Public budgeting has demonstrated a capacity to adapt to changing situations and requirements. One of the major dimensions of public budgeting has been planning for economic development through economic growth, employment and social investment. A plan for development provides a vision and a budget provides the operational framework. The transition from a plan to a budget involves the deployment of the expenditure control machinery. Premchand examines the changing nature of public budgeting.
Planning and budgeting have gone through stages. Firstly it was to counteract the impact of the depression during the 1930s, incurring fiscal deficits to promote economic activity. Secondly, the reconstruction of war ravaged economies post W.W.II. This involved an active role for governments in organising its own activities as well as activities of the private sector. The importance was placed on the quality of the product and its role in the overall strategy rather than the cost. The budget was viewed as subordinate to the plan. Marshall Plan and national development plans were developed to facilitate and manage economic development. Early 1950s the Indian government was one of the earliest to adopt formal economic planning; the Five-Year Plan provided the framework for macroeconomic goals, as well as more micro aspects of the economy.
In the 1970s it was recognised that planning did not generate the expected benefits and this began the relative decline as an organised and formal process. Planning had become too rigid and many projects were fiscally unsound and unable to generate resources, thus contributing to a highly fragile state of public finances. In Western industrialised countries, active economic planning was viewed as strengthening the role of the state and constraining the working of the market.
- Planning has to recognise the market and adapt itself to the working of a dynamic market system in the context of globalisation.
- Most countries have incorporated planning as part of regular budget making. The traditional distinction between plans and budgets is blurred and are now within a medium-term fiscal strategy.
- There is a shift in emphasis from planning for investment to planning for macroeconomic stability. This requires prudent fiscal policies that seek containment in the rate of expenditure growth.
- Analysing the strengths and weaknesses of the proposed projects has strengthened the overall policy-making capabilities of governments. Periodic evaluation of the contribution of programmes is undertaken in several countries; e.g. Sweden.
- Development continues to be an important goal, but it has been subordinated to the goal of economic stability – the ascendancy of macroeconomic considerations over economic planning.
- Donors’ contribution in the financing of development plans has been considerable and the overall decision-making involves the recipient countries and the donors. Aid, is generally conditional.
In budgeting, attention has shifted from inputs to outputs and to the delegation of enhanced financial powers and programmes to agency heads. Each programme has sub-allocated resources. An agency head is responsible and accountable for delivery of goods and services. Policy formulation is at an apex level and its implementation at an agency level. This new public management philosophy places the emphasis on an outputs framework of accountability in the context of decentralisation, adequate internal controls within spending agencies and a forward strategy for contingencies.
- A major part of the public expenditure now consists of transfers to non-departmental bodies, autonomous organisations and local governments through contractual payments. Governments are becoming funding agencies while the actual provision of services is with others.
- There is the need for fortifying budgets for developments in globalisation.
- Governments are placing more emphasis on enhancing productivity in government organisations.
- A problem is the continued separation between policymaking and financial management. Financial management has to be an integral part of policy formulation and implementation.
- Traditional economic planning involved supply driven expenditure. The connection between the resource situations and actual expenditures became increasingly nebulous, allowing for growing deficits. Trigger mechanisms have been introduced that would re-evaluate the entitlement benefits in the context of higher than estimated deficit.
- Moderating the growth of expenditure demands policy reviews and more emphasis on conserving resources rather than demanding more.
