The International Monetary Fund has warned that this year could be one of ‘serious public finance risks,’ with growing demand for public spending, slowing medium-term growth prospects, and high real interest rates. In light of this, it is crucial for governments to ensure that public money is spent as intended and achieves its expected goals. Outcome-based budgeting could be an important means to achieve this.

Traditionally, governments have focused on how money was spent, rather than what that spending achieved. For instance, an immunisation programme may report expenses on medical personnel or supplies, but say little about how many people were actually immunised or how immunisation impacted their wellbeing. In an effort to refocus spending around results, many countries have shifted to an ‘outcome-based’ approach to budgeting. 

This approach enables governments and the wider public to better monitor and evaluate whether resources are being spent judiciously. For instance, a government could set a target for the immunisation programme and monitor progress. If the programme vaccinates fewer people than expected, yet spends its full budget, then the programme may require additional funding or suffer certain inefficiencies. Conversely, if the programme is reaching its targets yet under-spending its budget, then perhaps its funding is excessive and could be shifted elsewhere. 

India was an early proponent of outcome budgeting and formally institutionalised the approach in 2017 through the Output-Outcome Monitoring Framework (OOMF). Several State Governments, like Assam, Delhi, and Odisha, have created their own outcome-based budgeting systems. However, most states have yet to adopt this system and even those with one could strengthen them. 

Outcome-based budgeting has surged in popularity – but its success has been mixed. Through our research, we’ve found the approach is often undermined by inappropriate or excessive indicators, the lack of effective reporting and review procedures, and poor linkages to funding or policy decisions. This is true even among countries with advanced outcome-based systems, like Mexico, Korea, and France. 

To help states across India establish and strengthen an outcome-based budgeting framework, CLEAR/J-PAL South Asia and the Development Monitoring and Evaluation Office (DMEO), India’s top monitoring and evaluation body attached to the NITI Aayog, jointly published a ‘Best Practices Compendium on Outcome Budgeting.’ The compendium, developed over two years, draws on the diverse experiences of countries around the world and states within India to identify the essential components of a robust outcome-based framework, such as a legal mandate, relevant and measurable indicators, clear roles and responsibilities, and formal review procedures. Alongside a thorough literature review, we conducted surveys with several State Governments to understand the challenges they face in implementing this system and how they have navigated them.

The compendium includes 17 best practices, organised by the three phases of the programme lifecycle: conceptualisation and design, implementation, and assessment. Across these best practices, three key points emerged from our research: 

1. Performance indicators need to be strategic and meaningful. While there is no internationally accepted design for an outcome-based budget, it should detail the key outputs of a programme, link them to wider objectives or outcomes, and measure progress through meaningful performance indicators. 
   
   The SMART framework, adopted by DMEO and other institutions, offers a valuable approach to designing indicators. SMART goals are those that are Specific, Measurable, Attainable and Action-oriented, Relevant, and Time-bound. Indicators should inform programme performance and should be developed within the context of the state. 

2. Assign clear roles and responsibilities: Outcome-based budgeting is a complex and disruptive process relative to traditional public financial management. It is thus essential to assign clear roles and responsibilities, specifically on the preparation of the outcome budget, monitoring of performance indicators, and review of results. 
   
   Typically, the MoF is the central overseeing authority alongside line ministries, but the arrangement can vary. For example, in Odisha, the lead authority is the Finance Department, while in Jharkhand it’s the Planning Department. The key point is less about who should lead the process and more about establishing clear protocols to avoid confusion and inefficiency. 

3. Monitor and review results on a timely basis: The core objective of outcome budgeting is to use the information it generates to inform policy decisions. This is only possible if the government regularly monitors and reviews performance – taking the time to understand where programmes excel or fall behind and what drives these results. 
   
   Dashboards are a valuable tool that can facilitate monitoring, as is done in India and Australia. Governments can organise multi-stakeholder meetings to review performance during and at the end of the fiscal year. For instance, DMEO holds Output-Outcome Monitoring Framework review meetings annually with line ministries and the MoF’s Department of Expenditure.

Altogether, these point to the broader need for creating a culture of ownership and evidence-based decision-making at all levels of government to establish the system firmly. Over the past decade, CLEAR/J-PAL South Asia has been working with governments across the country to support the strengthening of their monitoring and evaluation systems and capacities, equipping officers with the tools and skills required to leverage evidence and data to make better and more sustainable decisions. Outcome budgeting, when done well, can provide valuable insights on the effectiveness of various programs, and give officers the ability to make better-informed decisions on public expenditure. 

A budget is an expression of a government’s priorities and goals. At a time of resource scarcity and high spending pressure, outcome-based budgeting can be a critical tool to hold governments accountable and ensure the public’s money is spent as intended.