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.
- Delay in implementation of projects: Resources are being spread thinly with only token provisions in some cases, often leading to inordinate delays in execution of projects.
- 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 performance in India include: (as given by world bank)
- 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.
Many of the weaknesses in budgeting reflect the failure to address linkages between the various functions of budgeting. The following factors contribute to budget systems and processes that create a disabling environment for performance in the public sector, both by commission and by omission:
- Almost exclusive focus on inputs, with performance judged largely in terms of spending no more, or less, than appropriated in the budget;
- Input focus takes a short-term approach to budget decision making; failure to adequately take account of longer-term costs (potential and real), and biases in the choice of policy instruments (e.g., between capital and current spending and between spending, doing, and regulation) because of the short-term horizon;
- A bottom-up approach to budgeting that means that even if the ultimate stance of fiscal policy was appropriate (and increasingly after 1973 it was not) game playing by bids into the appropriate fiscal policy box;
- A tendency to budget in real terms, leading either to pressure on aggregate spending where inflation is significant (which was often validated through supplementary appropriations) or arbitrary cuts during budget execution with adverse consequences at the agency level;
- Cabinet decision making focused on distributing the gains from fiscal drag across new spending proposals;
- Cabinet and/or central agencies extensively involved in micro-decision making on all aspects of funding for ongoing policy;
- Last minute, across-the-board cuts, including during budget execution;
- Weak decision making and last-minute cuts cause unpredictability of funding for existing government policy; this is highlighted to the centre by central budget agencies on the alert to identify and rake back “fortuitous savings;”
- Strong incentives to spend everything in the budget early in the year and as quickly as possible, since the current year’s spending is the starting point for the annual budget haggle and the fear of across-the-board cuts during execution;
- Existing policy itself (as opposed to its funding) subject to very little scrutiny from one year to the next. (This and previous point epitomize the worst dimension of incremental budgeting);
- Poor linkages between policy and resources at the centre, between the center and line agencies, and within line agencies because of incremental budgeting;
- A lack of clarity as to purpose and task and therefore poor information on the performance of policies, programmes and services, and their cost because of poor linkages;
- The linking together (in association with the point above) within government departments of policy advising, regulation, service delivery and funding and an aversion to user charging; and
- Overall, few incentives to improve the performance of resources provided.
