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Issues Associated with Budgeting Process in India

Issues Associated

Weaknesses in the Budgetary System and Implementation

Unrealistic budget estimates: The amounts budgeted are often not realistic. Weakness in preparing proper estimates leads to frequent revisions and supplementaries. On the other hand, there are major unspent provisions at the end of the year.

Skewed expenditure pattern: The expenditure pattern is skewed, with a major portion getting spent in the last quarter of the financial year, especially in the last month. Inadequate adherence to the multi-year perspective and missing ‘line of sight’ between plan and budge. Though the Five year Plan provides the basis for multi-year perspective, often ad hoc deviations from it distort the long-term plan objectives.

The Plan schemes get dispersed into line-items in the budget estimates and there is no consolidation afterwards – both in the estimates and the final accounts. There is need for alignment between the plan, budgets and accounts.

No correlation between expenditure and actual implementation: The expenditure figures do not reflect actual expenditure made towards receipt of goods and services.

Mis-stating of financial position: Parking of funds by implementing agencies, outside the government accounts portrays an incorrect picture of the financial position of government. This also means that the Government’s financial position is not known with reasonable accuracy at any given point of time.

Ad hoc project announcements: Indiscriminate announcement of projects/schemes not included in the plan/budget is regularly made, often without proper consideration and detailing.

Weaknesses that undermine public sector

  • Poor planning;
  • No links between policy making, planning and budgeting;
  • Poor expenditure control;
  • Inadequate funding of operations and maintenance;
  • Little relationship between budget as formulated and budget as executed;
  • Inadequate accounting systems;
  • Unreliability in the flow of budgeted funds to agencies and to lower levels of government;
  • Poor management of external aid;
  • Poor cash management;
  • Inadequate reporting of financial performance; and
  • Poorly motivated staff.

Budgeting often falls short due to a lack of attention to the connections between its different functions.

  • The main emphasis is on sticking to the budget without considering the long-term impact. Decision-making tends to be myopic, overlooking potential future costs and biases in choosing policy tools.
  • Decision-makers often focus on immediate budget concerns, leading to biased choices between capital and current spending, and a neglect of the broader consequences of spending, doing, or regulating.
  • Budgeting in real terms may lead to challenges such as pressure on overall spending in times of inflation, leading to arbitrary cuts during execution, impacting agencies negatively.
  • Cabinet decisions revolve around distributing gains from fiscal drag to new spending proposals, potentially neglecting the broader fiscal strategy.
  • Extensive involvement of central agencies in micro-level decision-making on funding for ongoing policies can hinder efficiency.
  • The tendency for late, indiscriminate cuts, even during budget execution, results in funding unpredictability for existing government policies.
  • Poor decision-making and last-minute cuts contribute to uncertainty in funding for ongoing policies, often identified as “fortuitous savings.”
  • Strong incentives to spend the entire budget early in the year and quickly, driven by the fear of potential across-the-board cuts during execution.
  • Existing policies receive minimal scrutiny from year to year, reflecting the shortcomings of incremental budgeting.
  • Incremental budgeting exacerbates poor linkages between policy and resources at various levels within the government, leading to inefficiencies.
  • The lack of clarity regarding the purpose and tasks results in inadequate information on policy, program, and service performance and costs.
  • Incremental budgeting contributes to weak linkages between policy advising, regulation, service delivery, and funding within government departments.

Read Also: Budgeting Process in India

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