Reforms in India’s Budgeting Process: From Colonial Legacy to Outcome-Oriented Governance

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Reforms in India’s Budgeting Process: From Colonial Legacy to Outcome-Oriented Governance

Reforms in India’s Budgeting Process: From Colonial Legacy to Outcome-Oriented Governance

Table of Contents

India’s budgeting process has undergone institutional, procedural, fiscal, and transparency-oriented reforms over the years to make it more credible, outcome-oriented, and accountable, in line with a developing welfare state and a modern market economy.

Process and Presentation Reforms

Integration of Railway Budget (2017): Merged the Railway Budget with the General Budget, ending a 92-year-old practice. This ensured a holistic view of government finances and eliminated the need for a separate railway dividend.
- The merger of the Railway Budget with the General Budget was intended to bring the financial affairs of the Railways to the centre stage of government fiscal policy and present a holistic picture of the Union Government’s finances.
- It reduced procedural complexity by eliminating the practice of presenting two separate budgets, thereby shifting the focus from ritualistic budget exercises to delivery, outcomes, and good governance.
- As articulated by former Finance Minister Arun Jaitley, the merger enabled integrated multimodal transport planning involving railways, highways, and inland waterways, while preserving the functional autonomy of the Railways.
- Prior to the reform, long-term fiscal considerations were fragmented, and the separate Railway Budget often overemphasized announcements of new trains and projects rather than financial viability.
- Post-merger, the emphasis shifted to the long-term financial performance of Railways, including financial sustainability, revenue mobilisation, and expenditure control.
- The reform strengthened project appraisal, evaluation, and execution, as financial discipline and performance monitoring became continuous rather than event-driven.
- Procedural simplification was achieved by reducing the Demands for Grants for Railways from 16 to 1, enhancing transparency, financial clarity, and ease of public scrutiny.
- The reform brought financial and operational efficiency of Railways into sharper focus by integrating it fully within the overall budgetary framework of the Union Government.
- Complementing these reforms, the Public Financial Management System (PFMS) was introduced and expanded to enable real-time tracking of fund flows up to the last mile.
- PFMS helped reduce idle funds at intermediary levels, ensured better utilisation of public resources, and improved accountability for both the Centre and States.
- Overall, these measures collectively strengthened fiscal discipline, transparency, outcome-based governance, and efficient public expenditure management.
Advancement of Budget Date (2017): The budget presentation was shifted to February 1 (from the last day of February). This allows for parliamentary approval before the start of the new financial year (April 1), enabling timely commencement of schemes.
- Prior to the reform, Parliamentary authorisation through Vote-on-Account was limited to the first two months of the financial year.
- During this period, expenditure was capped at one-sixth of the total budgeted outlay, restricting departmental functioning.
- No new projects could be initiated and no substantial enhancement of allocations for existing schemes was permitted in April and May.
- These constraints often delayed implementation, with several projects remaining stalled in the initial months of the financial year.
- Impact on Project Implementation
  - Due to the Vote-on-Account period and the onset of the monsoon, many projects could not begin before September, leading to time overruns.
  - Limited early-year spending reduced efficiency in project execution and affected timely completion of ongoing works.
- Benefits of Advancing the Budget
  - Advancing the Budget eliminated the need for Vote-on-Account and enabled the government to roll out schemes and projects from 1st April itself.
  - Full availability of financial allocations at the start of the year facilitated early commencement of new projects and smoother execution of ongoing ones.
  - Projects could be initiated before the monsoon, improving execution timelines and reducing delays.
- Impact on States and Fiscal Federalism
  - The benefits of the full budget at the beginning of financial year is also transmitted to the States leading to a fiscally virtuous cascading effect for the whole country
  - State Governments now receive advance information on States’ share of Central taxes, budgetary support for Central schemes, and funding for externally aided projects.
  - This enables States to plan project financing, counterpart funding, implementation schedules, and borrowing requirements well in advance.
  - The advancement of the budget cycle improved synchronisation of financial outlays and expenditure between the Union and the States, strengthening cooperative fiscal federalism.
Elimination of Plan/Non-Plan Classification (2017): Replaced the outdated “Plan” and “Non-Plan” expenditure classification. This aligns with global standards and better tracks asset creation.
- Since the 1950s, Budgetary allocations were categorised as Plan and Non-Plan; Plan denoting the allocations on programmes and schemes and Non-Plan referred to mostly establishment items. Such distinction, at times, led to a distortion in the perception of these two types of allocations.Plan was considered, by many, superior and hence preferable. It was often referred to as Developmental expenditure. Non-plan similarly, often, less preferred and termed Nondevelopmental. Such distinctions and perceptions were wrongly placed. Non-plan expenditure such as maintenance of Defence system, Social security related allocation (pension and insurance), subsidy for poor and underprivileged class, etc.cannot be termed as non-developmental or bad. Such perception could also distort the sectoral allocation of resources.
- With the removal of Plan and NonPlan classification in budget and accounts, the focus has shifted to holistic allocation on any scheme/ programme with bifurcation on revenue and capital expenditure.
- The allocation for scheme/ programme expenditure is also reflected with revenue and capital distinction so that the line Ministries/ Departments can improve on the quality of expenditure.
Output-Outcome Monitoring Framework: Since 2017-18, budgets for major schemes include measurable “Output” and “Outcome” indicators. This shifts focus from outlays (spending) to results (development impact).
- Hitherto, only the financial outlays of schemes of the Ministries were indicated in the Budget document, while the expected outputs and outcomes of the schemes were prepared and presented separately by each Ministry. From 2017-18 Budget onwards, the Outlays, Outputs and Outcomes would be presented to the Parliament in measurable terms, bringing-in greater accountability for the agencies involved in the execution of government schemes and projects.
- ‘Outlay’ is the amount that is provided for a given scheme or project in the Budget; while ‘Output’ refers to the direct and measurable product of program activities, often expressed in physical terms or units. ‘Outcomes’ are the collective results or qualitative improvements brought about in the delivery of these services, often expressed in terms of improvements over ex-ante or earlier indicators and benchmarks.

Reforms to enhance financial accountability

Introduction of gender-based budgeting(2006)
- It marks a shift from gender-neutral budgeting to gender-responsive public finance, acknowledging that fiscal policies have differential impacts on men and women.
- It reforms the budgeting process by integrating gender concerns at every stage—planning, allocation, implementation, monitoring, and evaluation.
- It improves targeting and effectiveness of public expenditure by aligning budgetary allocations with the specific needs and vulnerabilities of women and girls.
- It enhances accountability and transparency, as ministries are required to identify, report, and justify gender-related allocations and outcomes.
Outcome Budgeting
- Outcome Budgeting is a public financial management reform that shifts the focus of government spending from inputs and outlays to results and outcomes. Instead of merely reporting how much money is spent, it links financial allocations with measurable outputs and intended socio-economic outcomes, thereby enhancing the effectiveness of public expenditure.
  - It represents a transition from expenditure-based budgeting to performance-oriented budgeting, emphasizing results over spending.
  - It improves accountability, as ministries and departments are required to specify targets, indicators, and expected outcomes for budgetary allocations.
  - It strengthens monitoring and evaluation, enabling assessment of whether public funds are translating into tangible development outcomes.
  - It enhances efficiency and value for money, as programmes are evaluated based on performance rather than continuation of past spending patterns.
  - It supports evidence-based policymaking, allowing course correction of schemes based on outcome achievement.
  - It reduces wastage and inefficiency, as poorly performing schemes can be identified and restructured or discontinued.
  - It promotes citizen-centric governance by focusing on service delivery and real impact rather than procedural compliance.
- By institutionalising performance measurement in budgeting, Outcome Budgeting constitutes a systemic reform in fiscal governance and public expenditure management.
Fiscal Responsibility and Budget Management (FRBM) Act, 2003: The cornerstone reform. It mandated the government to set targets for:
- Reducing fiscal deficit
- Eliminating revenue deficit
- It mandates three statements to be presented along with budget: Macroeconomic Framework Statement, Medium Term Fiscal Policy Statement, Fiscal Policy Strategy Statement
Inclusion of off-budget borrowings (both Centre and states) for calculation of FRBM mandated borrowing limits
Public Financial Management System (PFMS): A digital platform that tracks the real-time flow of funds to the last mile (beneficiaries/schemes), enabling better monitoring and reducing leakage.

Reforms to Enhance Accessibility of the Budget

The Economic Survey was divided into two parts, enabling clearer presentation and easier comprehension of macroeconomic trends and policy priorities.
The Expenditure Budget was bifurcated into two separate volumes, improving readability and systematic understanding of government spending.
The introduction of the “Memorandum Explaining Provisions in the Finance Bill” helped simplify and clarify taxation proposals and their implications, making them more accessible to legislators and the public.
The publication of “Budget at a Glance” provided a concise overview of key budgetary aggregates and fiscal indicators.
The “Highlights of the Budget” document was introduced to summarise the most important policy announcements and priorities.
The launch of the “Union Budget Mobile App” (2021) enabled quick, paperless, and user-friendly access to all budget documents, enhancing transparency and public engagement.

In conclusion, India’s budgeting reforms represent a journey from a colonial-era accounting exercise to a modern, outcome-oriented, and transparent fiscal management tool aimed at driving sustainable and inclusive growth.

Sample UPSC Mains Question

Q.India’s budgeting reforms reflect a shift from outlay-based to outcome-oriented fiscal governance.Discuss the major reforms undertaken in recent years and their impact on fiscal transparency and accountability. (250 words)

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