Answer:

Despite having an elaborate and time consuming system of making budgetary estimates, large amounts of unspent money is surrendered every year at the lapse of the financial year. Large-scale unspent provisions are indicative of lack of efficiency in programme management at the departmental level in an annual budget cycle and undermine efficient use of public money which is one of the major objectives of any budgeting system. Excessive provision under various sub-heads during the budget preparation stage due to lack of a realistic assessment of departmental requirements is the major reason for this. It also shows that proper forecasting methods are not used to estimate expenditure on account of various items.

Following steps can be taken to solve this problem.

♤ Ministry of Finance advised the Ministries/Departments to gear up the ‘existing mechanism of review, monitoring and control’ as to make a careful formulation of plan/schemes having regard to ‘ground realities and achievable targets’ and also to make ‘realistic assessment of funds.’

♤ The assumptions made while formulating estimates must be realistic. At the end of each year the reasons for the gap between the ‘estimates’ and ‘actuals’ must be ascertained and efforts made to minimize them. These assumptions should also be subject to audit.

♤ The method of formulation of the annual budget by getting details from different organizations/ units/ agencies and fitting them into a predetermined aggregate amount leads to unrealistic budget estimates. This method should be given up along with the method of budgeting on the basis of ‘analysis of trends’. This should be replaced by a ‘top-down’ method by indicating aggregate limits to expenditure to each organization/agency.

♤ Internal capacity for making realistic estimates needs to be developed.