The public expenditure management is a challenge to the government of India in the context of budget-making during the post-liberalization period. Clarify it.

Introduction

Public expenditure management (PEM) refers to the efficient allocation, utilization, and monitoring of public resources to achieve developmental goals. In the post-liberalization period (1991 onwards), India’s economic reforms introduced market-oriented policies, which significantly altered the fiscal landscape. While liberalization spurred economic growth, it also posed challenges to PEM, especially in balancing fiscal discipline with developmental priorities.

Key Dimensions of Public Expenditure Management Challenges

Challenges in Public Expenditure Management in Post-Liberalization India

1. Fiscal Deficit Management

• Challenge: Post-liberalization, India faced persistent fiscal deficits due to increased borrowing and subsidies.
• Example: The fiscal deficit reached 8.4% of GDP in 1991, necessitating structural reforms.
• Impact: High deficits constrained public investment in critical sectors like infrastructure and health.

2. Revenue-Expenditure Mismatch

• Challenge: Revenue growth lagged behind expenditure growth, especially due to tax reforms like GST, which initially reduced tax buoyancy.
• Example: The tax-to-GDP ratio in India remains around 10-12%, lower than many emerging economies.
• Impact: Limited fiscal space for developmental and welfare programs.

3. Social Sector Spending

• Challenge: Balancing fiscal consolidation with the need for higher spending on health, education, and poverty alleviation.
• Example: India spends only ~2% of GDP on health and ~3% on education, far below global benchmarks.
• Impact: Insufficient investment in human capital affects long-term economic growth.

4. Public Debt Management

• Challenge: Rising public debt due to increased borrowing for developmental needs.
• Example: India’s debt-to-GDP ratio increased from ~68% in 1991 to ~85% during the COVID-19 pandemic.
• Impact: High debt servicing costs reduce funds available for productive expenditure.

5. Transparency and Accountability

• Challenge: Ensuring efficient utilization of funds and reducing leakages in welfare schemes.
• Example: The Comptroller and Auditor General (CAG) has flagged inefficiencies in schemes like MGNREGA.
• Impact: Corruption and inefficiencies undermine public trust and fiscal discipline.

6. Globalization and External Shocks

• Challenge: Increased exposure to global economic fluctuations post-liberalization.
• Example: The 2008 global financial crisis and the 2020 pandemic disrupted revenue streams and increased fiscal stress.
• Impact: Volatility in external trade and capital flows complicates budget planning.

7. Federal Fiscal Relations

• Challenge: Balancing the fiscal needs of states with the Centre’s fiscal consolidation goals.
• Example: The implementation of GST reduced states’ fiscal autonomy, leading to demands for higher compensation.
• Impact: Strains Centre-state relations and affects coordinated fiscal planning.

Way Forward

• Enhancing Revenue Mobilization: Improve tax compliance through technology (e.g., GSTN) and widen the tax base.
• Expenditure Rationalization: Focus on outcome-based budgeting and reduce non-merit subsidies.
• Debt Management: Adopt a medium-term fiscal framework to ensure sustainable borrowing.
• Strengthening Social Sector Spending: Increase allocations for health and education to meet global benchmarks.
• Improving Transparency: Leverage digital tools like PFMS (Public Financial Management System) to track fund utilization.
• Strengthening Federalism: Revise fiscal devolution mechanisms to ensure equitable resource distribution.

Conclusion

Effective public expenditure management is critical for achieving inclusive growth and fiscal sustainability in post-liberalization India. By addressing challenges like fiscal deficits, revenue-expenditure mismatches, and inefficiencies, India can align its budgetary priorities with developmental goals, ensuring economic resilience and social equity. As envisioned in SDG 16 (Peace, Justice, and Strong Institutions), transparent and accountable fiscal governance is the cornerstone of sustainable development.