| Decoding Government Budgets – Developing Skills to Undertake Budget Analysis

Every year during February and March there is an intense debate in the media on the forthcoming State or Union budgets. Newspapers feature interviews with and articles by experts and policy analysts on what the government should do in the budget for coming year. Several interest groups working with various sections of the society meet the Finance Minister to seek higher allocations to what they consider as the priorities. The FM on his / her own also holds consultation with various groups such as trade, manufacturing and business associations to seek their inputs on policies. Newspapers and media also speak to people regarding their expectations from the budget.

While budget as a concept and term is generally understood by a majority, very few people can make sense of enormous amount of data that they normally contain. Even fewer people have any idea of the process through which the budget is prepared. For those engaged in research and advocacy in any field, an appreciation of budgets and ability to understand what they contain is very important. For those working in the corporate / industry, understanding government budgets give them a deeper understanding of how government budgets direct policy, which in turn, has an impact on the economy.

Through this course, the students will be able to understand government budgets – concepts and processes, undertake public expenditure reviews and analyse the impact of financial allocations to the related scheme / programme / indicator through cross-analysis.

The course will include a basic discussion on different aspects of Public Finance, to ensure students understand the concepts of public revenue, public expenditure and public debt. It will then move to understanding how government budgets are prepared. Once the students understand the basics of legal and institutional frameworks of government budgets, the course will focus on how to read, decode and analyse government budgets. At the end of the course, the student would have undertaken a Public Expenditure Review for a chosen sector.

Since each State has a different way of preparing their budgets, the course will explain the common norms established by the Comptroller and Auditor General (CAG) office and then focus on Government of India and Government of Karnataka’s budgets. Samples of other state budgets will be shown and discussed in brief.

The first part of the course will focus on theory, delivered through lectures and class discussions based on reading, the second part of the course (corresponding to the budget exercise) will be mix of seminar style discussions and group/pair work (depending upon the number of students). At the beginning of the course, students will be divided in groups or pairs.

Each group/pair will identify a single sector / interest group that they want to work on. Sectors include water, education, housing etc. and interest groups include women, scheduled tribes, scheduled caste, children, elderly etc. During the first half of the course, which will be mostlytheoretical in nature, each group/pair will work on literature review and secondary data analysis for the chosen sector/interest group to develop an understanding of the indicators, current status and whether there has been a change in the last ten years or not. During the second half of the course (Module 6 onwards), they will start working on budget analysis for their topic. This will include last 10 years budget data analysis and then cross-analysis of literature review /secondary data analysis to work towards a complete Public Expenditure Review. The final consolidated analysis will be submitted as their term paper. Since the students are expected to work in pairs/groups, the term paper submitted will be common for those working on the same topic. Group work is encouraged in this course as working on budgets can be very tedious and daunting at times and working together helps them.

The course is divided into the following modules:

Module 1: Understanding Public Finance

In this module, concept of Public Finance, components of Public Finance (Public Revenue, Public Expenditure and Public Debt) will be explained. It is critical to understand these concepts at the outset so that when the students are looking at government budgets, they know the terminologies and what each of these concepts indicate.

Module 2: Budgetary Process

The Budget Cycle beginning with the issue of budget circular by MoF / Finance Department in October to the presentation of budget in February / March will be covered in this session. Concepts such as re-appropriation, revise estimates, budget estimates, supplementary estimates, etc. will be explained. This would include also the public consultations held by the Finance Minister / Finance Department as part of the budgetary preparation. In this context terms such as open budget, applied budget and participatory budget will be discussed. The process through which competing demands for resources is reconciled, the underlying political economy of budget decisions and other related matters will be discussed.

Module 3: Legal and Institutional Framework for Government Budgets

The module will cover the legal framework as provided in the Constitution for budgeting. It will cover concepts such as voted and charged expenditure, annual financial statement, revenue and capital expenditure, money bill, etc. As for the institutional framework, the respective roles of executive and legislature, the independent external audit by the C&AG and oversight by the parliamentary committees such as PAC and PUC will be explained.

Module 4: Fiscal Devolution and Architecture

How are the revenues collected by the Government of India shared with the state governments? What is Finance Commission and what are its role fiscal devolution? Is there a fiscal responsibility that states have to adhere to? Question such as these, along with concepts like union and state list, revenue deficit, fiscal deficit, contingent liabilities, etc. will be explained. This exposure is important for participants to appreciate the debates on budget and to prepare them for budget advocacy.

Module 5: Decoding the Government Accounting

To understand the budget documents knowledge of how accounts are kept (the chart of accounts) is imperative. This module will provide detailed explanation of the existing chart of accounts – the List of Major and Minor Heads. We will also look at the various budget documents that is a part of the Budget in India.

Module 6: Budget Analysis Methodology

Budgets can be analysed from various perspectives. They can be analysed by sectors such as health, education, water & sanitation, etc. or based on certain interest groups such as gender, children, etc. This module will provide a theoretical basis and methodology for budgetary analysis. The students will start working on their own topics (as described earlier). From this module onwards, classes will be dedicated to budget analysis throughout the trimester. Understanding budgets and undertaking public expenditure review is difficult and through the course, some handholding will be provided for the students to understand the intricacies while they undertake their own analysis.

Module 7: Budgetary Reforms

There have been several reforms tried in India and abroad. Reforms such as zero-based budgeting, performance budgeting, and outcome and program budgeting. This module will provide an overview of the conceptual basis for these budgetary reforms and a brief account of their application in practice. Concepts such as outcome, outputs etc. will be explained.

Module 8: Budget Advocacy

An insight into how budget advocacy may be conducted, the underlying opportunities and challenges will be explored through examples.

Module 9: Fiscal Federalism

This module examines the fiscal relationship between Centre-State and how sharing of finances is decided through the Finance Commissions.

Module 10: Own Source Revenue of Local Governments

We will look at local governments and how various avenues through which they raise their own revenue. We will also look at how own source revenue generation can lead to better indicators at the Gram Panchayat levels.

Course Objectives

Students would be able to understand the process through which the government’s budget is put together, the roles of different stakeholders and the terminology associated with it and be able to do, on their own, an analysis of budget from a given perspective. Undertaking a public expenditure review is critical for advocacy.

After the completion of the course, students will be able to add ‘Government Budget Analysis’ as part of their skills on their resume.