Learning Curves

OED
September 2007

ADBandPublicResource ManagementinIndia

Afterindependencein1947,theGovernmentofIndiapromotedpublicenterprisesasthe engineofeconomicgrowth.Itappliedcontrolsonprivatesectorparticipation,andonforeign tradeandinvestment.Later,inthemid1980s,economicliberalization,anexpansionistfiscal stance,andahikeinpublicsectorwagesboostedgrowthfrom3.5%to5%peryear. InIndia,statefinancesdependheavilyontransfersfromthecenter.Bytheearly1990s,fiscal expansionandhigheroilpricesfromtheGulfWarhadmadestatefinancesunsustainable. In1991,theGovernmentinitiatedstabilizationandstructuraladjustmenttocontainfiscal imbalance.Thereafter,itencouragedmultilateraldevelopmentbankstopartnerwithstates. Beginningin1996,ADBapprovedprogramlendinginGujarat,MadhyaPradesh,Kerala, andAssam.HowdidADBssupportperform?
tovalueaddedtax,ownsourcefees,localgovernment revenue,userfees,andtaxadministration.Thoseon TheAsianDevelopmentBank(ADB)began expendituretypicallyimpactbudgetpreparation,debt supportingpublicresourcemanagementthrough management,salariesandpensions,publicenterprises, technicalassistancetoSingaporein1971.In1995, andexpendituremanagement.Lastly,actionson ADBsGovernancePolicyformalizedthelinkbetween servicedeliverymostlypertaintopublicprivate thequalityofgovernanceandsounddevelopment partnershipsandsocialservicedelivery.)Thescopeand managementwithintheframeworkofaccountability, emphasisofactionsinGujarat,MadhyaPradesh, participation,predictability,andtransparency. Kerala,andAssamreflectedstatespecificpriorities. Thereafter,ADBssupportforgovernancepolicyand In2007,theOperationsEvaluationDepartment institutionalreformincreasedsignificantly. conductedaSpecialEvaluationStudyonADB Overan8yearperiod,ADBapprovedpolicybased SupporttoPublicResourceManagementinIndiato loanssupportingimplementationoffiscalreformsin assesstheeffectivenessoftheprogramsand11 fourstates.TheGujaratandMadhyaPradesh associatedtechnicalassistanceoperationsoverthe programsweredesignedasthreetranche,policybased period19952005.1 Thestudyaimedalsotocontribute loansof$250millioneachfor2and3years,respectively. tothecountryassistanceprogramevaluationandfeeda TheKeralaandAssamprogramswerealsopolicy studyofADBssupportforpublicfinancial basedloansbutfollowedaclusterloanmodalityoftwo managementandpublicsectorreform,duein2008.The subprogramstotaling$300millionforKeralaover3 studydrewonthreeprogramcompletionreportsand years,and$225millionforAssamover5years. fourevaluationreports.ItfollowedtheGuidelinesfor Publicresourcemanagementaddressesstructural PreparingPerformanceEvaluationReportsforPublic andinstitutionalconstraintstosustainedfiscalstability, SectorOperationsandexaminedrelevance, apreconditiontoeconomicgrowthandpoverty effectiveness,efficiency,sustainability,andimpact. reduction.Fiscalconsolidationisachievedvisvis SummaryofFindings threedimensionsrevenue,expenditure,andservice deliveryinterventionsagainstwhichbecomeoutputs Overall,oneoftheprogramswasratedsuccessful, inaresultschain.(Actionsonrevenuecommonlyrelate twopartlysuccessful,andtheongoingprogramin
Operations Evaluation Department Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

Background

Assampotentiallysuccessful.The11completed advisorytechnicalassistanceoperationsweredeemed successfuloverall. EvaluationRatingsforthePublicResource ManagementPrograms

Item Relevance Effective ness Efficiency Gujarat Relevant Effective Madhya Pradesh Relevant Less effective Less efficient Lesslikely sustainable Kerala Relevant Less effective Less efficient Lesslikely sustainable Assam

Relevant Potentially effective Efficient Potentially efficient Sustain Mostlikely Potentially ability sustainable likely sustainable Impact Substantial Modest Modest Potentially substantial Overall Successful Partly Partly Potentially Rating successful successful successful Note:RatingsforAssamarethoseoftheprogramcompletionreport.

Asawhole,ADBssupportwasjudgedrelevant, effective,efficient,andlikelysustainable.Its impactwasratedsubstantial. Forinstance,ADBsassistanceenabledthe Governmenttoassiststatefiscalreforms.Thisprovided recognitionandsupportformorepoliticallydifficult reformmeasures.ADBalsosawtheneedtobuild capacitytomanagecomplexreformprocesses,and addresseditwithtechnicalassistance.Thereby,it developedacomparativeadvantageinstatelevelfiscal reforms,withlessonsinfluencingotherpublicresource managementprogramsinIndiaandtheregion. Also,theprogramsimprovedrevenuelegislative andregulatoryframeworksaswellasadministration systemsandprocedures,includingautomatingtax administrationandpreparingfortheintroductionof valueaddedtax.Multiyearexpenditureplanningwas introduced.Treasurypaymentsystemswereautomated. Powersectorsubsidieswerereducedintwostates. Publicenterprisereformshadvariedsuccess,buta numberofpoorlyperformingenterprisesmerged, divested,orclosed.Farreachingmeasuresincluded criticalreformsestablishingpowerandportsector regulatoryauthoritiesandattractingsignificantprivate sectorandADBinvestmentinpowerandtransport. Provisionofadequatepublicexpendituretomeet thegovernmentsportionofadjustmentcostsvaried acrosstheprograms.But,theefficiencyoftheprograms washigh:anindependentstudyfoundthatactual adjustmentcostexpenditureinGujaratwasclosetothe estimates.InMadhyaPradesh,itwasreviseddown.
Learning Curves available @ www.adb.org/evaluation/

Bygivingstategovernmentstheopportunityto chartdirectionandbydevelopingcapacityto implementcomplexfiscalreforms,theprograms changedattitudes,increasingthelikelihoodthatthe broaderreformagendawillbesustained. Thestudyidentifiedsevenlessons:(i)effective politicaleconomyanalysiswillimprovereformdesign; (ii)thereisnoblueprint,butthereisasequenceto reforms;(iii)coherentapplicationofdesigntoolsis neededtoachievedevelopmentresults;(iv)developing softcapacitiesisnecessarytosustainreforms;(v) reformactionssupportinganticorruptioneffortsshould beexplicitlyidentified;(vi)clarityintherespective rolesofADBstaffinresidentmissionandheadquarters insustainingpolicydialogueduringimplementation willimproveeffectiveness;and(vii)mechanismsare requiredtomonitortheconcernsofADBsBoardof Directors. ADBssupporttopublicsectorreformscanbe informedbygoodpracticestandards.Forexample: Sufficienttimeandresourcesarerequiredforpolicy dialogueandcommunicationscampaignsinvolving allstakeholdersinformulatingandimplementing longtermfiscalreforms. Programdesignshouldbeinternallycoherent, focusingonkeyelementsofthegovernmentsfiscal reformagenda,avoidingbroadergovernance reformsuntilfiscalconsolidationmeasuresarein place. Sufficienttechnicalassistanceresourcesshouldbe madeavailableoverthelongtermtorespondtothe changingnatureofreformprocesses. Implementationarrangementsshouldbebasedon existinginstitutionalstructuresandprovidedwith adequateresources,includingtechnicaladvice. Feedback AtthetimeofpreparationoftheseLearningCurves, ADBManagementsResponseandtheChairs SummaryoftheDevelopmentEffectiveness CommitteeDiscussionswerenotavailablefor disclosuretothepublic.Thestudywascompletedin September2007. 1 ADB.2007.SpecialEvaluationStudyonADBSupportto
PublicResourceManagementinIndia.Manila.Available: http://www.adb.org/Documents/SES/REG/SSTREG2007 22/SSTREG200722.pdf

Team Leader: Peter Robertson; Tel +63 2 632 4398; probertson@adb.org