Zero Based Budgeting and Outcome Budgeting in Defence

PROGRAMME

Inaugural Session: (9.30-10.00 AM)

• Opening Remarks: Sh NS Sisodia, DG, IDSA
• Address: Sh VK Misra, Distinguished Fellow, IDSA
• Key Note Address: Smt Nita Kapoor, Secretary, Defence Finance, Ministry of Defence

Tea (10.00-10.30 AM)

Session-I: (10.30-12.00)

• Chair: Sh AK Ghosh
• Speaker: Sh. TK Pandey, JS ( Admn./SP) & Adviser(FR), Planning Commission – Conceptual Framework and Experience Sharing on ZBB by Planning Commission
• Speaker: Dr Sanjeev Mishra, Chief Controller of Accounts, Ministry of Home Affairs - Experience sharing & How to go about Formulation of Outcome Budgeting in the Context of Defence

Session-II: (12.00-1.30 PM)

• Chair: Sh Amit Cowshish
• Speaker: Sh SK Jain, Office of DG MAP - Experience Sharing in Outcome Budget Preparation in MAP
• Speaker: Sh R Pandit, Dir (Fin), HQ DG (NCC)- Experience Sharing in Outcome Budget Preparation in NCC
• Speaker: Capt Gaurav Gautam & Lt Cdr KA Sureshan- Experience Sharing in Outcome Budget Preparation in Naval Dockyards

Lunch: 1.30-2.15 PM)

Session-III (2.15-3.15PM)

• Chair: Sh. VK Misra
• Speaker: Gp Capt LK Chawla, Dir (PP), Air HQ - Outcome Budget in the Context of Manpower
• Speaker: Air Cmde SK Mairal, Fin Plan, HQ IDS - Outcome Budget in the Context of Stores/Projects

Session-IV (3.15-4.00 PM)

Panel Discussion: Actionable Points for MoD/Services
Participants: Sh VK Misra, Sh Amit Cowshish, Reps of Fin Plan Dir of Services

Tea: 4.00 PM

CONCEPT NOTE

The present defence budgeting in India largely follows the input/incremental approach, where allocation to various services and departments are made on the basis of previous year’s allocation with minor incremental adjustments. This incremental system is however not an efficient one as it has the potential to lead to unrealistic allocation of resources, without going into cost-benefit analysis of each programme for which resources are made available. It also does not link the allocation of resources with outcome it aims to achieve. Various oversight agencies, particularly the Standing Committee on Defence has emphasised the need for more effective methods of budgeting, especially Zero Based Budgeting (ZBB) and Outcome Budgeting.

Zero Based Budgeting, which was first introduced in early 1960s in the US Department of Agriculture, is a tool which facilitates “identification and sharpening of objectives, examination of various alternative of performing identified tasks, cost-benefit analysis, prioritisation of objectives and activities, identification and elimination of redundant activities and designing and ranking of decision packages.” In other words, the ZBB facilitates elimination of redundant expenditure, removing duplication of expenditure, finds a better way of spending money to achieve the objectives and optimises expenditure by making it productive and efficient. Although the 1960s experiment was not so successful due to the erroneous assumption (that all programmes were necessary) and lack of time for preparation, it later became a successful tool When President Carter introduced it for the whole US Federal Government in the year 1979.

The success of ZBB however lies in adoption of a sound methodology, which focuses on the following four key processes: 1.identification of decision unit; 2. formulation and development of decision packages; 3. evaluation and ranking of decision packages in order of priority; and 4. preparation of budget by allocation of resources to activities or decision packages by utilisation of hierarchical funding cut-off levels.

Recognising the importance of ZBB, the Ministry of Finance introduced it in all the Ministries and Departments via a letter dated 10th July 1986. The said letter required them to adopt ZBB, although a separate document for presentation to Parliament was not envisaged. The intention was to avoid the lengthy process of paper work involved in ZBB. It was envisaged however that the result of the ZBB exercise can be reflected in the Performance Budget so as to increase its usefulness.

To move towards a visible and outcome-oriented budgeting, the Ministry of Finance (MoF) since 2005 has issued guidelines, emphasizing the linkage between financial budgets, and actual and targeted performance of outlays. The guidelines task the central Ministries/Departments to articulate, among others, a list of major programmes/schemes and the goals and policy framework guiding them. The main objective of the exercise is to “establish one-to-one correspondence between (financial) budget … and Outcome Budget…” However, the Ministry of Defence (MoD), along with 30 Ministries/Departments has been exempted from preparing outcome budget. The exempted Ministries/Departments are however advised to prepare outcome budget for internal use and voluntarily decide the extent to which the general public can have access to it.

In the above context, the MoD has taken some initiatives, by way of formulating Defence Services Estimates, Vol. II, and making it mandatory for some of its institutions to prepare the outcome budget. The DSE Vol. II, which at present is meant for “internal use” falls short of the parameters laid down by the MoF, for preparing the outcome budget. It merely expands the item- or head-wise allocations made in DSE and, in addition, provides “Budget holder-wise summary sheets.” It does not link the financial outlays with the intended outcomes.

In the above background, the proposed Workshop on Zero Based Budgeting and Outcome Budgeting proposes to provide a platform to discuss and debate issues pertaining to ZBB and Outcome Budgeting. The Workshop would address the key areas of concern and bridge the knowledge gap on the subject. It will bring together policy makers, practitioners, Armed Forces, and experts for a brainstorming day-long discussion.