The Administrative Reforms Commission in its report on “Strengthening Financial Management Systems”, which was submitted in April 2009, has recommended that the current system of budget preparation, which follows both the top-down and bottom-up approaches should, be replaced by the top-down
approach.
The ARC was headed by current Union Law Minister M. Veerappa Moily. Large-scale unspent provisions by the ministries/departments have prompted the ARC to make such a recommendation.
The Report of the Comptroller and Auditor General (CAG) on Union Government Accounts 2007-08 mentions that “unspent provisions of more than Rs 100 crore, which need a detailed explanatory note to the Public Accounts Committee (PAC), occurred in 60 cases of 47 grants (including Civil, Posts and Defence) during the year 2007-08. The unspent provisions were attributed by the Ministries/Departments to some of the schemes failing to take off.”
The ARC has noted that 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.
The Commission is of the view that the “root cause of the problem lies in the prevalent method of formulation of the annual budget by getting details from different organizations/units/agencies and fitting them into a pre-determined aggregate amount leading to unrealistic budget estimates”.
The ARC report said, “This method should be given up...”