement, macroeconomic policy framework and also medium term expenditure framework  under FRBM Act have to be redesigned.

d) Appraisal mechanism for schemes, projects, programmes have to be standardized for use in MoF and also in the  line departments.

f) the Outcome Budget has to be redesigned and internalized along with  the  Results Framework Documents.

g) A well structured and an overarching digital architecture to be put in place w.r.t the  need for  monitoring the   fiscal flows from Centre to States, capacity building and  infusion of experts with institutional insights and a vision for future.   Unfortunately  such experts  are in short supply to be tapped from  outside the system  – in the States and at the Centre.

h) position  the Independent Evaluation Office in the office of CAG and entrust the task of developing Human Development Reports etc., to CSO in the Ministry of Statistics. They also need to monitor performance of States in relation to international commitments like MDGs, etc.,

i) Create a good archive of all the work done by Planning Commission, in a machine readable format,  in order to have time series data at the States and Centre.

j) Support state government to strengthen the Finance Departments and suitably redefine role of State Planning Boards and Planning Departments.

k) Prepare a reliable /transparent protocol for line departments to engage with NGOs, experts directly or through UN system, the World Bank or ADB.

Of course,  the wise men in MoF, CAG  and CGA might have seized of the matter while drafting ToR for Expenditure Management Commission, headed by Dr. Jalan.