Public Policy Design & Operations Coherence & Convergence

Government Economists at work : OR What is the value addition of IES ?

Concerns of Equity, Efficiency, Security, Fairness, Privacy & Accountability

(Knowing, Understanding, Application & Skills) Facts vs. Fiction

A

Presentation to

Probationers of Central Services at

Dr. MCR HRDI AP 29th October, 2012

Role of government ?

A provider or enabler in….

Creating wealth?

Delivering welfare?

Disclosing entitlements?

Defining empowerment?

Determining property rights?

Qn: How significant is the initial endowment ?

Issues: Problem recognition, measurement, diagnosis, solution and implementation

What we do at work ? simplify, supplement, support, standardize ! sabotage ?

• We take decisions w.r.t to Legal framework

• We help others to take decisions

• We correct others’ mistakes in their decision

• We communicate decisions

• We implement decisions

• We finance decisions & implementation

• We audit decisions & operations • We spend money & raise funds via tax or debt or aid

• We dispense power to empower or disempower others

• We match resources used with Results

• We need information, analysis, and arguments & not rhetoric

Complexity, conflict of interests and

moral hazard

Citizen:

How to get more from Government by paying less

Vs.

Government:

How to give more to citizens

while taking more from them, and also

balancing special interest effect and

shortsightedness effect

Discussion point: Reactions to policy solutions & reforms

Perversity thesis: Futility thesis: Jeopardy thesis

Policy process cycle

coordination

Decision

consultation

implementation

Evaluation Identifying

issues

Policy

analysis

Policy

instruments

Issue: Policy cycle being neither a logically, sequentially, structured or a uniform process.. Sourced from Australian Policy cycle model http://www.premiers.qld.gov.au/About_the_department/publications/policies/Governing_Queensland/Policy_Handbook/cycle/cycle/at

Public Policy Issues w.r.t distribution of

Benefits

Costs

Widespread Concentrated

Widespread Type 1 Type 2

Concentrated Type 4 Type 3

Productive Functions: Efficient action produces more benefits than costs for the individuals of the economy Inefficient action produces more costs than benefits to the individuals of the economy

(Issues: externalities, public goods, information problems, unintended consequences ) Protective Functions: Maintenance of a framework of security and order i.e., rules, institutions, property protection,

contract enforcement, market regulation, social security, pensions, investor protection, administration of justice

Challenge is in evolving options that yield widespread benefits with widespread costs transparently. Risk is in defining, measuring, and ensuring the spread of the costs and benefits unambiguously.

Issues: impact on visible voters, future voters, unborn voters, influential voters, indirect voters

6

Some key Principles in Public Policy

• What belongs to you, you tend to take care of; what

belongs to no one or everyone tends to fall into disrepair.

• Sound policy requires that we consider long-run effects

and all people, not simply short-run effects and a few

people.

Key issues: Equity, Efficiency, Effectiveness, Economy, Entitlements

Ref: CAG’s Performance Audit Guidelines, and UK Government Green Book

If there is vagueness or subjectivity in the terms and conditions inviting tenders it may result

In unequal and discriminatory treatment. It may violate doctrine of level playing field – Supreme Court of India on 17th Sept, 2007 in Reliance Energy case relating to Mumbai Trans-Harbour Sea link Projects

Key Principles

• Nobody spends somebody else's money as carefully as he spends his own.

• Government has nothing to give anybody except what it first takes from somebody, and a government that’s big enough to give you everything you want is big enough to take away everything you’ve got.

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Non

Tax

Revenue

Grants

/Donor

support

Market

Borrowings

Other

Receipts

Tax

Revenue

CFI P

S

U

S

P

L

A

N

N

O

N

P

L

A

N

R

E

V

E

N

U

E

C

A

P

I

T

A

L

2

3 4

Four* Services

1

Application of Funds

States

Depts.,

citiz

en

Budget & the Citizen

a

b

c

d

e f

g

*Economic Services Fiscal Services Social Services & Other General Services

Railway budget is separate, but Constitutionally, Railway receipts are part of CFI Not on

Constitutional

strength

but by practice

Interest

receipts Loan

repayment

Consolidated Fund Of India 9

Indian Structural Reforms

1. Liberalization and regulation of specific markets

2. Trade Liberalization

3. Public Sector Management

4. Restructuring and privatizing utilities

5. Public expenditure reforms - economy, efficiency, transfers, user charges

6. Tax reforms

7. Public debt management

8. Monetary policy –Central bank independence

9. Financial Sector Reforms

10. Private and Public Governance Reforms

11. Decentralization and intergovernmental reforms

12. Civil Service Reforms

13. Land Reforms

14. Labour Reforms

15. Environmental Regulations Issues: Is market system necessary for democracy: Democracy and Market system = Mass control over elite: Collective outcome Vs. Market outcome.

Government decision makers are like ordinary decision makers in market: influenced by their interests and bias but work in different incentive structure. ( eg: Distribution of income and power)

Legislative Objective of fiscal responsibility

and budget management

“To Provide for the responsibility of the Central Government to

ensure inter-generational equity in fiscal management and

long-term macro-economic stability by achieving sufficient

revenue surplus and removing fiscal impediments in the

effective conduct of monetary policy and prudential debt

management consistent with fiscal sustainability through limits

on the Central Government Borrowings, debt and deficits,

greater transparency in fiscal operations of the Central

Government and conducting fiscal policy in a medium term

framework and for matters connected there with or incidental

thereto.”

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11

Goods and Services (Reform policy challenge is to move right goods/services in the right box at a right time)

Paid for by

P

R

O

D

U

C

E

D

B

Y

Consumer

purchaser

Tax payer or

3rd party

Private

Enterprise

Apples, Oranges, TVs,

Housing, Food, Clothing,

Bollywood films, private

schools, medicines

Food through PDS, Oil,

Gas, Supporting Private

Schools, CGHS, BPL

insurance

Government

Enterprise/

Contracting

Posts, Rail, Water,

Electricity, toll roads,

Hospital services, Public

transport

National defence, Law &

Order, Administration of

Justice, Public Schools,

Universities, Highways

(non-toll), Debt

management

A B

C D

Transparency & Public Policy

• Transparency can help reduce the scope for discretion since decisions are more likely to be reached on the basis of observable data and replicable methods, and poor decisions will be more open to challenge.

• Transparency can also increase the legitimacy of decisions, thereby reducing the risk of future policy reversals (anticipation of which will tend to undermine the intended response).

• Transparency works even when incentives can’t

Implementation challenges or

Political economy considerations

• Not being sensitive to the view of the majority

• Free riding

• Coordination failure

• Information failure

• Status- quo bias

• Time Inconsistency.

Thank you

Questions

Comments

Suggestions

d.prasad@nic.in

or

prdprasad@gmail.com

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16

GDP & Fiscal Indicators

• GDP: Gross Domestic Product

– indicates annual national wealth production (value

added at every stage of production of goods & services: CSO brings out Advance, Quick and Quarterly estimates)

• Economic Growth

- GDP Growth: indicates how fast a nation is getting richer (Real Vs. Nominal Growth & WPI)

Issues: What causes higher GDP growth - Increase in Output:

What causes increase in Output – Increase in productivity & employment:. What causes increase in productivity – increase in efficiency.

What cause increase in efficiency - enhanced/effective technology & raised skills: What raises investment and skills - Creative people with money;

How to do that - Help more people to be creative & help them to have access to more money. (Note: The above slide and issues are framed using publicly available sources)

Y=C+I+G+(X-M)

GNP = Cp+Ip+G+X-M = Cp+Sp+T+R

(Ip-Sp)+(G-T)=(M-X+R)

•Large prolonged deficit lead to external current account imbalance

•Fiscal policy impacts savings and investments of private sector

•Budget deficit respond and influence external balances

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Cp-private consumption; Ip-private investment; G-government spending; X-exports of goods and services; M-imports of goods and services; Sp-private savings; T-government revenue; R=net current transfers to abroad.

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Costs

inputs

processes

outputs

outcomes

V A L U E

For

M O N E Y

Technically efficient

E C N O M I C A L L Y

E F F I C I E N T

Effectiveness

Economy Traditional Budget

Output focused Budget

Outcome focused Budget

Budget performance Concepts, Systems/Management styles

Source; IMF Occasional Paper 245

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Budget & the Constitution

While the following provide for

• Procedure in Parliament with respect to Estimates … 113

• Appropriation Bills … … … 114

• Supplementary, additional or excess grants … 115

• Votes on account, votes of credit and exceptional grants … 116

• Special provisions as to financial Bills … 117

• Consolidated Fund … … … 266

• Contingency Fund … … … 267

• Finance Commission … … … 280

• Expenditure defrayable by the Union out of its revenues … 282

• Laws/Rules for Custody, etc., of Consolidated Funds,

Contingency Funds and moneys credited to the

public accounts … … … 283

• Borrowing by the Government of India … 292

AFS- Anchor to all documents: Art 112 Trigger to All Documents

*Annual Financial Statement

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20

…a stylized peep into the Budget

• Objectives – in Spending, Taxing, Balancing, Investing, Macro-economic

stability, growth & global positioning

• Risks & leaks – in pass-thru of public money;

– contingent liabilities eg: guarantees, PPP terms, legal liabilities

• Transfer payments – transfer objectives, transferring routes, vs. Operational issues

• Impact on equity*, efficiency** & entitlements***

(excluding charged estimates)

*Intergenerational. Regional. Public Vs. Private sectors, Farm & non-Farm sector.

Rural Vs Urban. Spenders Vs. Savers. ** Capital Vs. Revenue. Productivity (ICOR)

***States Vs. Union Government. Through Finance Commission’s recommendations. BPL Vs. APL. Children & Aged. Women Vs. Others

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Together – the Budget Documents…

… Answer the questions like:

• Whether the results matched with the resources used ?

• How much money will go to health, education, pay, pensions, poverty

alleviation, interests payments, defence etc., ?

• How much money will go for research & development ?

• How much money will go to pay down the debt ?

• Will taxes go up or down ?

• How much money will be borrowed ?

• What is the fiscal impact of all this ?

…reveal Government resources flow & ...

Would you like to try few more questions ? 21

Legal Frame work

Borrowing by the Government of India - Art. 292

The executive power of the Union

extends to borrowing upon the security of the

Consolidated Fund of India

within such limits, if any,

as may from time to time be fixed by Parliament

by law and to the giving of guarantees within

such limits, if any, as may be so fixed.

Constitution, FRBM Act, Public Debt Act, etc.,

India’s FRBM Act – Managing The Mandate

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References:

1. http://nobelprize.org/nobel_prizes/economics/laureates/1986/buchanan-lecture.html

2. http://cag.nic.in/html/publi_peraudguid-rc.htm Performance auditing

3. http://www.hm-treasury.gov.uk/media/5/D/Green_Book_07.pdf (Green Book)

4. http://www.imf.org/external/pubs/ft/fandd/2000/12/robb.htm (How can poor have voice in

policy analysis)

5. http://poverty2.forumone.com/files/12685_PSIA_Users_Guide_-_Complete_-

_High_resolution_-_English_-_May_2003.pdf (A user’s guide to poverty and social impact

analysis)

6. http://siteresources.worldbank.org/EDUCATION/Resources/278200-

1099079877269/547664-1099079934475/547667-

1135281504040/tools_ED_policy_analysis.pdf (Tools for education policy analysis)

7. http://www.mackinac.org/archives/2002/sp2002-01.pdf (Seven Principles of Public Policy)

8. Simon Blackburn: Being Good; A short introduction to Ethics

9. World Bank, The Impact of Economic Policies on Poverty and Income Distribution;

Evaluation Techniques and Tools

10. James D. Gwarthney et al: Macroeconomics Private & Public Choice

11. Mancur Olson Jr. The Logic of Collective Action Public Goods and the Theory of Groups

12. IMF, Unproductive Public Expenditure: A Pragmatic Approach to Policy Analysis

13. Deborah Stone, Policy Paradox, The Art of Political Decision Making

14. Anthony Weston, A Rulebook for Arguments

15. Eugene Bardach, A Practical Guide to Policy Analysis: The Eightfold Path to More

Effective Problem Solving

NSSF

Post Offices /

Agents

States’

CFI

Union’s

CFI

Funds: 2,4,5

Securities: 1,3

Taxes: 2

Principle

Interests: 7,8

Scope blocked

Open the Scope

Scope open !?

To reduce

Tax payers’

burden & to

raise

NSSF’s

Efficiency

equity

Why

&

How

Commissions: 9

Admn. Costs

Losses; 6

Small savings: Flow of funds/returns to citizens through NSSF: Sharing of returns/risks/costs Vs.alternatives

L e g e n

d

2 3

1

4

5

5

6

6

7

7

9

8

8

2

2

2

Numeral indicates the sequence: Arrows indicate the direction

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