Performance Budgeting

Introduction

• The Hoover Commission for the first time suggested performance budgeting in the United States in 1949. 
• Performance budgeting establishes a correlation between physical (output) and financial (input) aspects of each programme and activity.
• The emphasis of performance budget is on providing output-oriented budget information with a long range perspective so that resources can be managed efficiently and effectively. 
• It is a way to allocate resources to achieve specific objectives based on programme goals and measured results. Here, the programmes are subjected to the tests of actual performance against their expected standards.

Need of Performance Budgeting for India

• Scarcity of Resource: India is a developing country with a huge population and many socio-economic challenges like poverty, malnutrition, inequality, etc. Thus, scarce resources must be used effectively.
• Efficient Execution: It will lead to maximum output in the given input.
• Accountability: Objective goals help in ensuring accountability.
• Feedback: It will allow monitoring and evaluation of programmes.

Merits of Performance Budgeting

• Result-oriented: Performance budgeting gives emphasis on results rather than means of achieving it. It helps in reducing red-tapism.
• Clear Objectives: It correlates clearly objectives with inputs.
• Auditing: Objective criteria help in comparisons and auditing.
• Accountability: It improves accountability as clear goals help in better communication of goals and motivation of participants.

Demerits of Performance Budgeting

• Problem of Quantification: It is difficult to quantify social goals.
• Problem of Multiplicity of Objectives: A social policy usually has multiple goals, so it is difficult to clearly define an objective for each programme
• Complex and Expensive: It increases administrative costs as a lot of data and planning is required to make a policy which achieves this purpose.