Broader Governance & Reform: The quality of fiscal adjustment matters as much as its quantity. In light of India's budgetary trends over three years, suggest a roadmap for expenditure quality reform.

Question

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Introduction:

India’s recent budgets (2024–27) show a clear shift toward consolidation, but the effectiveness of this adjustment hinges on the quality—not just the quantum—of expenditure.

Body:

A key positive trend has been the sustained rise in capital expenditure (to ~3.3–3.5% of GDP), with emphasis on infrastructure, logistics, and crowding-in private investment. However, structural concerns persist. A large share of revenue expenditure is pre-empted by committed liabilities—interest payments (over 40% of revenue receipts), subsidies, and salaries—leaving limited fiscal space. Subsidy rationalisation remains uneven, with risks of both leakage and under-provisioning. Additionally, fragmented schemes, weak outcome monitoring, and continued off-budget liabilities dilute the effectiveness and transparency of public spending. Thus, while headline deficits have declined, the underlying expenditure mix still reflects inefficiencies.

A roadmap for expenditure quality reform must focus on reprioritisation and efficiency. First, shift further from revenue to capital spending, especially in health, education, and green infrastructure, which have high multiplier effects. Second, rationalise subsidies through better targeting (e.g., DBT) and periodic review of merit vs non-merit subsidies. Third, institutionalise outcome-based budgeting with measurable indicators and independent evaluation. Fourth, enhance transparency by fully accounting for off-budget borrowings and contingent liabilities. Finally, strengthen cooperative federalism by incentivising states through performance-linked transfers for efficient spending.

Conclusion:

Improving expenditure quality requires embedding efficiency, transparency, and long-term productivity into fiscal policy, ensuring that consolidation supports sustainable and inclusive growth rather than merely meeting deficit targets.

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