Subject: Economy

India's Public Expenditure Management (PEM) has emerged as a critical challenge in the post-liberalization era, particularly evident in the recent fiscal deficit of 5.87% of GDP in 2023, highlighting the complexities of balancing development needs with fiscal prudence.

Challenges in Public Expenditure Management

1. Fiscal Consolidation Pressure:

• Persistent high fiscal deficit with current levels at ₹11.70 trillion (74.5% of FY25 estimate) poses challenges for sustainable public finance management.
• The government faces the challenge of meeting the targeted fiscal deficit of 4.4% of GDP by 2025-26 while maintaining developmental expenditure.

2. Expenditure Quality Issues:

• Rising revenue expenditure compared to capital expenditure (6.2% vs 17% increase in 2024-25) indicates structural imbalances.
• Over-reliance on subsidies and universal social assistance programs leads to inefficiencies and resource leakages.

3. Resource Allocation Inefficiencies:

• Inadequate targeting of welfare schemes affects optimal resource utilization.
• Challenge of balancing social sector spending with fiscal discipline and economic growth objectives.

Reform Measures and Way Forward

1. Expenditure Rationalization:

• Implementation of Direct Benefit Transfer (DBT) to reduce leakages and improve targeting.
• Focus on outcome-based budgeting through Output-Outcome Monitoring Framework.

2. Structural Reforms:

• Adoption of Medium Term Expenditure Framework for better fiscal planning.
• Enhanced focus on capital expenditure (projected 10.1% rise in 2025-26) to boost economic growth.

3. Technology Integration:

• Use of Public Financial Management System (PFMS) for real-time expenditure tracking.
• Implementation of Government e-Marketplace (GeM) for transparent procurement.

The government needs to focus on implementing the Fiscal Responsibility and Budget Management (FRBM) Act effectively while ensuring quality public expenditure through better targeting and monitoring mechanisms, similar to Malaysia's targeted subsidy approach and Tanzania's improved resource management systems.