Examine the major challenges in Public Expenditure Management in India. Discuss the measures taken by the government to improve the quality of public expenditure.

Public Expenditure Management (PEM) refers to the efficient planning, allocation and utilisation of public resources to achieve fiscal sustainability and developmental objectives. It aims to maximise value for public money by ensuring fiscal discipline, efficient allocation of resources and effective service delivery.

Challenges in Public Expenditure Management:

• Weak Fiscal Discipline: High fiscal deficits, rising public debt, growing interest payments and committed expenditure (salaries, pensions and subsidies) reduce the fiscal space available for productive capital expenditure. Off-budget borrowings and contingent liabilities further weaken fiscal transparency.
• Inefficient Allocation of Resources: Public expenditure is often driven by historical allocations, political considerations and populist spending rather than developmental priorities. Weak linkage between budgetary allocations and measurable outcomes reduces allocative efficiency.
• Poor Operational Efficiency: Leakages, procurement inefficiencies, project delays and cost overruns reduce the effectiveness of public expenditure. Idle parking of funds and weak monitoring further diminish value for money.
• Rising Revenue Expenditure: A large share of public expenditure is absorbed by interest payments, salaries, pensions and subsidies, leaving limited fiscal space for capital expenditure that creates productive assets.
• Weak Outcome Orientation: Budgetary success is frequently measured in terms of expenditure incurred rather than outcomes achieved. Consequently, higher spending does not necessarily translate into better public service delivery.
• Coordination and Capacity Constraints: Fragmented implementation across ministries and inadequate administrative capacity often lead to duplication of expenditure, delays and inefficient utilisation of public funds.

Measures to Improve the Quality of Public Expenditure

• Strengthening Fiscal Discipline:

The government has adopted fiscal consolidation measures through the FRBM Act, Net Borrowing Ceiling (NBC) for States, interest-free 50-year capital loans, RBI's debt management (switch and buyback operations) and Asset Monetisation & Strategic Disinvestment to improve fiscal sustainability.

• Improving Allocative Efficiency: The introduction of Outcome-Based Budgeting links expenditure with measurable outcomes. Removal of the Plan–Non-Plan classification enables priority-based allocation, while Gender Budgeting mainstreams gender concerns into public expenditure.
• Enhancing Operational Efficiency: Direct Benefit Transfer (DBT) has reduced leakages by transferring benefits directly to beneficiaries.

Government e-Marketplace (GeM) and e-procurement have improved procurement efficiency and transparency.

• Better Fund Management: Just-in-Time (JIT) SNA and SNA-SPARSH facilitate real-time fund tracking, reducing idle balances and improving fund utilisation.
• Improving

Infrastructure

Spending: Gati

Shakti enables coordinated infrastructure planning, while Public-Private Partnerships (PPP) leverage private sector efficiency in infrastructure and public service delivery.

• Incentivising Better Spending: The 15th Finance Commission's performance-based grants encourage States to improve expenditure efficiency and public financial management. Public

Expenditure Management is no longer confined to controlling expenditure but increasingly focuses on improving the quality of spending.

Strengthening fiscal discipline, prioritising outcome-oriented allocation and enhancing operational efficiency will enable India to maximise developmental outcomes while ensuring fiscal sustainability.