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

1. APPLICATION OF MEDIUM TERM EXPENDITURE
FRAMEWORK- A CASE STUDY OF TAMIL NADU
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2. GROUP MEMBERS
Sritama Gangopadhyay
Khushbu Verma
Khushboo Girotra
Shubham Rohatgi
Mohd. Tariq Azim
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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
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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.
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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.
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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.
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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.
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8. 8

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
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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. 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
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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.
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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
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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.
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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
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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. 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
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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
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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
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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.
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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.
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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
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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
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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.
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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.
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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.
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