Budgeting to achieve outcomes: Let 'Pay for results' lead the way

Linking expenditure with outcomes will effect the behavioural shifts India needs and enhance the efficacy of budget outlays

- Amitabh Kant & Mohit Bahri are, respectively, India's G20 Sherpa and former CEO, Niti Aayog; and co-founder, GDI Partners

India's budget for 2024-25 estimates the Union government's spending to be around ₹48 trillion. From traditional budgeting for 'inputs,' steps have been taken in the last few years to disclose and draw attention to 'outcomes' that tangibly impact the lives of citizens. We now need to take it a step further, ensuring that budget spending drives 'outcome' delivery, by directly linking expenditure with the achievement of results. The principle of 'pay for results' means that the government pays implementers only if they meet or exceed pre-set 'outcome' targets, rather than just making provisions for infrastructure or services that go into achieving those outcomes.

Traditionally, budget allocation is done on the basis of expenditures on 'inputs' like salaries, office supplies and equipment. Linking budgetary spending with the desired impact has remained far from ideal. In recent years, budget planning has begun to make outcomes its focus. The Outcomes Budget document of 2024-25 lays out a clear framework that includes outcomes, indicators and targets to be achieved. Raising the salience of this thought process helps policymakers optimize spending on activities that are likely to maximize impact. For instance, school education outcomes include enhancing access, improving learning, retention and transition rates, and reducing dropouts, apart from promoting vocational education. This helps policymakers allocate more funds to inputs that drive these specific outcomes.

As next steps, two further evolutions are critical. First is in the way outcomes are defined. Second, we must prioritize approaches that would ensure attaining targets.