Daily Answer Writing And Mentorship Program
Q: Do you think that multi-year budgeting is the need of the hour in India? Critically examine the statement. (15 Marks, 250 Words)
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Multi-year budgeting is defined as the development and formal adoption of expenditure and revenue document that spans two or more years.
Currently, GoI adopted annual budgets present the revenue and expenditure projections for twelve months only. This approach requires the government to plan, approve, and execute their budgetary plans on a yearly basis, typically aligning with the government’s fiscal year.
Advantages of Multi-Year Budgeting over Single-Year Budgeting:
- Limited long-term planning: Single-year budgeting restricts comprehensive long-term planning, hindering strategic initiatives and infrastructure development.
- Multi-year budgeting allows for a long-term vision and projected expenditure, enabling better long-term planning and development.
- Inefficient resource allocation: Yearly budgeting can lead to suboptimal allocation of resources, focusing on short-term priorities and potentially neglecting critical sectors and long-term investments.
- Multi-year budgets enable efficient allocation of public resources by aligning current and future budgets, ensuring optimal resource distribution.
- Lack of stability: Single-year budgets create instability in government programs and policies, making it challenging to achieve consistent, sustained development and effectively address complex challenges.
- A multi-year budget provides stability and continuity by providing estimates for forthcoming years, allowing for better program planning and execution.
- Limited fiscal discipline: The annual budgeting process may lead to a myopic focus on short-term goals, reducing accountability and hindering efforts towards fiscal discipline and efficient use of public funds.
- Multi-year budget reinforces fiscal discipline by aligning expenditure commitments with available resources and generating fiscal outcomes in different economic conditions.
- Incomplete evaluation of outcomes: Single-year budgeting makes it difficult to assess the long-term impact of policies and programs, hindering the evaluation of their effectiveness and the implementation of necessary adjustments.
- Multi-year budget facilitates a comprehensive analysis of schemes and programs, enabling better evaluation of outcomes and informed decision-making.
However, there are various challenges associated with adopting a multi-year budget such as the difficulty in forecasting revenue and expenditure for multiple years, administrative capacity to monitor and implement, lack of flexibility for unseen expenditures due to certain emergencies etc.
Therefore, it is important to address these challenges before multi-year budgeting is implemented. Also, it can be adopted on a gradual basis starting with a single ministry/department to analyze the changes better.