The public expenditure management is a challenge to the Government of India in the context of budget making during the post-liberalization period. Clarify it.
Approach · directive: “clarify”
What it asks · Explain why managing public spending is hard for the Union Government when framing budgets after 1991: rigid commitments, deficit targets, subsidy pressure, leakages and weak outcome tracking, and the reforms that address them.
It asks 2 things — answer each
- Clarify why managing public expenditure is a challenge in post-liberalisation budget-making: rigid commitments, deficit rules, subsidies, quality and transparency of spending, federal pressures
- Note the reforms that address these challenges
Open with · In Budget 2026-27 interest payments of Rs 14.04 lakh crore take nearly 40% of the Centre's revenue receipts and 20 paise of every rupee spent; since 1991 the budget's task has shifted from expanding the State to disciplining it.
Cover
- Rigid commitments: interest, salaries, pensions, defence and subsidies pre-empt most revenue, leaving little for capital and social spending.
- Deficit rules under strain: the FRBM Act, 2003 set targets, yet the fiscal deficit was 4.4% of GDP in 2025-26 (RE) after pauses for shocks.
- Subsidy pressure and hidden borrowing: food, fertiliser and fuel bills swell; NSSF loans to FCI understated the deficit until Budget 2021-22 ended them.
- Federal squeeze: the Fourteenth Finance Commission's 42% devolution and GST compensation narrow the Centre's room; revenue spending crowds out capital.
- Reforms: N.K. Singh committee's 60% debt target (40 Centre, 20 States); Budget 2025-26's path to Central debt of about 50±1% of GDP by 2031.
- Reforms: Plan/non-plan merger in 2017-18 with outcome budgets; DBT across 320 schemes with estimated gains of Rs 5.14 lakh crore; PFMS tracking.
Close with · Commitments are rigid, revenue uncertain and outcomes hard to see; holding Central debt to the 50±1% path over the 16th Finance Commission cycle while shifting rupees from interest and subsidy to capital assets is how each rupee can count.
Add value (verified)
- Budget at a Glance 2026-27: interest payments Rs 14,03,972 crore (BE) against revenue receipts of Rs 35,33,150 crore; interest takes 20 paise of every rupee of expenditure; fiscal deficit 4.4% of GDP in 2025-26 (RE) and 4.3% in 2026-27 (BE).Union Budget 2026-27 — Budget at a Glance ↗“11. Interest Payments 1115575 1276338 1274338 1403972”
- The Government's debt anchor: Central Government debt on a declining path to about 50±1% of GDP by 31 March 2031, the last year of the 16th Finance Commission cycle.Union Budget 2025-26 — Medium Term Fiscal Policy cum Fiscal Policy Strategy Statement (FRBM) ↗“the Central Government debt is on declining path to attain a debt to GDP level of about 50±1 per cent by 31st March 2031 (the last year of the 16th Finance Commission cycle)”
- Budget 2021-22 discontinued the NSSF loan to FCI for food subsidy, bringing the food-subsidy arrears on budget.Union Budget 2021-22 — Speech of the Finance Minister, 1 Feb 2021 ↗“I propose to discontinue the NSSF Loan to FCI for Food Subsidy and accordingly Budget Provisions have been made in RE 2020-21 and BE 2021-22.”
- The N.K. Singh FRBM Review Committee recommended debt as the primary fiscal target: 60% of GDP, with 40% for the Centre and 20% for the States, to be reached by 2023.PRS Legislative Research — FRBM Review Committee Report Summary (2017) ↗“A debt to GDP ratio of 60% should be targeted with a 40% limit for the centre and 20% limit for the states.”
- DBT Bharat portal: 320 schemes of 56 ministries run on Direct Benefit Transfer, with cumulative estimated gains of Rs 5,14,201.92 crore.DBT Bharat portal, Government of India (dashboard) ↗“NO. OF SCHEMES 320 More details MINISTRIES 56 More details ESTIMATED GAINS ₹ 5,14,201.92 Cr”
Question: UPSC's CS (Main) 2019, GS Paper III — paper ↗. Approach: Minimalist IAS, checked 3 Oct 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer· 380words · Minimalist IAS
On the latest figures, Budget 2026-27 puts interest payments at Rs 14.04 lakh crore: nearly 40% of the Centre's revenue receipts (Rs 35.33 lakh crore) and 20 paise of every rupee spent. Since 1991 the budget's task has shifted from expanding the State to disciplining it while still funding development.
Why public expenditure management is a challenge after liberalisation
- Rigid commitments: interest, salaries, pensions, defence and subsidies pre-empt most revenue, leaving little discretionary room for capital and social spending.
- Deficit rules under strain: the FRBM Act, 2003 set deficit and debt targets, yet the fiscal deficit stood at 4.4% of GDP in 2025-26 (RE) after repeated pauses for shocks and revenue shortfalls.
- Subsidy pressure: food, fertiliser and fuel subsidies swell with world prices and electoral politics, while leakages persist despite targeting.
- Hidden borrowing: off-budget loans from the NSSF to FCI for food subsidy understated the true deficit until Budget 2021-22 discontinued them.
- Federal squeeze: the Fourteenth Finance Commission's 42% devolution, GST compensation and rising social-sector expectations narrow the Centre's fiscal room.
- Quality: revenue spending crowds out capital outlay, projects overrun cost and time, and outputs are counted more than outcomes.
| Pressure | Evidence | Reform |
|---|---|---|
| Debt and interest | 20 paise of every rupee on interest (Budget 2026-27) | Debt anchor of about 50±1% of GDP by 2031 |
| Leakage | Diversion in subsidy delivery | DBT: estimated gains of Rs 5.14 lakh crore |
| Opaque accounts | NSSF loans to FCI | Brought on budget in 2021-22 |
Reforms that address the challenge
- Debt as the anchor: the N.K. Singh FRBM Review Committee (2017) proposed a 60% debt-to-GDP target (40% Centre, 20% States); Budget 2025-26 moved to a path of Central debt of about 50±1% of GDP by March 2031.
- Better classification: the Plan and non-plan divide ended in 2017-18, with outcome budgets tying allocations to results.
- Plugging leakage: Direct Benefit Transfer across 320 schemes (DBT Bharat portal), Aadhaar-linked payments and PFMS tracking of every release.
- Transparency: extra-budgetary resources are now disclosed in a budget statement, so the deficit shows the full borrowing.
Public expenditure management is hard because commitments are rigid, revenue is uncertain and outcomes are hard to see; holding Central debt to the 50±1% path over the 16th Finance Commission cycle, while shifting rupees from interest and subsidy to capital assets, is how each rupee can count.
Prepared by Minimalist IAS to the answer standard of Shivam Singh (mentor, 7 years) · facts checked against official sources (how we verify) · updated 3 Oct 2026. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.
