Column: Why India needs a PBO

Written by Kaushiki Sanyal | Updated: Apr 11 2014, 09:10am hrs
The requirement for legislative approval of financial measures is a democratic instrument enshrined in the Indian Constitution. This allows the legislature to keep a check on the governments spending of public resources. However, there is a sharp disconnect between the formal power and the actual budgetary role of the legislature. A key reason for this disconnect may be because of the design of parliamentary democracies which limit the power of legislatures to either reverse or amend the budget. Other structural reasons for the disconnect may be the limited capacity of legislators to scrutinise fiscal matters, lack of access to in-depth budgetary information and limited time to scrutinise the budget. Over the years, this has adversely impacted the time spent by MPs on scrutinising the budget.

This indicates an abdication of responsibility by Parliament of one of its most crucial functions and does not bode well for the countrys future. While the issues related to the design of parliamentary democracies may be difficult to change, the structural issues can be addressed by putting in place certain measures to help parliamentarians scrutinise fiscal policies in a more robust manner. To that end, this article proposes that Parliament take the initiative in establishing a Parliamentary Budget Office (PBO), which would strengthen the former in carrying out its role of financial oversight.

The concept and the need for such an office in India is discussed here with some examples of PBOs in other countries.

What is a PBO

PBOs are non-partisan research bodies that provide legislators with neutral and high-quality analysis of fiscal matters that is independent of the executive. Typically, they focus on analysing the full budget cycle, the broad fiscal challenges facing the government and the financial implications of legislative proposals.

A PBO may be established as a statutory body under the direct control of Parliament with a clear set of deliverables. The body could be run as an autonomous institution with an independent board of directors. The head of the PBO should testify before a parliamentary committee on all fiscal matters. PBO should also be subject to audit scrutiny to ensure accountability.

The key advantages of having such a body are: (a) it can raise the quality of debate and scrutiny in Parliament as well as enhance fiscal discipline; (b) it can address the information asymmetry by breaking the executives monopoly on information; (c) the information would be available to both majority and minority parties; and (d) a PBO can provide information in a more transparent and timely manner which can enhance citizen participation in the budget process.

At present, budget-related information remains a monopoly of the executive with little scope for independent, high-quality analysis. Also, debates on legislative proposals hardly ever go into their fiscal implications. For instance, the Right to Education Bill, 2008, which required the government to reimburse unaided schools for expenditure on every child, did not provide any estimate for this purpose. Financial Memoranda of Bills only provide the estimated expenditure at the Union level. In addition, MPs in India (unlike developed democracies) are not equipped with well-trained research staff who can provide them with timely and credible inputs. It is essential for MPs to build analytical capacity in budgetary matters in order to be able to hold the government accountable. A PBO can provide MPs with independent, non-partisan and quality research analysis.

A PBO should evaluate complex budget information and produce policy briefs so that MPs can more easily understand fiscal and policy issues. PBOs in different countries undertake a variety of tasks which include producing economic forecasts that are independent from the executive branch of the state, analysis of the budget, examination of fiscal implications of legislative proposals, production of baseline estimates of revenues and expenditures based on current laws and production of policy briefs on present schemes.

Who may use a PBOs analysis

PBOs primarily cater to research requests from MPs across party lines as well as requests from parliamentary committees. PBOs in countries such as Uganda and Kenya exclusively cater to requests from committees while Canada carries out service requests from individual MPs but ranks them below committee requests in terms of importance. The US services requests from committees as well as individual legislators.

Should a PBOs work be available to the public

A balance needs to be struck between the need for transparency and the need to maintain the confidentiality of requests made by individual clients (this is likely to increase use of the service). All reports of the PBO except those prepared on the request of individual MPs or parliamentary committees can be made public. The on-request reports may be made public with the express consent of the client or may be declassified after a certain time period has elapsed.

The international experience with PBOs

Over 13 countries have established specialised budget offices attached to the legislature including the US, UK, Canada, Australia, Korea, Hungary, Uganda, Kenya, Thailand and Bangladesh. The countries have adopted different models to suit their individual needs. For instance, PBOs fall within the jurisdiction of Parliament in the US, Korea, Uganda and Canada while it is under the executive in the UK and Sweden. The functions may differ too. The US Congressional Budget Office (CBO) provides information on economic outlook, cost estimates of specific legislative proposals, long-term budget outlook, etc. The Canadian PBO provides independent budget projections, fiscal sustainability report, and financial analysis of Bills.

The impact on fiscal oversight in countries with PBOs is difficult to measure though some of the results have been encouraging. The CBO in the US focuses on costing or scoring legislative proposals relative to the baseline. This has helped discourage Congress from making unaffordable proposals. In Australia, the PBO does a costing of different political parties electoral manifestos, which can discourage unaffordable election commitments.

An effective PBO can be a useful tool for strengthening the oversight capacity of legislators. However, in the last analysis, it is up to the legislator to take fiscally prudent policy decisions.

The author is senior analyst, Bharti Institute of Public Policy, Indian School of Business