The big value of the adoption of XBRL in India will stem from plugging the leakages in government spending
To the Modi government 2.0: As you embark on the preparation of your maiden budget, this is an idea I hope you will consider. XBRL is an open source information reporting standard through the adoption of which you can cut government flab and more significantly, ensure the effectiveness of government spending.
In Australia they saved as much as A$400 million in 2014/15 and followed up with a saving of A$1.1 billion in 2015/16. Encouraged by the huge savings reaped by Australia and the Netherlands which had a similar experience to report, several other countries like Turkey, Canada and Finland are adopting a similar approach. I am convinced that in India, we will save a great deal more every year. Allow me to explain how.
Most of the savings in Australia came from the elimination of red tape. Businesses saved money through a reduction in regulatory burden, while the government saved money by de-layering the bureaucracy engaged in regulatory oversight.
While both of these will certainly apply in the Indian case too, the much larger benefit will come from elsewhere. One may recall how the late Prime Minister Rajiv Gandhi famously pointed out that only 15 paisa of every rupee spent by the government reached the intended beneficiary. The big value of the adoption of XBRL in India will stem from plugging the leakages in government spending. The 15 paisa can easily double within a year and can be much closer to the total outlay; net of legitimate administrative costs by the time the term of this government gets over. Just imagine the impact on the economy if most of that money reached the intended beneficiary. India will suddenly look so different, wouldn’t it? With XBRL that can happen. I will use an example to illustrate.
The Ministry of Rural Development had a total budget outlay of Rs 1,14,915 crore for 2018/19. This money is spent on the government machinery set up to administer various programmes, and also on several lakh NGOs who help with the implementation of various programmes. It has come to light, in the course of a case which is now being heard in the supreme Court, that only 2,90,787 NGOs out of a total of 29,99,623 registered under the Societies Registration Act, and even file annual financial statements. And the government is generally unaware if even those that are filing their annual financial statements are using the funds properly.
It is humanly impossible to verify the financial statement of each of the NGOs to determine everything is kosher. And it certainly does not help if they file their statements in hard copy or even pdf. By moving from document based submission to data filings, which is what XBRL will entail, the government will simply tighten oversight. This makes it possible for the government to act speedily and expeditiously against those that are not spending the funds right.
In India, the Ministry of Corporate Affairs and the RBI have both adopted XBRL, though it is the RBI that has benefited the most. Even so, the MCA is not unaware of the possibilities of XBRL, as their website reveals: “XBRL offers major benefits at all stages of business reporting and analysis. The benefits are seen in automation, cost saving, faster, more reliable and more accurate handling of data, improved analysis and in better quality of information and decision-making. All types of organisations can use XBRL to save costs and improve efficiency in handling business and financial information. Because XBRL is extensible and flexible, it can be adapted to a wide variety of different requirements.”
Over at the Reserve Bank of India, they will admit that the reason why bank NPAs have been the subject of drawing room discussions across the country is because the use of XBRL has made it expensive for banks to hide their NPAs. Without a doubt, the oversight of banks by the RBI has been greatly strengthened by the adoption of XBRL.
The time has come to consider mainstreaming XBRL across the entire government, across all departments, and across all ministries. If the government through the use of XBRL for reporting manages to tighten oversight, it stands to reason that even with a lower outlay, an outcome superior to what is realised now can be achieved.
Over the decades of budget making in a leaking system, outlays mattered. But now, outcomes will begin to matter. And nobody can have any objection to getting a bigger bang for the buck, surely.
The author is CEO of IRIS Business Services Ltd.
Views are personal