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Home/upsc: government budgeting & public finance

Mains Answer Writing Latest Questions

Kamini g
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Kamini gLearner
Asked: June 19, 2024In:
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What role does national income accounting play? Talk about the numerous elements that influence a nation’s GDP. (Answer in 200 words)

upsc: government budgeting & public finance
  1. Riya Sethi
    Riya Sethi Begginer
    This answer was edited.
    What is the significance of National Income Accounting? Discuss the various factors affecting the GDP of a country.
Team
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TeamSupreme
Asked: August 22, 2024In:
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Make a distinction between the revenue and capital budgets. Describe the parts of these two budgets. (150 words) [UPSC 2021]

upsc: government budgeting & public finance
  1. Aradhya Dutta
    Aradhya Dutta Begginer

    Capital Budget और Revenue Budget के बीच अंतर **1. मुख्य अंतर: Capital Budget: यह बजट दीर्घकालिक निवेश और पूंजीगत खर्चों को दर्शाता है, जैसे कि विकास परियोजनाएँ, इन्फ्रास्ट्रक्चर और अस्थायी संपत्तियों की खरीद। इसका उद्देश्य स्थायी संपत्ति का निर्माण और मौजूदा संपत्तियों का नवीनीकरण है। Revenue BudgetRead more

    Capital Budget और Revenue Budget के बीच अंतर

    **1. मुख्य अंतर:

    • Capital Budget: यह बजट दीर्घकालिक निवेश और पूंजीगत खर्चों को दर्शाता है, जैसे कि विकास परियोजनाएँ, इन्फ्रास्ट्रक्चर और अस्थायी संपत्तियों की खरीद। इसका उद्देश्य स्थायी संपत्ति का निर्माण और मौजूदा संपत्तियों का नवीनीकरण है।
    • Revenue Budget: यह बजट दैनिक परिचालन खर्चों और नियमित आय को कवर करता है, जैसे कि वेतन, सब्सिडी, और वेतन। इसका उद्देश्य प्रशासनिक कार्यों और सार्वजनिक सेवाओं का समर्थन करना है।

    **2. Capital Budget के घटक:

    • पूंजीगत व्यय: नए पूंजीगत निवेश, जैसे कि सड़क निर्माण, सिंचाई परियोजनाएँ, और शिक्षा और स्वास्थ्य के लिए इन्फ्रास्ट्रक्चर।
    • लंबी अवधि के ऋण: सरकार द्वारा लिया गया लंबा अवधि का ऋण जो नए प्रोजेक्ट्स को फंड करता है।

    **3. Revenue Budget के घटक:

    • राजस्व व्यय: दैनिक संचालन के खर्च, जैसे कि वेतन, पेंशन, और सामाजिक कल्याण योजनाएँ।
    • राजस्व प्राप्तियाँ: कर राजस्व (जैसे GST, आयकर) और गैर-कर राजस्व (जैसे सरकारी संपत्तियों से आय)।

    उदाहरण: वित्तीय वर्ष 2021-22 में, राष्ट्रीय अवसंरचना पाइपलाइन योजना के तहत सड़क निर्माण और आवास परियोजनाएँ Capital Budget का हिस्सा थीं, जबकि स्वास्थ्य और शिक्षा के लिए खर्च Revenue Budget में शामिल थे।

    निष्कर्ष: Capital Budget दीर्घकालिक निवेश और स्थायी विकास को फंड करता है, जबकि Revenue Budget रोजमर्रा के खर्चों और सेवाओं के लिए आवंटित होता है। दोनों बजट सरकार की वित्तीय योजनाओं और प्राथमिकताओं को दर्शाते हैं।

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Anshika Singh
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Anshika SinghLearner
Asked: June 19, 2024In:
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Draw attention to the key components of the Goods and Services Tax. Give a summary of its successes since implementation as well as the difficulties it continues to confront. (Answer in 200 words)

upsc: government budgeting & public finance
  1. Veer Singh
    Veer Singh Begginer

    Goods and Services Tax (GST) is an indirect tax that came into effect on 1st July 2017 by replacing many indirect taxes in India such as the excise duty, VAT, services tax, etc. Goods and Service Tax (GST) is levied on the supply of goods and services and is a destination-based tax that is levied onRead more

    Goods and Services Tax (GST) is an indirect tax that came into effect on 1st July 2017 by replacing many indirect taxes in India such as the excise duty, VAT, services tax, etc. Goods and Service Tax (GST) is levied on the supply of goods and services and is a destination-based tax that is levied on every value addition.

    Salient features of the Goods and Services Tax:

    • GST is applicable on the ‘supply’ of goods or services as against the concept of the manufacture of goods or on sale of goods or provision of services.
    • GST is based on the principle of destination-based consumption taxation as against the principle of origin-based taxation.
    • India has a dual GST system with the Centre and the States simultaneously levying tax on a common base. The GST to be levied by the Centre is the Central GST(CGST) and that to be levied by the States is the State GST (SGST).
    • An Integrated GST (IGST) is levied on the inter-state supply of goods or services. This is levied and collected by the Government of India and such tax is apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendation of the GST Council.
    • Import of goods or services would be treated as inter-state supplies and would be subject to IGST in addition to the applicable customs duties.

    Since its implementation in 2017, the GST has achieved the following milestones:

    • Widening of India’s tax base: The tax base almost doubled from 66.25 lakhs to 1.28 crores in the last four years (2017-2021).
    • Ease of compliance: It brought inefficiencies in indirect tax compliances and reduced the number of indirect tax authorities that businesses needed to interact with.
    • Increased logistics efficiency: As per an estimate, it has saved over 50% of logistics effort and transit time of goods movement by eliminating the entry tax, and check-posts (inter-state barriers) and introducing nationwide e-way bills.
    • Reduced transaction costs: By eliminating 2% of the additional cost (Central Sales Tax) on all interstate transactions, the GST has significantly reduced the overall transaction cost.
    • Increase in transparency: It allows taxpayers to track their compliances online on the GST Portal, and get the basic information about any business by entering the respective PAN or GSTIN, etc, thus increasing transparency in the system.

    However, several challenges still need to be addressed, such as:

    • Overestimation of GST collection: Actual collection is lower than initial estimations, thereby raising questions on the efficacy of the GST regime.
    • Complex tax slabs: A complex slab structure with frequent switching of items between them leads to confusion in the compliance system and unethical profiteering due to fluctuating tax rates.
    • Complex and cumbersome filing structure: The current GST return filing structure puts the onus of burden on the taxpayer with requirements of possessing a valid tax invoice/debit note, actual receipt of goods/service by the recipient, etc., making it a complex and cumbersome tax regime.
    • Ambiguous and conflicting AAR judgments: Conflicting rulings from various benches of the Appellate Authority for Advance Ruling across different States have led to confusion among taxpayers.
    • Tax evasion and tax fraud: GST tax evasion and tax fraud, including the use of fraudulent invoices, fake e-way bills, etc have led to massive losses in revenue collection (approximately Rs. 40,000 crore).

    While the government has worked to solve many issues, considerable intervention is still required to bring GST to its full efficiency. The proposal to have a single return will simplify compliance and do away with matching requirements. Such a step will bring out the true sense of ‘One Nation, One Tax’.

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Pranav Shah
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Pranav ShahLearner
Asked: July 25, 2024In:
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Examine the fairness and sufficiency of the transfers to the states, especially in light of the changing center-state fiscal relations, and discuss the role played by the Finance Commission in the devolution of financial resources between the Union and state ...

upsc: government budgeting & public finance
  1. Yash Sihare
    Yash Sihare Begginer
Ayushi jain
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Ayushi jainBegginer
Asked: June 25, 2024In:
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Inadequacies in public spending have been brought to light repeatedly in audit reports concerning different development efforts in India. After identifying these inefficiencies, make recommendations for possible solutions. (Answer in 150 words)

upsc: government budgeting & public finance
  1. Rajni Gautam
    Rajni Gautam Begginer

    Effective use of financial resources has been highlighted in the United Nations Sustainable Development Group (UNDG) Reference Guide as a critical dimension in the achievement of Sustainable Development Goals (SDGs). Further, in the SDG India Index, NITI Aayog has also recognised that financial resoRead more

    Effective use of financial resources has been highlighted in the United Nations Sustainable Development Group (UNDG) Reference Guide as a critical dimension in the achievement of Sustainable Development Goals (SDGs). Further, in the SDG India Index, NITI Aayog has also recognised that financial resources are a fundamental driver for achieving the SDGs on time. However, audit reports on various development initiatives and the finances of the Center and states have frequently highlighted inefficacies in expenditure.

    These include:

    • Persistent non-spending of allocated funds: The persistent problem of unspent balances is a direct consequence of India’s broken governance structures (at various levels), which have been highlighted in various reports. For instance, a CAG report on the Clean Ganga Mission pointed to an unspent balance of approximately Rs. 2500 crores in 2017.
    • Diversion and parking of funds: The CAG report of 2017 on performance audit of disaster management in Jammu and Kashmir reported that 25 percent of the expenditure meant for disaster mitigation purposes was diverted towards ineligible works.
    • Irregular and wasteful expenditure: The CAG report in 2020 exposed several irregularities and wasteful expenditures to the tune of hundreds of crores by various Goa government departments.
    • Misallocation/misutilisation of funds: Welfare schemes such as the Sarva Shiksha Abhiyan, Mid-Day Meal Scheme, PM Awas Yojana, Swachh Bharat Mission, etc. are riddled with misallocation and leakages. A Parliamentary Standing Committee report highlighted the issues of widespread corruption, insufficient funding and huge pending payments for wages in schemes like the MGNREGA.

    The Voluntary National Review (VNR) Report and Three Year Action Agenda have listed out several measures for improving expenditure efficiency and effectiveness, which are as follows:

    • Reorientation of the Budget with SDGs: Preparation of the Outcome Budget mandated since 2006-07 has not been as effective as envisaged and there is a need to reorient the Budget with SDGs. States like Haryana, Maharashtra, Assam etc. have taken some preliminary steps in this regard.
    • Expenditure reforms: These include the following:
      • Introduction of sunset clauses in all public expenditure programmes.
      • Effective utilisation of the Public Financial Management System for tracking all expenditure flows.
      • Rationalisation of schemes through merger and dropping of overlapping schemes.
      • Use of technology like e-procurement and adoption of a Government e-Marketplace (GeM) model etc.
    • Intervention at the stage of formulation of schemes: The schemes need to be formulated after adequate consultation with the state governments. There should be specific Ministry-wise Councils so that the Ministries formulate schemes in tandem with the existing state schemes for optimum utilization of resources.
    • Need of an expert institution: The NITI Aayog or a body like the Centre-State Expenditure Commission can give directives and lay down the priorities with respect to expenditure.

    In addition, improving efficiency of expenditure would need to be established through suitable audits. Further, a decentralized and local approach can help in achieving efficiency while incurring expenditure.

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Adheesh Raman
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Adheesh RamanLearner
Asked: January 6, 2025In:
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Roadmap for Answer Writing Introduction: Start with a definition of Outcome Budgeting (OB): Outcome Budgeting is a method that links government spending with specific, measurable results and outcomes, shifting focus from financial allocation to the achievement of developmental goals.Fact to use: “Outcome ...

upsc: government budgeting & public finance
  1. Team
    Best Answer
    Team Supreme

    Model Answer Role of Outcome Budgeting in Efficient Allocation of Resources in India Outcome Budgeting (OB) is a strategic framework employed by the Indian government to link budgetary allocations to specific outputs and outcomes. It serves as a tool for improving the efficiency of resource allocatiRead more

    Model Answer

    Role of Outcome Budgeting in Efficient Allocation of Resources in India

    Outcome Budgeting (OB) is a strategic framework employed by the Indian government to link budgetary allocations to specific outputs and outcomes. It serves as a tool for improving the efficiency of resource allocation, ensuring that funds are used to achieve measurable goals. Here’s how Outcome Budgeting plays a pivotal role:

    Better Conceptualization of Budgeting

    Unlike traditional budgeting, which primarily focuses on financial outlays, Outcome Budgeting emphasizes the desired outcomes from the expenditure. This method requires ministries and departments to plan their budget with a clear focus on achieving specific, measurable results. For instance, by setting clear targets for development schemes, the government ensures that each rupee spent contributes to the expected socio-economic objectives, such as poverty alleviation or infrastructure development.

    Defined Outputs and Outcomes

    Outcome Budgeting requires clear identification of outputs (the goods or services produced) and outcomes (the impact or benefit derived from these goods or services). This transparency helps ministries plan better and allocate resources more effectively to areas with higher potential for impact. For example, the Pradhan Mantri Fasal Bima Yojana has defined targets like timely claim settlements, which ensures that resources are directed to programs that deliver measurable results.

    Cost Reduction and Improved Efficiency

    One of the most important aspects of Outcome Budgeting is its ability to identify inefficient expenditure. Schemes that fail to meet their objectives can be reassessed or discontinued, redirecting funds to more effective programs. This helps reduce waste and ensures that taxpayers’ money is spent where it can have the greatest impact.

    Supporting Socio-Economic Goals

    Outcome Budgeting supports the government’s socio-economic objectives by promoting transparency, accountability, and citizen participation. For example, programs like PM KISAN aim to provide income support to farmers, directly contributing to financial inclusion and rural development. This system also allows for regular evaluations, ensuring that schemes are continuously improved to meet their intended outcomes.

    In conclusion, Outcome Budgeting is integral to ensuring that public resources in India are allocated efficiently, with a focus on achieving tangible, positive socio-economic outcomes. By enhancing transparency, targeting priority areas, and fostering accountability, it supports the overarching goal of effective governance.

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Adheesh Raman
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Adheesh RamanLearner
Asked: January 6, 2025In:
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Roadmap for Answer Writing 1. Introduction (Brief Definition) Key Points to Include: Define gender budgeting. Mention the relevance of gender budgeting in addressing gender inequality. Briefly explain how it contributes to social and economic development, particularly for women. Example Introduction: “Gender budgeting refers to the integration of ...

upsc: government budgeting & public finance
  1. Team
    Best Answer
    Team Supreme

    Model Answer Gender budgeting refers to the process of applying a gendered perspective to the allocation and tracking of public funds. It ensures that both women and men equally benefit from government policies and development initiatives. The primary goal of gender budgeting is to achieve gender maRead more

    Model Answer

    Gender budgeting refers to the process of applying a gendered perspective to the allocation and tracking of public funds. It ensures that both women and men equally benefit from government policies and development initiatives. The primary goal of gender budgeting is to achieve gender mainstreaming by factoring in gender equality while budgeting. In India, gender budgeting was introduced in 2005 with the inclusion of the Gender Budget Statement (GBS) alongside the Union Budget. The GBS is divided into two parts: Part A for schemes fully dedicated to women, and Part B for schemes that allocate at least 30% of funds for women.

    Ways to Implement Gender Budgeting Effectively in India

    1. Collecting Gender Disaggregated Data
      It is essential to collect and analyze data separated by gender to better understand how public funds are benefiting men and women differently. The Cabinet Secretariat could mandate that ministries include gender-disaggregated targets and indicators in their Results Framework Documents. This would help in measuring the actual impact of government policies on different genders.
    2. Capacity Building of Personnel
      Administrators and decision-makers need gender sensitivity training to ensure that they can allocate resources effectively and identify schemes that will empower women. It is crucial that officials at various levels are trained to identify the gender-specific needs and design solutions accordingly.
    3. Increased Participation of Women in Planning and Budgeting
      Women must be treated as equal partners in the budgeting process. Their active participation in decision-making would ensure that the budget better addresses their needs and priorities, moving beyond simply treating women as beneficiaries.
    4. Spatial Mapping
      Spatial mapping of gender-related discrepancies can reveal regional variations in the implementation of programs, enabling targeted interventions to correct inequalities. This mapping could ensure that marginalized communities receive appropriate attention.
    5. Reforms at the State Level
      At the state level, setting up gender focal points and creating Gender Task Forces at various administrative levels (districts, blocks, and local bodies) would help decentralize the implementation of gender-sensitive programs.
    6. Reforms in Budgetary Process
      Introducing tools such as Gender Equity Certificates, Pre-budget consultations, and Gender-focused Budget Papers would streamline the integration of gender considerations into the overall budget process.

    Conclusion

    To implement gender budgeting successfully, India needs strong collaboration among key stakeholders, including government agencies, civil society, NGOs, and the media. This, combined with the strengthening of Gender Budgeting Cells and a transparent budget process, can ensure that public resources are effectively used to achieve gender equality.

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Pranav Shah
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Pranav ShahLearner
Asked: July 25, 2024In:
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Examine how the government is using cutting-edge financing tools like crowdfunding, social impact bonds, and green bonds to raise more money for social welfare and development projects. Also, consider how these tools might be used to supplement more conventional budgetary ...

upsc: government budgeting & public finance
  1. Raghav Subramaniam
    Raghav Subramaniam Begginer

    Government Strategies to Leverage Innovative Financing Mechanisms Innovative financing mechanisms, such as green bonds, social impact bonds, and crowdfunding, have emerged as pivotal tools for mobilizing additional resources for development projects and social welfare programs. These mechanisms offeRead more

    Government Strategies to Leverage Innovative Financing Mechanisms

    Innovative financing mechanisms, such as green bonds, social impact bonds, and crowdfunding, have emerged as pivotal tools for mobilizing additional resources for development projects and social welfare programs. These mechanisms offer potential to complement traditional budgetary resources and enhance the effectiveness of development initiatives.

    1. Green Bonds

    Definition and Purpose: Green bonds are debt instruments issued to raise funds specifically for projects with environmental benefits. The proceeds are used for projects that address climate change, reduce carbon emissions, or improve environmental sustainability.

    Recent Examples:

    • India’s Green Bonds Market: In 2023, India witnessed significant growth in its green bonds market, with the issuance of green bonds by organizations like the National Bank for Agriculture and Rural Development (NABARD). These bonds fund renewable energy projects and sustainable infrastructure development.
    • International Example: The European Union issued green bonds as part of its Green Deal, aiming to finance projects related to renewable energy, sustainable agriculture, and pollution reduction.

    Impact and Potential: Green bonds attract investment from both domestic and international markets, providing a substantial pool of funds for environmental projects. They complement traditional funding by tapping into a niche market of investors interested in sustainable development, thus bolstering the budgetary resources allocated to environmental sustainability.

    2. Social Impact Bonds (SIBs)

    Definition and Purpose: Social impact bonds are a type of contract where private investors provide upfront capital for social programs and are repaid by the government only if the programs achieve predefined social outcomes. They are designed to improve social outcomes while shifting the financial risk away from public funds.

    Recent Examples:

    • India’s Early Childhood Development Program: In 2023, India launched its first Social Impact Bond to fund early childhood development programs. The bond involves private investors who will be repaid based on the improvement in child health and education indicators.
    • International Example: The UK has implemented SIBs for programs addressing recidivism rates among ex-offenders, where private investors fund rehabilitation programs and receive returns based on successful outcomes.

    Impact and Potential: SIBs align financial incentives with social outcomes, encouraging innovation and efficiency in service delivery. They provide a mechanism to address social issues without upfront public expenditure, thereby complementing traditional budgetary resources and fostering public-private partnerships.

    3. Crowdfunding

    Definition and Purpose: Crowdfunding involves raising small amounts of money from a large number of people, typically via online platforms, to fund development projects or social initiatives. It democratizes the funding process and allows direct participation from the public.

    Recent Examples:

    • India’s Crowdfunding for Education: In 2023, several educational NGOs used crowdfunding platforms to raise funds for rural education projects, including the construction of schools and distribution of learning materials.
    • International Example: In the United States, platforms like GoFundMe have been used to fund community-driven projects and social welfare initiatives, such as disaster relief and local health services.

    Impact and Potential: Crowdfunding harnesses public engagement and broadens the resource base beyond traditional institutional funding. It allows for community-driven initiatives and can complement traditional resources by providing additional capital and raising awareness about various causes.

    Evaluation of Complementary Potential

    Advantages:

    • Diversification of Funding Sources: Innovative financing mechanisms diversify funding sources, reducing reliance on traditional budgetary allocations and increasing financial resilience.
    • Increased Efficiency and Innovation: Mechanisms like SIBs and green bonds encourage efficient and innovative approaches to project implementation, driven by performance-based outcomes.
    • Enhanced Public Participation: Crowdfunding enables greater public engagement and support for development projects, fostering a sense of ownership and community involvement.

    Challenges:

    • Risk and Uncertainty: Innovative financing mechanisms carry risks, including market volatility for green bonds and uncertain returns on SIBs, which can impact the stability of funding.
    • Implementation Complexity: The structuring and management of these mechanisms require expertise and can be complex, potentially leading to administrative challenges.

    In conclusion, innovative financing mechanisms offer valuable opportunities to complement traditional budgetary resources by providing additional funding, enhancing efficiency, and fostering public engagement. Their successful integration into development strategies can lead to more sustainable and impactful outcomes for social welfare programs and infrastructure projects.

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Rani Singh
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Rani SinghLearner
Asked: July 23, 2024In:
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Examine the government’s methods for increasing revenue generation, including the introduction of the Goods and Services Tax (GST), the broadening of the tax base, and the initiative to boost tax compliance, and evaluate how well they have worked to strengthen ...

upsc: government budgeting & public finance
  1. Adivk Rawat
    Adivk Rawat Begginer

    Government Strategies to Enhance Revenue Generation To improve its fiscal position and enhance revenue generation, the Indian government has employed several strategic measures. These include the implementation of the Goods and Services Tax (GST), the expansion of the tax base, and efforts to improvRead more

    Government Strategies to Enhance Revenue Generation
    To improve its fiscal position and enhance revenue generation, the Indian government has employed several strategic measures. These include the implementation of the Goods and Services Tax (GST), the expansion of the tax base, and efforts to improve tax compliance. Each of these strategies plays a crucial role in augmenting revenue streams and addressing fiscal deficits.

    1. Implementation of Goods and Services Tax (GST)
    GST Introduction and Objectives: The GST, implemented on July 1, 2017, was a significant reform aimed at creating a unified tax structure across India. Its primary objectives were to simplify the tax regime, reduce the cascading effect of taxes, and broaden the tax base.

    Recent Developments:

    Rate Adjustments: The GST Council has periodically revised tax rates and introduced measures to streamline the process, such as the recent reduction in GST rates for essential goods.
    Technology Integration: The government has upgraded the GST Network (GSTN) to improve efficiency, with enhancements in filing procedures and compliance mechanisms.
    Effectiveness:

    Revenue Growth: Post-GST implementation, there was an initial increase in tax collections. For instance, GST revenue collections in FY 2023-24 showed a robust growth trend, surpassing ₹1.5 lakh crore per month on average.
    Challenges: Despite improvements, challenges remain such as compliance issues among small businesses and disputes regarding the distribution of GST revenue between states and the central government.
    2. Expansion of the Tax Base
    Initiatives for Broader Tax Base:

    Income Tax Reforms: Measures like the introduction of faceless assessments and e-filing systems have been designed to facilitate a broader tax base and improve transparency.
    Direct Benefit Transfer (DBT): The DBT scheme has helped in better targeting of subsidies, reducing leakages, and encouraging individuals to enter the formal economy.
    Recent Examples:

    Digital Economy: With the growth of the digital economy, the government has increased scrutiny and regulation of online transactions to capture a larger share of revenue.
    Corporate Tax Reforms: Reductions in corporate tax rates and incentives for new manufacturing companies aim to stimulate investment and, subsequently, tax revenue.
    Effectiveness:

    Increased Tax Payers: There has been a noticeable rise in the number of individual income taxpayers and corporate tax filers. For example, the number of individual taxpayers increased significantly after the implementation of new compliance measures.
    Ongoing Challenges: The informal sector remains a challenge, as it is difficult to track and integrate into the formal tax structure.
    3. Drive to Improve Tax Compliance
    Government Measures:

    Enhanced Enforcement: The Income Tax Department has intensified its efforts to combat tax evasion through measures such as data analytics and increased scrutiny of high-value transactions.
    Public Awareness Campaigns: Initiatives aimed at educating taxpayers about their responsibilities and the benefits of tax compliance have been rolled out.
    Recent Examples:

    Operation Clean Money: This initiative targets large cash deposits and high-value transactions that may be indicative of tax evasion.
    Faceless Tax Assessment: Implemented to reduce human intervention and bias, improving the efficiency and fairness of tax assessments.
    Effectiveness:

    Improved Compliance Rates: The number of tax returns filed and the level of voluntary compliance have increased. For instance, there was a marked increase in the number of returns filed post-implementation of the faceless assessment scheme.
    Continuing Issues: Despite improvements, there are persistent challenges such as enforcement in rural areas and among smaller businesses.
    Assessment of Effectiveness
    Overall, these strategies have had a positive impact on improving the government’s fiscal position. The GST has streamlined tax collection and increased revenue, the expansion of the tax base has incorporated more individuals and businesses into the formal economy, and improved tax compliance measures have enhanced revenue collection efficiency.

    However, challenges persist, including issues with GST implementation, tax compliance among small businesses, and the informal sector. Continued reform and adaptation will be necessary to address these challenges and sustain the improvements in revenue generation.

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Team
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TeamSupreme
Asked: August 22, 2024In:
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Roadmap for Answer Writing 1. Introduction Objective: Introduce the concept of public expenditure management (PEM) and its relevance in the context of budget-making. Definition: Explain PEM as the prudent use of government financial resources to achieve good governance, fiscal discipline, and macroeconomic stability. 2. ...

upsc: government budgeting & public finance
  1. Team
    Team Supreme

    Model Answer Introduction Public expenditure management (PEM) refers to the efficient use of government financial resources to achieve good governance, encompassing fiscal discipline, resource allocation, operational efficiency, and macroeconomic stability. Since the liberalization, privatization, aRead more

    Model Answer

    Introduction

    Public expenditure management (PEM) refers to the efficient use of government financial resources to achieve good governance, encompassing fiscal discipline, resource allocation, operational efficiency, and macroeconomic stability. Since the liberalization, privatization, and globalization (LPG) reforms of 1991, PEM has presented several challenges for the Government of India, particularly in the context of budget-making.

    Challenges in Public Expenditure Management

    1. Exposure to Global Economic Shocks

    The integration of the Indian economy into the global market has made it vulnerable to external economic shocks, such as the 2008 global financial crisis, fluctuations in crude oil prices, and trade wars. These shocks significantly impact domestic budget estimates and economic stability.

    2. Fiscal Policy Constraints

    The government faces pressure to increase spending on infrastructure and welfare schemes while adhering to the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, which mandates keeping the fiscal deficit within 3% of GDP. Balancing these demands is a considerable challenge.

    3. Banking Sector Challenges

    Post-liberalization, the government has had to recapitalize public sector banks, which struggle to operate profitably while ensuring financial inclusion. This creates a burden on public finances.

    4. Privatization and Disinvestment Pressures

    With the private sector’s capabilities expanding, there is growing demand for the privatization of inefficient public sector enterprises (PSEs). The government must navigate this transition while maintaining public service delivery.

    5. Narrow Tax Base

    Despite rising incomes, the income tax base has not expanded proportionately, limiting the government’s ability to increase social spending. The growing subsidy burden exacerbates this issue, diverting funds from capital investments.

    6. Inadequate Institutional Capacity

    Many government schemes suffer from poor implementation, leading to underutilization of allocated budgets. This inefficiency results in cost overruns and ineffective resource allocation.

    Conclusion

    The post-liberalization period has seen increased per capita income and government expenditure; however, the tax-to-GDP ratio has not improved correspondingly. This disparity has rendered public expenditure management a significant challenge for the Indian government. The Bimal Jalan Committee has recommended rationalizing subsidies and sticking to a disciplined fiscal path to unlock the growth potential of the Indian economy. Effective PEM is crucial for sustainable economic development and governance.

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