**Subject:** Economy India's **Public Expenditure Management (PEM)** has emerged as a critical challenge in the post-liberalization era, particularly evident in the recent fiscal deficit of **5.87% of GDP in 2023**, highlighting the complexities of balancing development needs with fiscal prudence. ## Challenges in Public Expenditure Management **1. Fiscal Consolidation Pressure:**
- Persistent high fiscal deficit with current levels at **โน11.70 trillion (74.5% of FY25 estimate)** poses challenges for sustainable public finance management.
- The government faces the challenge of meeting the targeted fiscal deficit of **4.4% of GDP by 2025-26** while maintaining developmental expenditure. **2. Expenditure Quality Issues:**
- Rising revenue expenditure compared to capital expenditure (**6.2% vs 17% increase in 2024-25**) indicates structural imbalances.
- **Over-reliance on subsidies** and universal social assistance programs leads to inefficiencies and resource leakages. **3. Resource Allocation Inefficiencies:**
- Inadequate targeting of welfare schemes affects optimal resource utilization.
- Challenge of balancing **social sector spending** with fiscal discipline and economic growth objectives. ## Reform Measures and Way Forward **1. Expenditure Rationalization:**
- Implementation of **Direct Benefit Transfer (DBT)** to reduce leakages and improve targeting.
- Focus on outcome-based budgeting through **Output-Outcome Monitoring Framework**. **2. Structural Reforms:**
- Adoption of **Medium Term Expenditure Framework** for better fiscal planning.
- Enhanced focus on **capital expenditure** (projected **10.1% rise in 2025-26**) to boost economic growth. **3. Technology Integration:**
- Use of **Public Financial Management System (PFMS)** for real-time expenditure tracking.
- Implementation of **Government e-Marketplace (GeM)** for transparent procurement. The government needs to focus on implementing the **Fiscal Responsibility and Budget Management (FRBM) Act** effectively while ensuring quality public expenditure through better targeting and monitoring mechanisms, similar to Malaysia's targeted subsidy approach and Tanzania's improved resource management systems.