UPSC Mains Answer: 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.

Difficulty Level: Hard

Sub-category: Indian Economy (Post-Independence)

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The post-1991 liberalization era marked a paradigm shift in India’s economic policy, transitioning from a state-led model to a market-oriented framework. While this transformation spurred growth and global integration, it also introduced complex challenges in public expenditure management (PEM) during budget-making, particularly in balancing fiscal discipline with developmental imperatives.
Historically, India’s budgetary process was characterized by rigid controls, subsidies, and a dominant public sector. Post-liberalization, the government’s role evolved into that of a facilitator, necessitating efficient allocation of scarce resources. However, persistent challenges such as fiscal deficits, off-budget borrowings, and leakages in welfare schemes (e.g., PDS, MGNREGA) have strained PEM. The FRBM Act (2003) aimed to enforce fiscal prudence, yet revenue shortfalls—exacerbated by tax evasion, GST implementation gaps, and economic slowdowns—have undermined these efforts. Additionally, the rise of populist spending (e.g., farm loan waivers, freebies) and the burden of public sector undertakings (PSUs) further complicate expenditure rationalization.
Conceptually, PEM in this era demands transparency, outcome-based budgeting, and digital integration (e.g., DBT, PFMS). The Kelkar Committee (2012) and NK Singh Committee (2017) emphasized medium-term fiscal frameworks and expenditure reforms, but implementation remains uneven. The tension between capital expenditure (infrastructure, health) and revenue expenditure (salaries, subsidies) persists, often tilting toward the latter due to political pressures.
Looking ahead, India must adopt zero-based budgeting, strengthen fiscal councils, and leverage technology (e.g., AI-driven audits) to enhance PEM. Aligning expenditure with the Sustainable Development Goals (SDGs) while ensuring macroeconomic stability will be critical. The post-liberalization period thus presents a dual challenge: sustaining growth while institutionalizing fiscal accountability.