31-10-2025 Mains Question Answer
Budgeting is an important fiscal activity of the government. In the light of this statement, discuss the important features of various types of budgeting in India. Analyze zero based budgeting.
Budgeting is one of the most crucial fiscal activities of the government, as it reflects the allocation of scarce resources to competing needs of development and governance. In India, over the years, various types of budgeting practices have been adopted to improve efficiency, transparency, and accountability in public expenditure.
Types of Budgeting in India
| Type | Features |
| Incremental Budgeting | 1. Based on the principle of making small incremental changes in the existing budget to prepare the new one. 2. Last year’s budget forms the base; additional amounts are added to revenue and expenditure (e.g., a 5% increase in spending). 3. It is simple and less complicated, which makes it convenient to adopt. 4. Limitations: outdated schemes often continue, low-priority sectors keep receiving funds, and it lacks innovation. 5. Currently, India broadly follows this method with some modifications. |
| Zero- Based Budgeting (ZBB) | 1. The budget is prepared from scratch, taking “zero” as the base. 2. Unlike incremental budgeting, past allocations are not automatically considered. 3. All government schemes and programmes undergo close scrutiny through cost-benefit analysis; those failing are discarded. 4. Every expense must be justified afresh for each budget cycle. 5. Limitations: tedious, time-consuming, and difficult to apply to public services like defence, law and order, or foreign relations where cost-benefit analysis is not feasible. 6. In India, it is yet to be implemented in its true sense. |
| Performance Budgeting | 1. Introduced in 1968 for government ministries. 2. It linked financial allocations with physical performance targets. 3. However, by 2007-08, performance budgeting was merged with outcome budgeting due to limited impact on resource allocation. |
| Outcome Budgeting | 1. Introduced from 2005-06, it measures the development outcomes of government schemes. 2. Establishes a linkage between expenditure incurred and actual results. 3. Outcomes are measured not just in financial terms but also in physical units like tonnes of steel produced or kilowatt hours of electricity generated. 4. All ministries are mandated to prepare outcome budgets while submitting budget details. 5. This approach enhances accountability by shifting focus from outlays to outputs and outcomes. |
| Gender Budgeting | 1. Aims to integrate a gender–sensitive perspective in planning, execution, monitoring, and auditing of budgets. 2. Seeks to ensure that women benefit equally from development initiatives. 3. Since 2005-06, the Ministry of Finance issues a separate statement (Statement 20) on Gender Budgeting. 4. Statement 20 has two parts:
5. It reflects India’s commitment to inclusive growth and women empowerment through fiscal policy. |
Analysis of Zero-Based Budgeting
- ZBB represents a shift from incrementalism to rational scrutiny of every expense, making it more scientific and efficient.
- Its main strength lies in eliminating redundant or ineffective schemes, thereby improving resource allocation.
- However, its complexity, the administrative burden of annual reviews, and impracticality in certain core sectors make it difficult to adopt fully in India.
- Hence, a hybrid approach is often suggested, using incremental budgeting for stable sectors while applying ZBB selectively for social welfare schemes or discretionary expenditures.
India’s budgeting practices have evolved from incremental to outcome-oriented and inclusive forms. While Zero-Based Budgeting offers efficiency in expenditure rationalization, its complexity limits full adoption. Hence, a balanced approach, combining incremental ease with outcome and gender sensitivity, can ensure more effective fiscal management.