Introduction:
Zero-Based Budgeting (ZBB) is a budgeting approach where all expenditures for each new period must be justified from a zero base. Instead of relying on the previous year’s budget as a starting point, every proposed expense needs to be thoroughly evaluated for its necessity and cost-effectiveness. The process involves breaking down activities into “decision packages,” which are then ranked and funded based on their contribution to the organisation’s objectives.
Implementation in India
- Early Introduction: ZBB was first experimented with in India in April 1987.
- Government Mandate: In 1986, the Indian government made it mandatory for all ministries to review their programs and activities and prepare their expenditure estimations based on the ZBB concept.
- Objective: The primary goal was to link financial resource allocation with strategic targets and to identify and eliminate outdated or low-priority programs.
- Focus: ZBB in the Indian context emphasises a critical review of existing government programs and projects to allocate funds to high-priority areas by removing obsolete ones and reducing funding for less important items.
- Annual Re-evaluation: A core principle in India’s adoption is the annual re-evaluation of programs as if they were new initiatives, ensuring funding aligns with current priorities.
- Cost-Benefit Analysis: Programs are subjected to annual cost-benefit analysis, and those falling below prescribed norms are considered for elimination.
Examples of Application in the Indian Public Sector:
While specific, widespread and consistently applied examples across all government sectors might be limited or not always publicly detailed, the principles of ZBB have likely influenced various initiatives. Some areas where its tenets could be applied include:
- Ministry of Health: Identifying and eliminating redundant health programs to redirect funds to critical healthcare initiatives.
- Public Sector Enterprises (PSE): Enhancing operational efficiency and financial performance by justifying all expenditures from scratch.
- Panchayati Raj Institutions: Improving financial discipline, prioritising spending, and aligning budget allocations with rural development objectives.
- ISRO (Indian Space Research Organisation): Applying ZBB principles to ensure efficient resource allocation in its various projects and centres.
Advantages for the Indian Economy:
- Improved Cost Control: Scrutinising all expenses helps identify and eliminate unnecessary spending within government departments and public sector units.
- Enhanced Efficiency: Encourages a review of how activities are carried out, potentially leading to more efficient processes and resource utilisation.
- Alignment with Strategic Priorities: Ensures that government spending is directed towards programs and projects that best serve the nation’s developmental goals.
- Increased Accountability: Requires departments to justify their budget requests, fostering greater responsibility in spending decisions.
- Better Resource Allocation: Funds are allocated based on current needs and priorities rather than historical spending patterns, allowing for more responsive budgeting.
- Potential for Savings: By identifying and eliminating redundant or low-priority expenditures, the government can potentially free up resources for more critical areas.
Challenges in Implementation in India:
- Time-Consuming and Complex: Thoroughly analysing and justifying every expense can be a lengthy and intricate process, especially for large government bodies.
- Resource Intensive: Requires significant manpower, time, and expertise for effective implementation.
- Resistance to Change: Government departments accustomed to traditional budgeting methods may resist the shift to a more demanding ZBB approach.
- Data Requirements: Accurate and comprehensive data on various programs and activities are essential for effective decision package creation and ranking, which might not always be readily available.
- Lack of Expertise: Training and developing the necessary skills in financial analysis and strategic thinking for government personnel is crucial.
- Political and Bureaucratic Inertia: Overcoming established practices and potential resistance from various stakeholders can be a significant hurdle.
- Difficulty in Ranking Qualitative Aspects: Objectively ranking decision packages for programs with non-quantifiable benefits can be challenging.
Conclusion:
Zero-Based Budgeting offers a valuable framework for enhancing efficiency and aligning government spending with national priorities in the Indian economy. While it presents significant advantages in terms of cost control and resource allocation, its successful implementation requires addressing challenges related to time, resources, resistance to change, and data availability. Despite these hurdles, the principles of ZBB can contribute to a more rational and effective use of public funds, ultimately supporting India’s economic development.