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APPLICATION OF MEDIUM TERM EXPENDITURE
FRAMEWORK- A CASE STUDY OF TAMIL NADU
1
GROUP MEMBERS
Sritama Gangopadhyay
Khushbu Verma
Khushboo Girotra
Shubham Rohatgi
Mohd. Tariq Azim
2
CONTENTS
1. INTRODUCTION
2. OBJECTIVES OF THE STUDY
3. MEDIUM TERM FICAL FRAMEWORK
4. FORCASTING MODEL AND ITS INTERPRETAT...
INTRODUCTION
Annual Budgeting cannot be prepared in isolation as it must also take in account events outside
the annual cy...
Hence development of a MEDIUM TERM BUDGET FRAMEWORK (MTBF) is a response to
these above problems where this concept is mor...
WHY TAMIL NADU IS SELECTED FOR THE STUDY?
 Lack of research on the issue of MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF)
in I...
REVENUE DEFICIT
A mismatch in the expected revenue and expenditure can result in revenue deficit. Revenue deficit arises
w...
8
VARIABLE COEFFICIENT T-VALUE R SQUARE
DIRECT TAX 0.81 3.26 0.91
INDIRECT TAX 1.36 7.23 0.89
NON TAX (NTAX) 1.24 2.68 0.81
...
THE DECLINE IN PRIVATE INVESTMENT AND CONSUMPTION OVER THE
BASELINE PERIOD INDICATES SOME EVIDENCE OF CROWDING-OUT
PARTICU...
Year Revenue recp. Revenue Exp. Trade bal Outsd liab Rev. Deficit
Gross Fiscal
Deficit Primary deficit
2001-02 18.1 25.1 -...
 Using the available data from 2001-02 to 2009-10 we have forecasted the values of major
fiscal indicators for 2010-11 to...
MTEF for Health Sector in Tamil
Nadu
Developing the MTEF by reconciling bottom up estimates of the cost of carrying out po...
The previous table shows the amount of fund available with the government for public health
expenditure.
YEAR CAPITAL REVE...
COMPARISON OF ACTUAL VS PLANNED
EXPenditure
Res EV.
Avail. Funds
0
100000
200000
300000
400000
500000
600000
2011-12
2012-...
The previous graph shows the comparison of funds that are available for public health management
and the funds that are ac...
MTEF for School Education
Department
 Estimation of Resource Envelope
 Gap Analysis
 How to improve quality of educatio...
PREDICTIONS :-
 The allocation for school education department in the state budget is anticipated to grow at an
average a...
These findings show that the resources which are allocated are not being utilized efficiently. This
gives an impression th...
Growth scenarios to take education sector to desired level
 Additional funding
 Strengthening Monitoring and Evaluation
...
NEED OF THE HOUR
 We have to explore ways and means to meet resource gaps.
 Secondary and higher education in Tamil Nadu...
Findings & Policy
Recommendations
1.
a)Medium Term Expenditure
Framework
b)Financial Analysis Cell
Create within
(i) Educa...
Carry out MTEF periodically every year for 3
years
Resources are Estimated to meet Policy objectives
2.
Areas (i) Educatio...
MTEF looked for overall sectoral MTEF for the State.
Coordination between dept. is necessary
4.
5.
Without coordination di...
Limitations
1) It’s not implemented entirely in Central as well as
State Level.
2) Sufficient information, current and rel...
Area for Further Research
 Open MTEF for whole Social Science sector like transport, water
supply, irrigation, etc.
 Mak...
27
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APPLICATION OF MEDIUM TERM EXPENDITURE FRAMEWORK- A CASE STUDY OF TAMIL NADU

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APPLICATION OF MEDIUM TERM EXPENDITURE FRAMEWORK- A CASE STUDY OF TAMIL NADU

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APPLICATION OF MEDIUM TERM EXPENDITURE FRAMEWORK- A CASE STUDY OF TAMIL NADU

  1. 1. APPLICATION OF MEDIUM TERM EXPENDITURE FRAMEWORK- A CASE STUDY OF TAMIL NADU 1
  2. 2. GROUP MEMBERS Sritama Gangopadhyay Khushbu Verma Khushboo Girotra Shubham Rohatgi Mohd. Tariq Azim 2
  3. 3. CONTENTS 1. INTRODUCTION 2. OBJECTIVES OF THE STUDY 3. MEDIUM TERM FICAL FRAMEWORK 4. FORCASTING MODEL AND ITS INTERPRETATION 5. MTEF IN HEALTH SECTOR 6. MTEF IN EDUCATION SECTOR 7. POLICY RECOMMENDATIONS 8. LIMITATIONS OF THE STUDY 3
  4. 4. INTRODUCTION Annual Budgeting cannot be prepared in isolation as it must also take in account events outside the annual cycle particularly the macro economic realities, the expected revenues, the longer term needs of programs and government’s spending policies. The Traditional Budgeting suffers from several weaknesses:  The recurrent budget is prepared on an incremental basis without reviewing whether the activities being funded should be continued.  Activities continued every year while resources were declining hence some activities which were important was seriously under funded.  The budget preparation process did not link the achievement of objective and meeting of targets with the fund required. So in one sense there emphasis was less on improving the performance of the sector through meeting its objectives and targets.  The classification of the budget did not show programs or activities but only the type of expenditure.  Even though the budget format had moved to programs and activities, the structure was not closely linked to the performance management or the national planning documents. 4
  5. 5. Hence development of a MEDIUM TERM BUDGET FRAMEWORK (MTBF) is a response to these above problems where this concept is more or less an evolutionary process. OBJECTIVES OF THE STUDY  This particular paper deals with achieving the following objectives on the effectiveness of MTBF effect in India and suggests for adopting MTBF in Tamil Nadu. The objectives are:  To examine to what extent MTBF is needed to ensure that the country moves towards a sustainable fiscal position  To review how the MTBF is designed in different countries and to analyze its success and failure.  To examine the level of deficit and debt in the MTBF approach and possible impact on the trade balance, inflation, interest rate and private investment and consumption.  To comprehend the framework with reference to Health and Education sector in Tamil Nadu. 5
  6. 6. WHY TAMIL NADU IS SELECTED FOR THE STUDY?  Lack of research on the issue of MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF) in India and particularly in Tamil Nadu motivated for the study.  Moreover Tamil Nadu is selected for its recent achievements in human development indicators particularly in educational aspects among all other Indian states.  Tamil Nadu’s achievements in health within the popular framework of the Tamil Nadu model of development are also compared to those of the developed nations of the west. 6
  7. 7. REVENUE DEFICIT A mismatch in the expected revenue and expenditure can result in revenue deficit. Revenue deficit arises when the government's actual net receipts is lower than the projected receipts. On the contrary, if the actual receipts are higher than expected one, it is termed as revenue surplus. A revenue deficit does not mean actual loss of revenue. Fiscal deficit The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. Generally fiscal deficit takes place due to either revenue deficit or a major hike in capital expenditure. Primary deficit Deducting interest payment from fiscal deficit. Interest payment is the Primary deficit is one of the parts of fiscal deficit. While fiscal deficit is the difference between total revenue and expenditure, primary deficit can be arrived by payment that a government makes on its borrowings to the creditors. 7
  8. 8. 8
  9. 9. VARIABLE COEFFICIENT T-VALUE R SQUARE DIRECT TAX 0.81 3.26 0.91 INDIRECT TAX 1.36 7.23 0.89 NON TAX (NTAX) 1.24 2.68 0.81 NON INTREST REVENUE EXPENDITURE(NIRE) 0.33 2.36 0.99 INTEREST PAYMENTS 0.11 1.90 0.91 NET LENDING 10.18 2.43 0.85 CAPITAL OUTLAY 1.82 21.52 0.98 Estimated parameters of the model 9
  10. 10. THE DECLINE IN PRIVATE INVESTMENT AND CONSUMPTION OVER THE BASELINE PERIOD INDICATES SOME EVIDENCE OF CROWDING-OUT PARTICULARS Log (GDP) Log(WPI) REAL SECTOR PRIVATE INVESTMENT EXPENDITURE 1.17 -0.02 PRIVATE FINAL CONSUMPTION EXPENDITURE 0.87 -1.0710
  11. 11. Year Revenue recp. Revenue Exp. Trade bal Outsd liab Rev. Deficit Gross Fiscal Deficit Primary deficit 2001-02 18.1 25.1 -2.6 71.1 7.0 10.3 4.1 2002-03 18.9 27.3 -3.1 80.5 8.4 11.3 3.9 2003-04 19.3 27.7 -3.3 80.9 8.4 11.5 3.9 2004-05 19.7 28.0 -3.6 83.1 8.2 11.5 3.9 2005-06 19.7 28.0 -3.6 85.1 8.3 11.6 3.9 2006-07 19.7 27.9 -3.5 86.8 8.2 11.6 3.9 2007-08 20.2 27.7 -3.5 88.3 7.5 11.1 3.4 2008-09 20.4 27.5 -3.4 89.4 7.2 10.8 3.1 2009-10 20.7 27.3 -3.2 90.4 6.6 10.4 2.8 2010-11 20.8 28.0 -3.6 92.8 7.2 11.0 3.1 2011-12 21.1 28.1 -3.6 94.7 7.1 10.9 2.9 2012-13 21.3 28.2 -3.7 96.6 6.9 10.9 2.8 2013-14 21.6 28.3 -3.7 98.4 6.8 10.8 2.7 11
  12. 12.  Using the available data from 2001-02 to 2009-10 we have forecasted the values of major fiscal indicators for 2010-11 to 2013-14. These empirical evidence suggest that the revenue and gross fiscal deficit will gradually decline but they will still be very high( more than what is desirable according to FRBM act). Hence, reflecting that the outstanding liabilities of govt. relative to GDP will remain high till 2013-2014. The primary deficit although declining, will remain at 2.7% (2013- 2014). A very high Revenue, Fiscal and Primary deficit along with a high outstanding liabilities of government as a fraction of GDP makes the fiscal situation more gloomy. 12
  13. 13. MTEF for Health Sector in Tamil Nadu Developing the MTEF by reconciling bottom up estimates of the cost of carrying out policies, both existing and new with the resource envelope available for public health expenditure. The bottom up estimates, actually in the true sense are “what and how much amount is required as per the policy announcements or as per the field environment” to implement at grass route level, whereas the resource envelope is actually “what and how much is affordable or what is available” at the source level i.e at the Government. YEAR RESOURCE ENVELOPE 2011-12 4433.35 2012-13 5054.01 2013-14 5761.58 2014-15 6568.20 13
  14. 14. The previous table shows the amount of fund available with the government for public health expenditure. YEAR CAPITAL REVENUE TOTAL 2011-12 48157 324306 372463 2012-13 54899 369709 424608 2013-14 62584 421468 484053 2014-15 71346 480474 551820 This table shows the amount required as per the policy announcement, to implement at the grass route level. 14
  15. 15. COMPARISON OF ACTUAL VS PLANNED EXPenditure Res EV. Avail. Funds 0 100000 200000 300000 400000 500000 600000 2011-12 2012-13 2013-14 2014-15 Funds Year Res EV. Avail. Funds Column1 15
  16. 16. The previous graph shows the comparison of funds that are available for public health management and the funds that are actually required for better health services in the state. IMPROVING FUND MANAGEMENT  Increasing public expenditure in health management.  Pooling resources.  Community participation  While Tamil Nadu’s achievement to date are commendable, the focus has been predominantly on maternal health and family planning. So there is a need to reduce the gap that still remains in providing funds for comprehensive range of health services.16
  17. 17. MTEF for School Education Department  Estimation of Resource Envelope  Gap Analysis  How to improve quality of education? YEAR PLAN REV. EXP (Cr) PLAN CAP. EXP (Cr) PLAN LOAN & ADVANCES (Cr) AGG. PLAN RESOURCE (Cr) 2006-07 7201 5852 279 13332 2007-08 8297 7259 149 15705 2008-09 10394 8849 395 19637 2009-10 10957 9949 472 21378 2010-11 12168 11360 563 28909 17
  18. 18. PREDICTIONS :-  The allocation for school education department in the state budget is anticipated to grow at an average annual growth rate of 30% from the 2011-12 to 2014-15 ( from 13525.44 to 18565.04 ).  The resource availability is predicted ( using moving average ) to increase from level of 28,909 cr to about 82,567 cr by 2014-2015. YEAR PLAN REV. EXP(Cr) PLAN CAP. EXP (Cr) PLAN LOAN $ ADVANCES(Cr) AGG PLAN RESOURCE(Cr) 2011-12 13525 12970 670 37582 2012-13 15025 14810 799 48856 2013-14 16706 1910 951 63513 2014-15 18565 2180 1134 82567 18
  19. 19. These findings show that the resources which are allocated are not being utilized efficiently. This gives an impression that the resources are being sought for but the state does not have the capacity to use these funds in an efficient manner (i.e gap becoming wider and wider). 13331 15705 19637 21358 28909 37582 48856 63513 82567 13331 15705 19637 21358 24092 27165 30642 19568 21879 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Valueincr Year Planned vs Actual Agg Plan Resource Actual 19
  20. 20. Growth scenarios to take education sector to desired level  Additional funding  Strengthening Monitoring and Evaluation  Improving quality of education  Professional development of teachers  Improving enrolment of girls in high school.  Establish of school of excellence.  Strengthening of Parent Teachers Associations. 20
  21. 21. NEED OF THE HOUR  We have to explore ways and means to meet resource gaps.  Secondary and higher education in Tamil Nadu needed more immediate reforms, providing more flexible curriculum and adding quality to education. 21
  22. 22. Findings & Policy Recommendations 1. a)Medium Term Expenditure Framework b)Financial Analysis Cell Create within (i) Education and (ii) Health Department a) Contracting Staff b) Deputing interested staff Aim: Staff Training and exercise regularly 22
  23. 23. Carry out MTEF periodically every year for 3 years Resources are Estimated to meet Policy objectives 2. Areas (i) Education (ii) Health 3. Provide platform for negotiation with Finance Dept. On Budget Allocation to these sectors 23
  24. 24. MTEF looked for overall sectoral MTEF for the State. Coordination between dept. is necessary 4. 5. Without coordination difficult to adjust Expenditure Requirement with the available resources. 24
  25. 25. Limitations 1) It’s not implemented entirely in Central as well as State Level. 2) Sufficient information, current and reliable data are not available. 3) Trust on govt. budgetary documents that are always questionable. 4) This study is only on sectoral level of Tamil Nadu in Education & Health sector. 5) It excludes Central Level analysis of MTEF. 25
  26. 26. Area for Further Research  Open MTEF for whole Social Science sector like transport, water supply, irrigation, etc.  Make comparison with all Social Science sector .  Pursue similar studies for other states of India.  Further researches should be done to improve simulation result of MTEF. 26
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