Expenditure reforms

Expenditure reforms

The government has done well to set up an Expenditure Management Commission (EMC) under former Reserve Bank governor Bimal Jalan, following up on the announcement made by Union Finance Minister Arun Jaitley in his budget speech.

The minister had proposed that the Commission would help review the efficiencies of government expenditure both in terms of allocation and operation so that there can be maximum output for the amounts that are deployed as spending inputs. There was a proposal to set up an EMC during the 1990s and one was actually set up in 2000, called the expenditure reforms commission.

It submitted a series of reports on downsizing ministries and curtailing administrative expenditure. Not many proposals were implemented. The Commission, which has now been set up, is also aimed at expenditure reform. Its relevance is much greater now than 15 years ago because government expenditure has multiplied many times since then. Inefficiencies have also increased accordingly.

While India has seen many reforms in taxation, rationalisation of expenditure has generally been neglected. This is because political considerations have dominated spending decisions of all governments. But there is a greater need now to pay attention to sound norms of spending because the cost of mismanagement may be greater than in the past. A rupee saved is a rupee earned and a rupee productively spent is worth the spending, whatever the area of spending. 

What is mainly expected from the panel is a set of recommendations for reducing food and fertiliser subsidies and to cut the fiscal deficit to safe levels. The quantum of subsidies has increased by more than five times to about Rs 2,30,000 crore in the last many years and a good part of it is inefficiently spent. Better fiscal responsibility has to be ensured and expenditures like the allocations for railways and capitalisation of public sector banks need to be looked at afresh.

Another major challenge will be on how to deal with the recommendations of the Seventh Pay Commission which has been appointed, and on how to compensate states moving to the goods and service tax regime. Implementation of the 14th Finance Commission proposals will also engage its attention.

These are all matters on which the government can take its own decisions but the Commission’s recommendations might give the decisions a better footing. They are likely to be useful since the panel will need only to be guided by rational economic considerations.