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Different Types of Budgets Siva Prasad
About Me . Bachelors and Masters in Physics from Indian Institute of Science (ISc), Bangalore .INSPIRE Scholar, DST Govt. of India Interested in Physics, current affairs, economics.... . Physicist, Blogger, Teacher.... Wrote UPSC CSE Mains 2017 Research Publication in Journal of Applied Physics
Types of Budget o Line item budgets o Performance budgets o Plaming & ProgrammingGender budgcts o New Performance budgets o Outcome budgets gets budgets o Management By Objectives o Zero based budgeting o Target based budgeting o Budgeting for Results o Green budgets
Budget . Financial accountability is one of the important instrument to hold executive accountable Absence of financial accountability can result in corruption, misuse of funds & misallocation of resources. . Budgets are an effective instrument to ensure financial accountability of the executive. . What is a Budget? * It has 3 dimensions : accounting, economic & political
From accounting perspective, budget provides details of income & expenditure of the govt. It also provides detail about financial status of the govt. This dimension is least important. . .From economic perspective, it provides details about allocation of limited resources to different sectors of economy so as to achieve the obiectives of growth & development. Most important dimension in a democracy is budget being used as a political instrument. Political parties make promises to people at the time of elections reflected as part of their election manifestoes, Once they come to power these election manifestoes become the basis of public policies. Govt uses budget to fulfill its commitment towards citizens. The budget also reflects political ideology of the govt. If people don't admire the policies of the govt, they can reject them in the next elections.
Accounting Perspective From accounting perspective, budget provides details of income & expenditure of the govt. It also provides detail about financial status of the govt. This dimension is least important.
Economic Perspective From economic perspective, it provides details about allocation of limited resources to different sectors of economy so as to achieve the objectives of growth & development. .
Political Perspective Most important dimension in a democracy is budget being used as a political instrument. Political parties make promises to people at the time of elections reflected as part of their election manifestoes. Once they come to power these election manifestoes become the basis of public policies. Govt uses budget to fulfill its commitment towards citizens. The budget also reflects political ideology of the govt. If people don't admire the policies of the govt, they can reject them in the next elections. .
.Line item budgets:; These were introduced in USA in 1921 & were in operation from 1921 to 1949 These are incremental in nature as arranged in different lines Money is spent strictly acc to rules & regulations. Objectives :- o To reduce corruption o To prevent misallocation of resources o To ensure accountability of people who are responsible for spending money o To ensure legislative control over executive
Limitations :- Based on incrementalism i.e., budget allocation is not scientific. It is mostly mechanical in nature. o Expenditures are not linked to outcomes. o They don't provide micro details about resource allocation. o It is rigid in nature. o It can not ensure effective legislative control over executive.
o To ensure accountability of management in relation to finances, o To enable performance audit o To provide an effective tool in the hands of legislature to control executive. Limitations :- o It can not be applied to many ministries where it is difficult to link financial o In budgets money are allocated on the basis of policies but not on the basis O It can not be applied to depts like Dept of Space, Science & Technology outlays to physical output e.g., Ministry of Health oI programs. wherein money is allocated on long term basis and outcomes are uncertain
Planning & Programming Budgeting Svstem It was in operation in USA between 1965-1971 Robert McNamara suggested this system . It was initially implemented in private sector such as defence industries. Later it was adopted by govt, first in defence ministry; later in other ministries. It was also suggested by 2nd Hoover Commission. . It is a system of resource allocation to ensure govt efficiency and effectiveness by establishing long term objectives, analyzing the costs & benefits of alternative programs and linking these programs to long term obiectives & finally articulating these programs as budgetary proposals.
Management by Obiectives (1972-77): .First introduced in private sector by Peter Drucker also known as management guru It is a technique of participative management wherein top level management would consult people at middle/lower level in formulating objectives of the org Once objectives are formulated, more freedom is given to people at middle/lower level in implementation. At the same time they are also made accountable for their performance. . Same technique used in budget formulation within govt wherein inputs are linked to outputs/outcomes. MBO primarily dealt with effectiveness of govt programs but not concerned with effectiveness of govt policies. Thus, it was abandoned in 1977
. Zero based budgeting (1977-80) During late 1970s USA was facing great financial crisis. High fiscal deficit due to failure of PSEs & also because of compulsions of welfare state, In order to control the deficit, in 1977, zero based budgeting was introduced. It allocates the resources to depts on the basis of depts justifying their expenditure, Allocations to administrative ministries starts from a zero base, Advantages :- . . . . o Helps in reducing expenditure. o Eliminates low priority programs. o Ensures that high impact programs get more revenue
o Improves program effectiveness drastically. o Facilitates critical review of schemes in terms of cost effectiveness, o Helps in allocation of limited resources in rational manner. o Reduces tax burden o Facilitates participation of line personnel in budget formulation. Reasons for failure :- o It failed to reduce expenditure & control deficits as in govt budget allocations are made not on the basis of programs but on the basis of policies. ZBB is a good budgetary technique for local self govt wherein money is allocated on the basis of program but is ineffective to control expenditure at national level o ZBB only increased paperwork. Ministries had to submit thousands of pages of documents to justify expenditure.
Ministries were not in favor of terminating programs & schemes due to political advantage & put pressure on Finance ministry to increase allocation In India, ZBB was introduced in 1987 in one third govt dept & ministries. By 1990 it was implemented in all govt dept & ministries. e i