UPSC Mains 2019 GS Paper 3 Q12: model answer

In 2025–26 the Union government expected to spend about one rupee in four on interest alone. Add salaries, pensions and subsidies, and much of the Budget is committed before a new idea is funded. Public expenditure management has three tasks: keep total spending within fiscal limits, put money where it matters most, and get value for every rupee. Since 1991 each has become harder.

Why it is a challenge after liberalisation

• Revenue constraint: tariff and tax rates were cut to open the economy, so spending could no longer ride on easy duties.
• No monetisation: the 1997 agreement ended automatic ad hoc treasury bills; deficits must be borrowed at market rates.
• Committed expenditure: interest, pay commissions, pensions and subsidies crowd out capital spending.
• Subsidy creep: food, fertiliser and fuel bills jump with global prices.
• Fiscal rules: FRBM targets cap the deficit, but cuts tend to fall on capex, the easiest to postpone.
• Federal pressures: centrally sponsored schemes overlap with state subjects; Finance Commission devolution raised the states' share to 41%.
• Weak outcomes: money spent is tracked, results are not; unspent balances park in state accounts.
• Off-budget borrowing hides the true size of spending.

Reforms so far

• Outcome Budget (2005) and output-outcome framework.
• Plan/non-plan distinction ended (2017–18).
• DBT and PFMS to cut leakage and track funds; the Single Nodal Agency and 'justin-time' releases.
• Bringing off-budget items on budget (FCI dues, 2020–21).
• A sustained capex push: capital spending above 3% of GDP.

What remains

Rationalising schemes, an independent fiscal council, accrual accounting, and spending reviews like the UK's.

In a liberalised economy, the government cannot spend more freely, only more wisely.