Q12. The public expenditure management is a challenge to the Government of India in the context of budget making during the post liberalisation period. Clarify it.
Model Answer:
Introduction
Public expenditure refers to the spending by the government on various services and infrastructure to promote economic growth and social welfare. It plays a crucial role in the budget-making process as it determines the allocation of resources to different sectors. However, managing public expenditure has been a significant challenge for the Government of India, especially in the post-liberalisation period.
Body
Challenges in Managing Public Expenditure Post-Liberalisation:
- Increased Expenditure: Post-liberalisation, there has been a substantial increase in government spending on social welfare schemes, subsidies, and infrastructure projects. For instance, schemes like MGNREGA and PM-KISAN have significantly increased the fiscal burden.
- Fiscal Deficit: The fiscal deficit has been a persistent issue. For example, the fiscal deficit for FY 2023-24 was projected at 6.4% of GDP, which is above the ideal threshold.
- Subsidy Burden: Subsidies on food, fertilisers, and fuel have escalated, leading to a strain on the budget. The food subsidy bill alone was around ₹2.87 lakh crore in FY 2022-23.
- Debt Servicing: High levels of public debt have increased the cost of debt servicing, limiting the government's ability to allocate funds to productive sectors.
Impact on Budget Making Process:
- Increased Fiscal Deficit: The high fiscal deficit limits the government's ability to invest in capital expenditure, which is crucial for long-term economic growth.
- Reduced Capital Expenditure: Due to the need to manage the fiscal deficit, there is often a reduction in capital expenditure, affecting infrastructure development and economic growth.
- Crowding Out Effect: High government borrowing can crowd out private investment, leading to lower economic growth.
Steps Taken by the Government:
- FRBM Act: The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, was introduced to bring fiscal discipline by setting targets for the fiscal deficit and public debt.
- Expenditure Reforms: The government has undertaken various expenditure reforms, such as Direct Benefit Transfer (DBT) to reduce leakages and improve the efficiency of subsidy delivery.
- Rationalisation of Subsidies: Efforts have been made to rationalise subsidies, such as the introduction of the Ujjwala Yojana to provide LPG connections and reduce the subsidy burden on kerosene.
Impact of These Steps:
- Reduced Fiscal Deficit: The FRBM Act has helped in reducing the fiscal deficit over the years, although challenges remain.
- Increased Capital Expenditure: Improved fiscal discipline has allowed for a gradual increase in capital expenditure, as seen in the Union Budget 2023-24, which allocated ₹10 lakh crore for capital expenditure.
- Efficient Subsidy Delivery: The DBT mechanism has improved the efficiency of subsidy delivery, reducing leakages and ensuring that benefits reach the intended beneficiaries.
Conclusion
In summary, managing public expenditure in the post-liberalisation period has been challenging due to increased expenditure, fiscal deficits, and subsidy burdens. However, steps like the FRBM Act and expenditure reforms have helped in improving fiscal discipline and increasing capital expenditure. Moving forward, the government needs to continue focusing on fiscal consolidation, rationalising subsidies, and improving the efficiency of public spending to ensure sustainable economic growth.
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