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Beyond the Budget: strengthening delivery

With the 2005-06 Budget just around the corner, I took some time to look at the highlights of the last half-dozen Budgets. It seems that the Budget ritual has three components. The core of the exercise is the announcement of detailed changes in tax policies, embodied in the Finance Bill, with implications for revenues (though…

With the 2005-06 Budget just around the corner, I took some time to look at the highlights of the last half-dozen Budgets. It seems that the Budget ritual has three components. The core of the exercise is the announcement of detailed changes in tax policies, embodied in the Finance Bill, with implications for revenues (though how the finance ministry gets from changes in the tax rates to projected changes in receipts, remains a mystery to those outside the process). This part of the Budget probably receives the most attention, and accords reasonably well with what actually happens over the following fiscal year.

The second component of the Budget is expenditure, where, given the history and nature of India?s governance, one expects a cornucopia of schemes designed to improve the welfare of the myriad groups that remain deprived. There is usually some acknowledgment that previous schemes have weaknesses, or have failed to achieve much, and affirmation that the problems will be fixed in the new proposals, though typically without any clear statement on the principles to be followed for more effective implementation.

The third component of the Budget exercise has nothing to do with the nuts and bolts of receipts and expenditures per se, but provides the government?s vision and policy thrusts, which (hopefully) guide the detailed revenue and spending proposals. Growth targets, sectoral foci (lately and unsurprisingly ? agriculture and infrastructure), basic needs (obviously, education and health) and cooperation with state governments get mentioned here. This rhetoric has been quite stable throughout India?s reform period, across finance ministers and across governments. Much of it is what is known in the United States as a ?motherhood and apple pie? statement. Even if implementation is weak, one at least gets a flavour of the leadership?s thinking.

Why is implementation of the government?s vision always so weak? First (a legacy of the past that has survived reform), the central government tries to do too much and too many things on its own, without the capability to execute. Ill conceived expenditure schemes implemented by dishonest or disinterested functionaries, many links away from the leadership, are bound to fail. A second cause of poor implementation is the failure to monitor results. It is time to accept the reality of the government?s internal organisation, and stop pouring money down ?rat holes? (another Americanism), until the problems of poor incentives and poor information are fixed. Even when (if) they are fixed, the design of policy in India needs to change radically. Until then, India?s leadership will remain a failure.

? India?s budgets carry stable rhetoric but implementation is weak
? In the absence of radical changes, leadership will remain ineffective
? Organisation of government must be reshaped to match values with vision

What is the solution? Interestingly, Dr Manmohan Singh provided some guideposts this month, at the inauguration of the Infosys Leadership Institute in Mysore. The Prime Minister said, ?One cannot but be moved and inspired by the story of Infosys…. What truly inspires me is the manner in which a group of educated and talented young men have been able to convert ideas into products, jobs and incomes.? He went on to say, ?I believe the twin responsibilities of government are, on the one hand, to create an environment conducive to the flowering of private enterprise and individual creativity; and, on the other hand, to take care of those who are marginalised by the development process and empower them with capabilities that enable them to become productive citizens of our society.?

The first goal is a forthright statement, which I hope becomes a beacon for every politician and bureaucrat in India, and influences the Budget exercise and policymaking beyond it. The second goal, however, is one that India?s governments have consistently espoused, and typically failed to deliver on. In commending Infosys and its leadership, Dr Singh emphasised Mr Narayana Murthy?s strong ethical values, and speaking of Infosys, said, ?We need scores of such centres of excellence.? Ethics and values are certainly important, especially in government (Happily, the finance minister concluded on this note in last year?s Budget speech, quoting Saint Tiruvallur, on walking ?the path of honour and courage?). But even if Mr Murthy did not have his Gandhian simplicity, as extolled by Dr Singh, I think Infosys would remain a wonderful model. Infosys trains its employees, from executives through project managers and software developers down to gardeners and sweepers, to be committed to achieving honest results through hard work. And it rewards them for doing so. How Mr Murthy or any of his employees spend their rewards should be of less concern.

In the government, in contrast, once one goes a little below the top rungs, or moves beyond the national government, there tends to be a sharp drop in acquired skills and capabilities, though not in innate abilities. The internal organisation of Infosys and other companies in India?s IT industry can and should be a model not just for the rest of India?s private sector, but also for reinventing India?s government. This is the first step the government should take, if it is to take care of the marginalised. My prescription is ?physician, heal thyself,? and I hope the government?s vision will eventually encompass this.

Dr Manmohan Singh and his finance minister rival Mr Murthy in values and in vision. Unlike Mr Murthy, they do not have the opportunity to build an organisation from the ground level. If they can take the organisation they have inherited, and reshape it to match their values and achieve their vision, their leadership will be for the ages: the Budget is only a small step.

The writer is professor of economics, University of California, Santa Cruz

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First published on: 24-02-2005 at 00:00 IST
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