Mains Question: Budget 2023 announced to shift from input based to result based financing of Government scheme. Explain how shifting from input based financing to result based financing can help in efficacy of the government schemes?

Answer:
In input-based financing, funds are allocated to different components of the scheme e.g. such as establishing skill development centers, purchasing training materials, and paying instructor salaries. However, there is no direct link between the financial allocation and the scheme’s performance or outcome.

Input-Based Financing (Before):

Scheme Component Allocated Budget (INR)
Skill Development Centers 1,000,000,000
Training Materials 500,000,000
Instructor Salaries 1,500,000,000
Infrastructure Upgrades 2,000,000,000
Total 5,000,000,000

However,
Result-Based Financing (After):

Scheme Component Performance Indicator Target Allocated Budget (INR)
Skill Development Centers Number of centers established 500 1,000,000,000
Training Materials Number of trainees provided with material 100,000 500,000,000
Instructor Salaries Number of instructors hired 5,000 1,500,000,000
Infrastructure Upgrades Upgraded facilities 1,000 2,000,000,000
Employment Generation Bonus* Number of trainees employed 75,000 1,000,000,000
Total 6,000,000,000
  • Employment Generation Bonus is a performance-based incentive provided to implementing agencies for achieving employment generation targets.

In result-based financing, the financial allocation is linked to the achievement of specific performance indicators and targets. This approach helps in improving the efficacy of the scheme as it creates an incentive for implementing agencies to focus on achieving the desired outcomes.

The shift from input-based financing to result-based financing can help in the efficacy of the scheme objective in the following ways:

  1. Performance focus: Result-based financing emphasizes performance and outcome, motivating agencies to achieve targets and improve the overall effectiveness of the scheme.
  2. Accountability: With clear performance indicators and targets, it becomes easier to track the progress and hold implementing agencies accountable for their performance.
  3. Incentives: The introduction of performance-based incentives (such as the Employment Generation Bonus) can encourage agencies to achieve or exceed the set targets, thus improving the success of the scheme.
  4. Efficient resource allocation: Result-based financing can lead to more efficient resource allocation, as funds are tied to performance, ensuring that resources are used to achieve the desired outcomes.
  5. Transparency: By linking financial allocation to performance indicators and targets, result-based financing improves transparency in the disbursement of funds and the assessment of scheme progress.