Discuss the significance of Outcome-based financing for development in India, with appropriate examples. What should be done to promote such instruments in India? (200 words)
Refer – Live mint
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IAS Parliament 7 years
KEY POINTS
Outcome based financing (OBF)
· In these arrangements, non-government investors cover the upfront costs necessary to set up the interventions implemented by service providers, while the government or development agency commits to pay a return on investment if predefined desired outcomes are reached.
Significance of Outcome based financing
· Governments’ attribute funds for the delivery of social programmes aimed at tackling poverty, hunger, malnutrition and other critical policy issues.
· But, their social impact and performance are not measured or assessed. This makes it challenging for governments to achieve the real impact.
· Outcome based financing will offer solution for the above said problem.
· When investment is tied to outcomes, rather than activities, service providers gain greater flexibility to innovate and improve their programmes.
· When implemented effectively, OBF can increase efficiency, lower costs and have a profound impact on programme success.
· Examples for Outcome based financing are Pay-for-success programmes and instruments such as social and development bonds.
Examples
· The world’s first development impact bond was launched in 2015 in India called Educate Girls, focusing on improved learning outcomes and enrolment numbers for out-of-school girls.
· Preliminary intervention results have shown positive improvements in learning outcomes and enrolment rates.
· Another bond known as the Utkrisht impact bond was launched to reduce maternal and neo-natal deaths in Rajasthan by improving the quality of services at private healthcare facilities and adhere to the government’s quality standards.
Measures to promote such Instruments
· Promotion requires the existence of local institutional frameworks that allow and promote all the necessary stakeholders to perform properly.
· The Indian government could also set up an innovation fund to finance impact bonds similar to the UK’s Social Outcomes and Life Chances Fund (LCF) and USA’s Social Innovation Fund.
· This would signal the government’s interest in promoting innovative and evidence-based programmes in line with current policy priorities, such as those in healthcare, education and employability.
· Investing in such a fund would
1. galvanize private investor interest
2. build state and local-level appetite for such instruments
3. ensure capacity and autonomy for contracting social services
4. give public procurement authorization for these partnerships
· Such a fund would also build the evidence base for Social Impact Bonds on both the costs and effectiveness of interventions.
· It would also be seen as a means of facilitating greater collaboration across government silos, as well as local and national authorities.
