Public Administration in a Globalizing World

an approved sum can be spent for each item, other expenses can-
not be introduced until money has been appropriated, and funds
cannot be transferred within an organization. This type of budget
is advantageous from an accountability perspective, that is, the
amount that will be spent on x, y, and z is clearly delineated to
keep spending under control. It a simple tool for keeping tabs on
where money goes, and ensuring that funds are spent appropri-
ately. A major disadvantage of the line-item budget is that it is not
tied to performance. However, the rigidity of line-item budgeting
has led to the use of performance budgeting.

Performance Budgeting
Performance budgeting includes a narrative describing an agency’s
work in progress, and accomplishments and aims to provide policy-
makers with data for measuring work-load and activity costs and
to tell the public whether they are getting their money’s worth.
The idea behind performance budgeting is that how much you
spend on department x is tied directly to how well department x
is performing. Performance budgeting requires the establishment
of performance levels and the collection of information that tells
weather those performance levels have been met. The most com-
mon types of performance indicators are outputs and outcomes.
Output indicators report units produced or the quality of services
provided by a department, an agency, or a programme. They re-
flect how well a government entity is meeting its goals and objec-
tives. These indicators are designed to answer questions that deal
with the quality and impacts of government service delivery. The
central points of performance budgeting are:

• The amount of work that is done is measured,

• The quality or the results of that work is measured, and
• This impacts how much money a department will receive in
the future (Holzer and Schwester 2011: 300).

Departments that over-perform may receive more money, while

those that under-perform may receive less. Critics argue that using
performance measurement as a basis for determining budgets is
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counter-intuitive, because taking money away from a struggling

department is likely to make matter worse. Also, some might ar-
gue that measuring performance is inherently problematic, that is,
designing performance indicators is subjective, and collecting data
can be time-consuming and expensive.
Planning, programming and budgeting system
The planning, programming and budgeting system (PPBS) emerged
as a reaction to the unscientific and disjointed planning in
preparing the budget. The PPBS evaluates policy by dividing it into
separate programmes and quantifying their gains and losses. A
basic element of programme budgeting—cost-benefit analysis—
systematically weighs the cost of a project against the amount of
benefit—in terms of money or material saved or earned—that an
agency or department can expect in return. The PPBS selects those
programmes that achieve the desired goals at the lowest costs.
It is one of the rational approaches to budget preparations. The
PPBS offers great flexibility because they allow any combination of
expenditures that will achieve a programme’s objectives and yield
the greatest benefits for the costs involved. This approach enables
policy-makers to assess a project’s potential success or failure
before it is implemented.
Zero-based budgeting
The traditional practice is to allocate funds on an incremental basis
every year to all schemes agreed upon and approved by the gov-
ernment, irrespective of their operational evaluation. This leads to
the arbitrary increase in allocations which keep multiplying year af-
ter year. A stage comes when financial accountability of operative
agencies becomes an arduous task, if not impossible. Contrary to
this, the zero-based budgeting (ZBB) is the allocation of resources
to agencies on the basis of those agencies periodically re-evaluating
the need for all of the programmes for which the agency is responsi-
ble and justifying the continuance or termination of each programme
in the agency budget proposal. This leads the allocating agencies
to warn such funding schemes which are sick or irrelevant to the
ground realities of socioeconomic life. The ZBB attempts to bring
the expenditure of such schemes down to zero or in other words
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to a reduced level of expenditure so that a proper evaluation of the

scheme could be possible (Singh 2002: 200–01). In other words, an
agency reassesses what it is doing from top to bottom from a ‘hypo-
thetical zero’.
The ZBB is advantageous in that it allows department heads
to set priorities, letting the budget makers know where cuts are
more acceptable and where increases would be desirable. It makes
sense to allow department heads to set these priorities, given that
they are in a position to know how beat to carry out a depart-
ment’s programmes. A disadvantage of ZBB deals with its labour
intensiveness. Preparing and ranking the decision packages can be
overwhelming. Additionally, the way in which the decision pack-
ages are ranked can be highly subjective (Holzer and Schwester
2011: 301–03).

Gender Budgeting
Gender budgeting is a process that entails incorporating a gender
perspective at various stages of budgeting, that is, planning, policy
formulation, assessment of needs of target groups, allocation of re-
sources, implementation, impact assessment, and repriorotization
of resources. The main objective of gender budgeting is to bring
out a gender-responsive budget. Gender budgeting is understood
as a dissection of the government budget to establish its gender-
differential impacts to translate gender commitments into budget-
ary commitments. Thus, gender budgeting:

• looks at the government budget from a gender perspective

to assess how it addresses the needs of women in all sectors,
• it does not seek to create a separate budget, instead it seeks
to provide affirmative action to address the specific needs of
women, and provides a way for assessing the impact of gov-
ernment revenue and expenditure on women (Government
of India 2008: 103­–06).

Gender budgeting lends itself to strengthening administrative

processes and actions to achieve the targets for improvements in
the position of women. It not only entails a look at allocation of
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resources for women but goes beyond to cover tracking of the uti-
lization of allocated resources, impact analysis, and beneficiary-
incidence analysis of public expenditure and policy from a gender
perspective. Hence, gender budgeting is not an accounting exer-
cise as commonly perceived and understood. It encompasses in-
corporating a gender perspective and sensitiveness at all levels and
stages of the developmental planning, processes, and implementa-
tion. An important outcome of the application of gender budgeting
is that it paves the way for gender mainstreaming in the develop-
mental process and in understanding how the needs of women can
be addressed in a better way (Goel 2010: 247).
Gender budgeting is a powerful tool for achieving gender main-
streaming so as to ensure that the benefits of development reach
women as much as men. It seeks to ensure equality of outcomes
and not equality of opportunities. In India, the Ministry of Women
and Child Development, as the nodal agency for gender budget-
ing has taken great strides towards promoting gender budgeting
across sectors and at different levels of governance. A powerful
impetus to the process was provided by the Ministry of Finance
who in 2004, mandated setting up of Gender Budget Cells in all
ministries and departments. So far, fifty-six ministries and depart-
ments of Government of India have set up gender cells.
Besides gender budgeting, green budgeting is another budget-
ing innovations. It believes in protecting the ecology in the pro-
cess of development. It is not a separate budget, but focuses on the
environmental considerations in the budgetary allocations. Due
to ecological considerations, now, it has become mandatory to all
development projects to go through ‘environmental impact assess-
ment’. It is a process in which the ecological impact of a project
is assessed before its implementation. Thus, such budgetary inno-
vations are trying to address to the emerging socioeconomic and
ecological challenges.

Budget Policy Orientations in India

The present budgetary system of India owes its origin to the co-
lonial period when the Finance Department was established in
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1843 to look after the financial affairs of the government. But the
budget, per se, was presented for the first time in 1860 to herald
the system of laying down the annual estimates of revenues and
expenditures and their consideration and approval by the legisla-
ture. With minor modifications and sometimes additions in the
existing system, the budgetary system of India, by and large, re-
mained the same throughout the colonial rule in India. However,
the two debilitating features of the colonial budgetary system in
India were absence of popular control over the budget and lack
of a socioeconomic developmental perspective in the budgetary
allocations. The colonial budgetary system was, therefore, given
a go-by after Independence and replaced by a responsive and
development-oriented budgetary system under the provisions of
the Constitution of India.
The budget policy orientations during the early times of Jawa-
harlal Nehru remained confined within the prescriptions of the
Indian Constitution as stipulated under the provisions of Article
112. Without affecting any drastic break with the colonial line-
item budgeting system, the budgetary policy of Nehru got en-
riched with the initiation of planning as a vital component of the
economic development in India. Gradually, as the plan allocations
started outweighing the non-plan component of the governmen-
tal economic stipulations, the budget appeared to have increas-
ingly got reduced as an instrument of taxation rather than a policy
document. Moreover, in the budget, the expenditure side of the
estimates was accorded high status without matching accountabil-
ity and result-orientation. In Nehru’s times, therefore, the budget
policy could not emerge as a formidable tool of socioeconomic
development of the country along with acting as an effective in-
strument of ensuring efficiency, economy, and effectiveness in
enormous government expenditures.
To eradicate the obvious flaws in the existing system of budget,
a number of appreciable policy measures were introduced during
the times of Indira Gandhi in the budgetary system of the country.
Owing to its superior technical value, the demand for the intro-
duction of performance budgeting was raised from a number of
quarters, including the Estimates Committee and Administrative

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Reforms Commission. But, a precondition for the introduction of

performance budgeting was a sincere reform in the accounting
system so as to make it a tool of administrative efficiency. Hence,
the government took the landmark step of separating the audit
from accounts in 1976, undoing a long-standing colonial feature
of the budget system in the country. Subsequently, the system of
performance budgeting was introduced in select developmental
departments of the central government in 1977–78. Above all,
instead of allowing planning to dominate the budgetary process,
the idea of the PPBS was accepted as way to integrate planning
with budgeting in India.
With the dawn of economic liberalization in the country since
early 1990s, the policy orientations behind budget in India appear
to have undergone subtle transformations manifested in three
ways. First, despite remaining an inalienable part of the overall
budgetary process, the component of planning lost its command-
ing position in determining the focus and locus of the budget. Now,
planning got reinvented to act only as a guiding instrument to in-
dicate the broader contours of socioeconomic development plans
of government to be reflected in the budgetary provisions. Second,
in order to bring about efficiency and economy in the financial
functioning of the government, a number of managerial innova-
tions and improvisations have also found ready acceptance in the
budgetary procedures. For instance, a quite effective measure of
cost-cutting in the government departments has been the tech-
nique of the ZBB which has been borrowed from the private sector
of the United States. Finally, amidst the continuing populist and
bureaucratic underpinnings in the budget, a subtle move has been
in place to bring about some degree of fiscal discipline through
budgetary techniques. Through such a move, not only would the
unproductive fiscal profligacy of the governmental agencies be
minimized, the money so saved could be reinvested in the newly
prioritized social sector development.
Quite evidently, thus, the trajectory of the budget policy orien-
tations in India has apparently been guided by the administrative
expediency and ideological moorings of the governments. Taking
budget mainly in its instrumentalist value, the governments over

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the years sought to utilize the budgetary formulations to secure

money for certain programmes and projects rather than using it as
a policy instrument. The primary reason for this seems to be the
advent of planning as the predominant determinant of the policy
perspectives of the government on socioeconomic development of
the country. Nevertheless, the urge for economic prudence and fis-
cal discipline led the governments at various times to go for subtle
improvisations in the budgetary and accounting procedures. As a
result, the budget probably inadvertently got salience in the realm
of the policy-making of the government as the free-play of the
market forces in the country led to increasing reduction in the
overarching role of planning. In the contemporary times, bud-
get seems to have regained its status as the major instrument of
policy pronouncements on the socioeconomic development of the
country.

Major Actors in Budgetary Process in India

The budgetary process in India is quite a complex one involving a
number of actors and agencies at various stages. Given the dem-
ocratic nature of the Indian polity, such a cumbersome process
and multitude of agencies are obvious as they perform distinct
functions crucial to the successful and responsive functioning of
the budgetary system. What is unique in such a system, just as
in case of other democratic systems, is that apart from stipulat-
ing money, what is equally, if not more, important, is the system
of accountability for spending such money. Significantly, the inti-
mate relationship between the legislature and executive by dint of
parliamentary democracy in India, the legislature shares a num-
ber of substantive financial functions along with the executive. At
the same time, the autonomous institution of audit also joins the
other agencies to provide a logical input in the overall functioning
of the financial administration of the country. What follows is a
brief elucidation of the major actors or agencies in the budgetary
process in India.
Parliament of India may be taken as the lead actor in the bud-
getary process of the country. In consonance with the norms of the

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parliamentary democracy, the parliament is entrusted with the pri-

mary responsibility of acting as the custodian of the public money
in the country. Consequently, by way of discharging its onerous
responsibilities as fund-raising and fund-granting agency, it exer-
cises almost absolute control over the budget of India through its
powers of levy, abolish, or decrease any tax or other budgetary al-
locations. Indeed, such a commanding position to the Parliament
has been accorded by the Indian Constitution itself. Hence, under
Article 112 of the Constitution, the president has been vested with
the responsibility of causing to be laid before the houses of Parlia-
ment, the ‘annual financial statement’, the constitutional terminol-
ogy for budget. However, of the two houses of Parliament, it is the
lower house or the Lok Sabha that holds absolute control over the
budgetary process with just nominal role assigned for the upper
house or the Rajya Sabha.
An equally important actor in the budgetary process of India
is the executive. In fact, the theoretical monopoly of the Parlia-
ment over the budget, boils down to the monopoly of the execu-
tive itself, under the dynamics of the parliamentary democracy. In
other words, as the executive commands an absolute majority in
the Lok Sabha, it is but natural that the wishes of the former are
unhesitatingly fulfilled by the latter as the two are staffed by the
people belonging to the same party or ideological persuasions.
Another reason for the dominance of the budgetary process by
the executive is its role as the administering agency for the bud-
getary proposals. In this capacity, the executive, even in theory,
has been assigned the role of evolving the proposals for demand
of money from the Parliament, keeping in view the policies and
programmes for socioeconomic development, in addition to the
other routine expenses such as defence and administration of the
country. The budgetary process in India, therefore, seems to be a
fine example of the harmonious and cooperative functioning of
the two pivotal institutions of constitutional governance in the
country.
As the core unit of the executive entrusted with the task of
managing the operational dynamics of the budget, the Minis-
try of Finance may arguably be taken as the nodal agency of the

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budgetary process in India. Indeed, to a layman, the Ministry of

Finance epitomizes the financial administration of the country
in its entirety. Though technically untenable, yet such a notion is
attributed to the Ministry of Finance, keeping in view its role in
managing the finances of the country. For instance, right from es-
timating the final figures of the revenues and expenditures of the
government for presentation before the parliament, the ministry
is vested with the task of ultimately ensuring that the finances
of the country are managed properly. The major contours of the
functioning of the ministry are discerned from its structural divi-
sions in the three departments, that is, Department of Economic
Affairs, Department of Revenue, and Department of Expendi-
ture. Such an overarching role in the management of the finances
of the country has made the Ministry of Finance one of the key
ministries of the Government of India.
An indirect, yet, democratically unavoidable actor in the
budgetary process of democratic societies is the institution of in-
dependent audit. In India, such a function is discharged by the
constitutional authority called the CAG of India. Envisaged un-
der the provisions of Article 148 of the Constitution, ‘the office of
CAG is meant to introduce the rigour and uniformity of govern-
ment accounts on the one hand and to carry out the responsibility
of conducting independent audit on the other’ (Chakrabarty and
Pandey 2008: 157). The CAG conducts such an audit on behalf
of the parliament to investigate and report on the fidelity, legal-
ity, and efficiency of all the financial transactions carried out by
the government departments. The criticality of the role of CAG in
the budgetary process of India has been a byproduct of the parlia-
mentary democratic system of governance provided for under the
Constitution. Over the years, it has emerged as one of the most
stringent checks on the financial impropriety and profligacy of the
government, though critiques have argued against such a role of
audit in India.
Finally, the parliamentary committees constitute the last set
of actors playing significant role in the budgetary process of the
country. The role of these committees exposes the inadequacy of

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the control exercised by the parliament over the finances of the

government due to paucity of time and lack of expertise. Previ-
ously, there used to be only two committees, that is, the Estimates
Committee and the Public Accounts Committee of Parliament to
discharge the necessary functions of legislative control. But, in re-
cent times, with the creation of the departmentally related stand-
ing committees of Parliament, the role of the Parliament in the
functioning of the various departments of the government has
become more comprehensive and focused. Nonetheless, the role
of these committees is distinct in relation to the budgetary pro-
cess. The Estimates Committee, for instance, suggests economies
in estimates of expenditures of various government departments
in order to make them more realistic and economical. On the con-
trary, the Public Accounts Committee carries out a post-mortem
of the appropriation accounts in the light of the audit report of the
CAG. In the process, it attracts the attention of the legislature to
financial irregularities, if any, and suggests remedial measures for
the same. In distinction with others, the departmentally related
standing committees carry out not just financial control over the
concerned departments but also scrutinizes their overall function-
ing from time to time.
In nutshell, the major actors or agencies in the budgetary pro-
cess of India are numerous and varied, owing to the variety of
functions each of them is supposed to perform. Such functions
may be classified in three groups with each having their critical
value in the smooth functioning of the budgetary system. Hence,
while the broad functions of parliament as the fund-raising and
fund-granting agency is well-established, the role of executive and
its sub-agencies such the Ministry of Finance as the proposer of
financial estimates is equally universally accepted. What is, howev-
er, unique to India is apparently its elaborate system of legislative
control over the budget through the mechanism of its own com-
mittees as well as the institution of an independent audit. Indeed,
the successful functioning of the financial administration in India
is credited to the reasonably satisfactory role played by these actors
in the budgetary process of the country.

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Budget System in India

This section explains the budget system of India, with reference to
its classification, formation, and composition.
Budget classification, generally, is considered as a useful tool
to provide meaningful information on the activities of the gov-
ernment and sets out the form and structure to provide for closer
analysis and utilization by the policy-makers. In other words, bud-
get classification serves the purpose of presenting the maze of data
in such a simple and systematic way that the non-technical parlia-
mentarians are able to understand the niceties of the budget and
meaningfully take part in the deliberations on it. Keeping that in
mind, the budget classifications in various countries of the world
are carried out in two distinct ways. First, the traditional method
of budget classification, also known as line-item method of budget
classification, provides for the arrangement of data on the basis of
the departments that are supposed to incur the expenditure. On
the contrary, the second method, also called the performance bud-
geting method or functional classification method, seeks to clas-
sify receipts and expenditures on the basis of functions, projects,
programmes, and activities of the various departments.
Budget classification in India, for a long time even after Inde-
pendence, continued to be carried out in the format of the line-item
method, maintaining the opaqueness of the budgetary provisions
and rendering their proper evaluation almost inscrutable. Hence,
following the recommendations of a number of committees and
commissions as well as persuasions from development economists,
the government decided to switch over to the functional classifica-
tion of budget in 1974. Consequently, now instead of just naming
the department for budget classification, the government activities
are categorized into three broad groups of General or Regulatory
Services, Social and Community Services, and Economic Services.
Even within these groups, the budgetary allocations are further
classified under five heads, known as sectoral head, major head,
minor head, sub-head, and detailed heads of account.
For purposes of budget classification, General Services include
those regulatory or routine services of the government that do not
involve any productive or developmental activities. These services
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are further clubbed together under six broad groups: (a) organs
of state such as parliament, head of state, judiciary, audit, council
of ministers, and elections; (b) fiscal services including the agen-
cies for collection of taxes; (c) interest payments and debt services;
(d) administrative services, such as public service commissions,
general administration, police, and so on; (e) pension and miscel-
laneous general services; and (f) defence services.
As against the General Services, the Social and Community
Services consist of such programmes and activities that aim at
providing basic social services to the people. Forming core of the
social development programmes of the government, these services
include education, health, housing, drinking water, social security
including old-age pension, welfare of the SCs, STs, women, mi-
norities, and other marginalized sections of the society. Besides, in
recent times, under this head the government has initiated a num-
ber of flagship schemes such as Sarva Shiksha Abhiyan (Education
for All), Mid Day Meal Scheme, National Rural Health Mission,
Total Sanitation Campaign, National Rural Employment Guaran-
tee Scheme, Integrated Child Development Services, Jawaharlal
Nehru National Urban Renewal Mission, and Pulse Polio Pro-
gramme aimed at bringing about a turnaround in the fortunes of
the masses of the country (The Times of India 2009).
Lastly, the economic services cover those sectors of the govern-
ment functioning that are involved in productive and manufac-
turing activities including trade and commerce. These services
are further classified into seven sub-groups: (a) general economic
services including foreign trade and export promotion, (b) agri-
culture and allied services such as cooperation, minor irrigation,
animal husbandry, fisheries, forests, soil conservation, dairy devel-
opment, and so on, (c) industry and minerals including heavy and
medium industries, village and small-scale industries, mines and
minerals, (d) water resources and power development, (e) trans-
port and communications including civil aviation, road transport,
ports, lighthouses and shipping, (f) railways, and (g) posts and
telegraphs. However, with the separate presentation of the railways
budget, the clubbing of railways under the head of economic ser-
vices does not carry much weight in normal times.
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After the streamlining of the budget classification through the

adoption of the techniques of performance budgeting system,
the formation of budget has become quite meaningful and ac-
countable in India. The formation of budget follows the cycle of
the financial year from April to March each year. However, owing
to the cumbersome procedures involved in the final formation of
the budget, the process for the same begins around the month of
September or October. Initiating the process, the Ministry of Fi-
nance issues a circular to the various ministries and departments
inviting their estimates for the coming year. This is in accordance
with the general principle of budgeting that he who spends the
money should also prepare the estimates in advance for presen-
tation before the legislature. These estimates are subsequently
transmitted to the controlling officers of the respective depart-
ments who are assigned the responsibility of giving final shapes
to the budget estimates of the department. The controlling of-
ficers, therefore, are empowered to scrutinize the estimates and
either give their approval for the same or revise the estimates,
if necessary, giving reasons for the same. Approved and con-
solidated, thus, the estimates of various ministries and depart-
ments then go to the Ministry of Finance during the period of
November–December. By the end of January or early February,
the Ministry of Finance is able to prepare a consolidated state-
ment of revenues and expenditures, which is further fine-tuned
by the third week of February to culminate the process of forma-
tion of budget.
The completion of the process of budget formation results into
the final product, technically called the ‘annual financial state-
ment’. The composition of this statement or budget is, in the main,
marked by the items of income and expenditure that are presented
in the following format:

1. Actual figures of the previous three years;

2. the sanctioned budget estimates for the current year;
3. revised estimates of the current year;
4. proposed estimates for the next financial year, with explana-
tory notes for any increase or decrease in estimates; and

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5. actuals of the current year available at the time of prepara-

tion of the estimates and actuals for the corresponding pe-
riod of the previous year (Thavaraj 1987: 496).

In order to provide for a ready-recknor of the budgetary provi-

sions, the budget document contains the broad description of the
receipts and expenditures of the government. The total receipts of
the government is the sum total of the revenue receipts and the
capital receipts. Similarly, the total expenditures of the govern-
ment are calculated by summing up, both the plan as well as the
non-plan expenditures. A remarkable feature of the budget docu-
ment, indicating the health of the government finances, has been
the two deficit indicators. While the revenue deficit indicates the
excesses of revenue expenditures over revenue receipts, the fiscal
deficit denotes the totality of revenue receipts and certain non-
debt capital receipts as well as the total expenditures including
loans, net of repayments, and others. The difference between the
two gives the figures of fiscal deficit which also indicates the total
borrowing needs of the government from all sources to meet the
above mentioned difference.
The niceties of the budget system of India, therefore, get reflect-
ed in the classification, formation, and composition of the bud-
get. Though most, if not all, of the aspects of the budget system
in India drew their lineage from conventions and rules rooted in
the colonial framework, a number of modifications brought about
over the years have added new vibrancy and coherence in them.
The budgetary system in India, thus, appears to be a good example
of continuity and change keeping in view the requirements of the
changing times.

Budgetary Process in India

While the budget process in any country is a complex and time-
taking activity, the dynamics of a number of unconventional fac-
tors such as planning and parliamentary democratic polity in
India did not make the matter any easier. Indeed, the budgetary
process in the country appears to have become a round-the-year

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affair as one or the other aspect of the process is always in motion,

keeping the budget officials on their tenterhooks. For instance, the
initiation of the budgetary process by the third quarter of the year
does not get completed with the enactment of the budget propos-
als by the Parliament in the month of March. Parliamentary ap-
proval is followed by the onerous task of budget implementation
which, within its ambit, also combines the responsibility of budget
accounting as well. The final act in the budgetary process is en-
acted by the audit of the appropriation accounts maintained by
the spending departments which in itself is an activity having its
own follow-up actions. Hence, what follows is a brief narration
of the various significant activities involved in the budgetary pro-
cess in India, right from the stage of budget planning and mov-
ing through the stages of scrutiny, implementation, accounting to
reach the final stage of audit.

Budget Planning
The stage of budget planning involves numerous intricate activi-
ties that go into making the budget before its presentation to the
Lok Sabha. To set the stage for budget planning and to accom-
modate the plan objectives for development in the budget provi-
sions, a detailed discussion takes place between the officials of
the Planning Commission and the Ministry of Finance. In this
discussion, the two crucial issues are finalized which include the
gross budget support for plans and ministry/department-wise
plan allocation (Thavaraj 1987: 496). Such an exercise appears
to be a crucial step in the budget planning of India, given the
predominant position accorded to planning in chartering out
the long-term policies and programmes for the socioeconomic
development of the country. However, this is also argued as a
weak point of the Indian budgetary system which is alleged to
have been reduced to not more than an instrument of overaching
planning apparatus of the country. Nonetheless, irrespective of
the merit of such a critique, it may be argued that since planning
has become well-entrenched in the economic system of the coun-
try, it would not be possible to overlook the same. The only way

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out, therefore, is to go for a coordinated approach on incorporat-

ing the plan considerations in the budgetary provisions. Hence,
once the issues of plan concerns are addressed, the onus falls on
the Ministry of Finance to set the ball rolling for the formation of
the budget to be presented before the Parliament.

Budget Scrutiny
The scrutiny of budgetary proposals in India takes place at two
levels—administrative and legislative. Administrative scrutiny
refers to the scrutiny carried out by the higher echelons of a
particular department as well as the Ministry of Finance. For
instance, the budgetary proposals emanating from the base
estimating authorities are, as a norm, scrutinized by the Financial
Advisor and head of the department. Only when the administrative
approval of these officials is obtained, such proposals become
part of the departmental budget. Further, if the proposal involves
construction works, it needs to be submitted for scrutiny to the
Public Works Department which may then give the technical
approval to the proposal. As the final step in the administrative
scrutiny, all the departmental budgets, particularly the ‘new items’
thereof, are minutely scrutinized by the Ministry of Finance and
its decision becomes the final word on the subject.
After presentation of the budget in the Parliament, the stage of
legislative scrutiny begins. Previously, the legislative scrutiny of
budgetary proposals in India was more generalized and formal-
istic, given the technical nature of the subject and paucity of time
at the disposal of the parliament to go into the details of the bud-
get. But, with the inauguration of the system of departmentally
related standing committees in 1993, the legislative scrutiny of
budget has become more focused and sharp. However, bringing
another aspect of this system, a commentator argues, ‘[T]his is a
valuable contribution to legislative scrutiny of budget proposals
but the public focus of debate on the floor is now lost’ (Prasad
2006: 147). In the end, the debates and discussions on various as-
pects of the budget culminate in its approval by the Parliament.

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Budget Implementation
The nodal agency for budget implementation in India is the Min-
istry of Finance. Following the passage of the Appropriation Act,
the Ministry of Finance issues advisories to the spending minis-
tries, intimating the quantum of allocated funds to them. There-
after, the responsibility comes on to the controlling officers—who
ordinarily are the heads of the departments—to allocate money to
the numerous disbursing officers of the department. However, the
disbursing officers are given the right to spend money only to
the extent permitted, going beyond which would necessarily require
the permissions of the competent sanctioning authorities. At the
same time, it is also mandatory for each spending department to
maintain the records of payments and receipts in the prescribed
method of accounting. Thus, the system of budget implementa-
tion in India essentially involves, at the ground, functionaries such
as the controlling officers, competent officers to accord financial
sanctions, drawing and disbursing officers, and an efficient struc-
ture of accounts to keep record of payments and receipts. In the
process of budget implementation, the concerned officers are ex-
pected to exercise the highest degree of continuous vigilance and
financial prudence in order to have an economical, efficient, and
effective utilization of the public money.

Budget Accounting
Constitutionally, the budgetary accounting in India is the respon-
sibility of an independent and constitutional authority called the
CAG of India. In fact, the method and form of keeping the accounts
of the central as well as the state governments are prescribed by the
CAG with approval of the president of India. Hence, the office of
CAG happens to be the custodian of accounting and audit system
in the country, thought the audit and accounts were separated in
1976 to provide for better administrative expediency and account-
ability. ‘Under the Controller and Auditor General there is an Ac-
countant General in each state, in whose office the accounts of the
transactions [Central as well as State], which take place within
the territorial limits of the state, are kept’ (Prasad 2006: 147). The
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uniqueness of Indian accounting, thus, lies in making it an execu-

tive function, despite retaining it under the overall monitoring and
guidance of the legislative-constitutional office of the CAG.

Budget Audit
Budget audit is the exclusive function of the CAG of India. Given
the value and sanctity of the function, the office of CAG has im-
pliedly been made analogous to that of a judge of the Supreme
Court of India in terms of its independence and functional au-
tonomy. Audit is, in fact, visualized as an extension of the legisla-
tive control and accountability over the financial administration of
the country. Audit in India is more sharp and focused with regard
to the expenditures which is called the Appropriation Audit. The
objective of the Appropriation Audit is

to ensure that the funds voted by the legislature are utilized by the
executive for the purposes for which they were intended with due
regard to economy and efficiency. It comprises [of]:
1. audit from the point of view of accountancy and classification;
2. audit from the point of view of authority;
3. audit of appropriation and finance accounts; and
4. audit from the point of view of propriety. (Thavaraj 1987:
644)

In brief, the budget process in India appears as an integrated

entity, reflecting the nature and structure of the socioeconomic
and politico-administrative set up of the country. For instance,
budget planning is arguably a standard statement on the bud-
getary dynamics of the socioeconomic development goals and
methods of their achievement. However, in order to provide for
wisdom, faithfulness, economy, and accountability, an elaborate
system of administrative and legislative scrutiny has been put in
place. Also, the budget implementation illustrates the maturity
and autonomy of administrative apparatus in India, with a view
to facilitate the highest degree of initiative, enterprise, and inno-
vation in administering the development of the country. Lastly,
the budget accounting and audit have become the hallmarks of
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financial accountability in true spirit of the parliamentary demo-

cratic system of governance in India.

Finance Management in India

The management of finances in India involves a complex set of
activities right from the generation of resources to their proper
management for the socioeconomic development of the country.
In fact, finance probably constitutes the most significant aspect of
the budget. The government policies and programmes designed to
bring about socioeconomic development of the people get func-
tional dynamism only through the support of the finances. Indeed,
budget and finance may be taken as two sides of the same coin.1 In
this regard, the Ministry of Finance functions as the nodal agency
to manage the finances in conjunction with certain other bodies
like the Planning Commission. Two core issued involved in the
finance management of India are the generation of the revenues
and the proper expenditure of the same in such a manner that the
socioeconomic development of the country may be maximized to
the greatest possible extent. However, a common tendency evident
in the finance management in most of the developing countries ap-
pears to be the notion of deficit financing. Though in many cases,
deficit financing is ordinarily used as a means of augmenting the
resources of the government to be used for productive purposes,
this usually does not become the case in India. While taking re-
course to deficit financing, the government is often seen spending
the resources for the unproductive purposes. This appears to be a
significant aspect in the management of finances in India.

Size of Finance
The size of finance in India is usually reflected through the
estimates presented in the annual budgets. The figures in the Table
10.1 demonstrate the broad trends in the varying size of public
finance in India over the past sixty years. Bracketed in two basic
accounts of revenue and capital, difference between the receipts
and expenditures of the two accounts gives the overall health of

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Table 10.1
Size of Finance in India since 1950–51 (` in crores)

1950–51 1980–81 2001–02 2008–09

Actuals Actuals Actuals Budget
Revenue Account
Receipts 406 12,830 2,01,450 6,02,935
Expenditures 347 14,540 3,01,610 6,58,120
Revenue Surplus (+)
Revenue Deficit (–) +59 –1,710 –1,00,160 –55,185
Capital Account
Receipts 120 8,770 1,61,000 1,57,950
Disbursements 182 9,630 60,840 92,765
Deficit/Surplus –62 –860 +1,00,160 +55,185
Overall budgetary deficit –3 –2,570 Nil Nil
Source: Datt and Sundharam (2008: 895).

the government finances. As the figures indicate, there has been

progressive increase in the various heads of the government
finance over the years demonstrating the growing size of the Indian
economy. For instance, while the revenue account receipts in
1950–51 was just `406 crore, its galloping to the level of `6,02,935
crore in 2008–09 indicate an mammoth increase. Similar type
of manifold increase can also be seen in the other heads of the
government finance.

Finance Revenue and Expenditures

The revenue component of public finance in India consists of
the receipts on both the revenue or current as well as capital ac-
counts. In turn, the revenue receipts are further divided into tax
revenue and non-tax revenue. Accounting for the major chunk of
the finance revenue of the government, the tax revenue is drawn
mainly from three types of taxes: taxes on income and expendi-
tures, taxes on property or capital assets, and taxes on goods and
services. While the first two set of taxes are known as direct taxes,
the last category of tax is called the indirect tax. Of the direct taxes,

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the income tax constitutes the backbone of the finance revenue in

India. The other components of the taxes on income and expen-
diture include the corporation tax and the interest tax. Two key
components of the taxes on property comprise of the wealth tax
and the give tax. Within the category of indirect taxes, customs
duties, central excise duty, and the recently introduced service tax
constitute the nucleus of the account. In contrast to the tax reve-
nue, the contribution of the non-tax revenue to the body of finance
revenue is not that remarkable. It is drawn mainly from routine
governmental enterprises such as currency, coinage, mint, interest
receipts, dividends, and miscellaneous non-tax revenues.
Capital account receipts of the government are drawn from four
sources: (a) net recoveries of loans and advances made previously
to state governments, union territories, and public sector under-
takings; (b) net market borrowings, that is, gross borrowings from
the market less repayment of public debt; (c) net small savings col-
lections, like gross collections less share of the states; and (d) other
capital receipts such as provident funds, special deposits, and so
on (Datt and Sundharam 2008: 894–95).
On the expenditure side, the government has gone for a new
classification under the heads of non-plan expenditure and plan
expenditure from the financial year 1987–88. Accordingly, the
non-plan expenditures are again sub-divided into revenue ex-
penditures and capital expenditures. Hence, the revenue expendi-
ture consists of revenue payments, defence revenue expenditure,
subsidies in the fields in the areas of fertilizers, food, and export
promotion, debt relief to farmers, postal deficit, police, pension,
other general services such as organs of state, tax collection, exter-
nal affairs, and likewise. It also goes to finance the social services
such as health, education, social security, employment guarantee
schemes, mid day meal scheme, and so on, in addition to making
massive outlays for the core sectors of the economy such as agri-
culture, industry, power, transport, communications, science and
technology, mining, and other infrastructural development proj-
ects. Finally, grants to the states and the union territories as well as
grants to the foreign countries are also disbursed from the revenue
expenditures corpus of the government.

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As referred to earlier, the capital non-plan expenditure is main-

ly meant for the financing of the activities such as defence capital
expenditure, loans to public sector enterprises, loans to the states
and the union territories, apart from the loans and grants to the
foreign governments.
As against the non-plan expenditure, the plan expenditure is visu-
alized to provide for financing of long-term infrastructure develop-
ment projects in the sectors such as agriculture, rural development,
irrigation and flood control, energy, industry, mining, minerals,
transport, communications, science and technology, environmen-
tal protection, social services, and social security. Significantly, the
key to understand the plan expenditure is the prior stipulations for
such expenditures in the five-year plan documents with appropri-
ate division of the sum total of expenditure in a particular sector
over the span of five years. Besides, the financing of the central proj-
ects, another critical aspect of the plan expenditure happens to be
the central assistance for the plans of the states and the union ter-
ritories. The finance expenditure component of the public finance
in India, therefore, consists of both the non-plan as well the plan
expenditures with the budgetary provisions just giving a detailed
description of these heads for a particular financial year.

Funds and Government Bonds

As part of the management of the public finances, Government of
India maintains its corpus of funds under three specific-purpose
accounts called funds and account. First, the Consolidated Fund
of India, set up under the provisions of Article 266(1) of the
Indian Constitution, acts as the fund to finance, among others,
the expenditures called ‘charged expenditures’ in the conduct of
the operations of the vital organs of the state such as judiciary and
other constitutional offices. It consists of all the revenue receipts
by the government by way of taxes such as income tax, central
excise, customs, and other non-tax revenues. Further, all the loans
raised by the government both from within and outside the coun-
try are also credited into this fund. This fund also feeds all the
expenditures of the government with proper authorization from

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the Parliament. Second, under the provisions of Article 267 of the

Constitution of India, the Contingency Fund of India has been
set up with a corpus of `50 crore to meet the expenses arising in
emergency and unforeseen circumstances. Interestingly, once the
Parliament sanctions money for the said emergency circumstances,
the advance made from the Contingency Fund is reimbursed to
it. Thus, this fund is supposed to act as some sort of cushion to
provide the government finance resilience in times of crisis. Fi-
nally, the Public Account, constituted under Article 266(2) of the
Constitution, is meant to service the transactions relating to debt
other than those included in the Consolidated Fund of India. As
such transactions do not constitute the normal receipts of the
government, no parliamentary authorization is required for pay-
ments to be made from this account. Thus, in brief, the Con-
solidated Fund of India, the Contingency Fund of India, and the
Public Account form the core of what may be called as govern-
ment funds in India.
The government bonds also constitute a significant component
of the public finance system in India. Technically, a government
bond is a bond issued by the Government of India denominated
either in the country’s own currency or in foreign currencies in
which case they are called sovereign bonds. Such bonds are issued
to raise money in order to finance the spending of the govern-
ment given the insufficiency of funds being raised from sources
like taxation. The Government of India, for instance, proposed to
borrow `4,50,000 crore in 2009–10 (Hindustan Times 2009: 21)
from the market to funds its massive socioeconomic develop-
mental programmes. In fact, a high fiscal deficit existing in India
means a higher government borrowing, primarily, if not exclusively,
through the means of the government bonds.
In sum, the management of public finance in India turns out
to be a complex and technical exercise requiring a high degree of
managerial skill and financial prudence in the persons concerned.
Being the operational part of the economic system of the country
whereby the real challenges of generating, maintaining, and spend-
ing the financial resources are to be met, the finance management
has always remained a prime concern of the government. Moreover,

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acknowledging the vitality of the activity, several definite provisions

have also been made in the Constitution in order to provide for
certain basic formulations on the issue. The inherent logic behind
such constitutional provisions seems to be the concern of the fram-
ers of the Constitution to confine the management of the finances
within the parameters of the democratic governance in the country.
Clearly, therefore, barring few financial crises erupting occasionally,
the overall management of finances in India remained on sound
footing, bearing testimony to the prudence and farsightedness of
the fathers of the Indian Constitution.

Budget System Reforms in India

The inheritance of a budgetary process designed to suit the re-
quirements of a colonial economy would definitely not have been
appropriate for the needs of a newly Independent and development-
oriented economy like India. Over the years, therefore, numerous
subtle reform measures were initiated in the budgetary process
of the country in order to bring it in sync with the requirements
of a nation embarking on the path of rapid socioeconomic de-
velopment within the norms of a democratic polity. So, the basic
contours of reforms in the budgetary process revolved around
the themes of relocating its orientations from a colonial economy
to that of a development oriented one; making budget a tool of
socioeconomic development of the country; reorienting its focus
from outlays to outcomes; designing budget as an instrument of
ensuring effective politico-administrative accountability of ad-
ministration to the legislative and executive bodies; and bringing
about suitable technical reforms, say, in the system of accounting
and audit.
To ensure that the budget system reforms do not cause any rup-
ture in the smooth functioning of the financial administration of
the country, such reforms have been introduced in a piece-meal
and evolutionary manner. Three distinct phases of the process of
budgetary reforms may be discerned in India. First, with the inau-
guration of India as an Independent nation, her budgetary system
was subjected to deep-seated reforms, more in reorienting it to the

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development and accountability imperatives of a developing econ-

omy and fledgling democracy than to bring about a radical change
in the technical format of the budget. Second, in the wake of the
recommendations of the First Administrative Reforms Commis-
sion (1968), a number of far-reaching changes were introduced in
the technical format of the budget on the lines of the performance
budgeting, accounting reforms, and so on. Finally, in the contem-
porary times, with the strengthening of the forces of liberalization
and privatization, the parliamentary control over the budgetary
process is also sought to be streamlined and deepened with the
creation of a number of parliamentary standing committees to
closely scrutinize the budgetary allocations of various ministries
and departments.
As explained earlier, the contents of the budgetary reforms in
India have encompassed almost the entire gamut of the budgetary
process. The beginning, in this regard, seems to have been made
by ideological reorientations in the budgetary outlook from being
a colonial subject to becoming development-oriented. Further, in
order to make such reorientation bear fruit, the line-item format
of budget preparation was replaced by the performance budget-
ing system in 1977–78 for most of the developmental ministries
of the Government of India. Moreover, as a preparatory move to
introduce performance budgeting, and also to streamline the audit
and accounting system, the audit and accounts which were hith-
erto managed as an integrated system, were separated in 1976. At
certain times, suggestions were also made to introduce the for-
mat of ZBB in India. But, such suggestions could not cut much
ice given the complexity of the development imperatives of the
country. The last substantive reform in the budgetary process of
the country came in the form of the standing committees of the
Parliament to insightfully and closely monitor the functioning of
the concerned ministries and departments (Kashyap 1999: 3247).
As a result of such reforms in the budgetary process, the perfor-
mance of the budgetary system in India has undergone remarkable
improvements. For instance, the budget has not only emerged as
a strong tool of socioeconomic transformation, it has also made
the public authorities responsible for the execution of budgetary

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allocations more accountable and sharp-focused in attaining the

stipulated objectives. Yet, there still exist a number of grey areas
where the budgetary reforms have not been able to make much
difference, such as rising fiscal deficit. As a result, the budget in
India still remains burdened by the over-bearing fiscal deficit cast-
ing doubts on its ability to discipline the government expenditure.
Moreover, in order to take the process of budgetary reforms in
India to logical conclusion, the focus areas now need to be raising
governmental revenue, increasing work efficiency, limiting subsi-
dies to the poor, sorting out the power sector complexities, right
sizing government, prioritizing governmental expenditures, and
linking agricultural and health policies (Vyasulu 2009: 21–23).

Finance System Reforms in India

Technically, the financial system in India consists of a myriad of
institutions, activities, and products having a strong bearing on
the country’s economy. The key functions of the financial system
are taken to be the channelization of domestic savings and for-
eign capital into productive investment for the economy on the
one hand, and efficient delivery financial services such as payment,
savings, insurance, pension, and so on, to the mammoth populace
of the country, on the other. Hence, in post Independence times,
the Indian financial system was built up to serve the twin purposes
of propelling the growth trajectory as well as providing social and
economic stability to the life of the people. The context and na-
ture of financial system reforms in India, therefore, hover around
the idea of bringing the system in sync with the fast-changing
dynamics of the global economy without causing a sudden and
untoward upheaval in the lives of the common people.
Given the complexity of the task in hand as well as the problem
of stemming the tide of public outcry over the nature and prod-
uct of the financial system reforms, the government thought it
convenient to move in phases in so far as finance system reforms
in India are concerned. So, the first phase of these reforms began
in the context of the unprecedented economic crisis the coun-
try faced in the early 1990s in the wake of a massive balance of

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payment crisis. With a government favourably disposed towards

the financial reforms placed at the helm of affairs at the centre,
global financial institutions such as the International Monetary
Fund and the International Bank for Reconstruction and Devel-
opment found it convenient to press for fundamental reforms in
the Indian financial system. As a result, a policy called Structural
Adjustment Programme was initiated under the close monitor-
ing of the global financial institutions with a view to dismantle
whole structures and processes created to construct a socialistic
pattern of society in India during the early of the Independence
of the country. Besides, focus during this phase of reforms was
also on liberalization of interest rate and directed credit. Howev-
er, as most of the reforms in the first phase were macro in nature,
they were criticized for focusing on the big picture that could bog
down progress in the country. Hence, an International Monetary
Fund Report lists a number of specific (micro) steps that could get
the reforms going and build up some momentum as people see
the benefits. For instance, it was suggested that converting trade
receivable claims to electronic format and creating a structure to
allow them to be sold as commercial paper could greatly boost the
credit available to small and medium-sized enterprises (Prasad
and Rajan 2008: 37). Hence, with the dawn of the new millennium,
the stage was set for the onset of the second phase of financial
system reforms in India.
With the basic groundwork being done in the first phase, the
stage was now set for the initiation of the most comprehensive and
penetrating reforms in the financial system of India. Given the
complexity and the proportion of the areas and issues to be cov-
ered in this phase, an indicative list of such spheres may include:

1. reducing the fiscal deficit to reduce the risk of macroeco-

nomic instability and to increase the availability of finance
to the private sector;
2. improving the legal, regulatory, and supervisory frameworks,
in order to improve banks’ credit and risk management;
3. improving systems for dealing with weak banks; developing
capital markets further;

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4. developing pensions and insurance to increase finance for

long-term investments, including infrastructure;
5. improving financial services to improve the welfare of cus-
tomers and meet the challenge of globalization of financial
services; and
6. managing links to external capital markets (Hansen and
Kathuria 1999: 9).

In sum, the second-generation financial reforms in India are

bound to be focused on the monetary and financial sectors despite
the political sensitiveness of these areas. Indeed, without drasti-
cally reforming the monetary and financial sectors of the econo-
my, the real fruits of the liberalized economy could not be reaped
by the people in the long term (Reddy 2004: 64). Such reforms
are likely to be more in the structural dispensation of the financial
sector than in the operational policy orientations. Indeed, the gov-
ernment is faced with the formidable challenge of containing the
worrisome fiscal deficit while continuing to provide a necessary
fiscal stimulus to revive the economy. It has also to institute a fiscal
restructuring programme towards achieving fiscal consolidation
in the medium term. The programme should draw lessons from
the past and redesign the fiscal restructuring plan for the centre as
well as the states. The experience shows that a mere passing of leg-
islation does not necessarily bring about fiscal discipline. It needs
to be matched by the political will to ruthlessly implement such
legislation, irrespective of the storms created by the unscrupulous
people with vested interests in continuing with the existing system
(Rao 2009: 85).

Concluding Observations
Public budgeting seems to be the most difficult act in governance
because it involves making and carrying out decisions regarding
acquisition, allocation, and utilization of resources, particularly
money, by the government. The reasons are not difficult to seek.
Besides, the technical expertise in addressing the critical areas of
public concern, the governmental authority preparing the budget

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needs to take into account the ideological priorities of the regime.

Budgetary decisions are therefore a meaningful socioeconomic
index of knowing the nature of the polity, both from the point of
view of its economic health and political direction. This is also a
clear device to identify the gaps between what the budget suggests
and what it accomplishes.
There is no doubt that budget is a time-tested mechanism in
financial management which is governed by certain well-defined
principles drawn on the economic priorities and the ideological
predilections of the government in power. Budget seeks to cap-
ture the concern of the stakeholders underlining the sociopolitical
agenda of the government. What is most critical in this process is
the overwhelming importance of ‘democracy’ as an aspired ideal.
And, hence, despite socio-cultural differences, the most significant
aspect of the entire processes of budget preparation and implemen-
tation happens to be ‘the unambiguous role of the public’. It is true
that due to peculiar circumstances, the public may not be as visible
as is expected, but, in the long run, the neglect will cost dearly to
the decision-makers unless this is meaningfully addressed. What
is basic to this argument is the importance of ideology in shaping
the budget drawing on the political priorities, as defined by the
government in power. The stakeholders seem to propel the gov-
ernment to action in accordance with what they consider as ‘ide-
ological priorities’. This is what separates India from other types
of political systems where ‘people’ appear to be ‘mere cogs’ in the
entire process of making and implementing the budget without a
meaningful voice. This is also what makes the study of budgetary
processes in India so interesting and revealing because not only
will this set in motion studies on the complexities of the entire
exercise, but will also provide inputs for an enriching comparative
analysis involving different socio-culturally opposite polities in the
world.

Note
1. For a lucid account of the concepts and functioning of budget and finance and
their mutual relationship, see Asian Development Bank (2009).

446
 Budget and Financial Administration in India

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 Chapter 11

Administrative Reforms in India

Learning Objectives
• To understand the concept of ‘administrative reform’
• To analyse the administrative reforms in the post Independence
India
• To explain the changing pattern of reforms in the post-liberal-
ization era in India

P ublic administration is a continuous process and in this sense it

is always undergoing reform. So, in public administration ‘re-
form is a journey rather than a destination’ (Governance in Transi-
tion 1995: 2). Reforms are an obvious response to the new challenges
confronting state institutions managing public affairs. At the root of
such an exercise lies the effort at enhancing administrative capabil-
ity in the changed scenario. The problem of administrative reform
has received continuing attention in India, both at the centre and
in the states. Since Independence, there have been a large number
of changes in the structure, work methods, and procedures of the
administrative organizations. Although these changes have been
gradual, at times not too perceptible, they do indicate the efforts
made by the government to affect procedural and policy innovation
in the administrative system and to keep pace with the changed situ-
ations, growing needs, and exigencies of the government. With this

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background, the present chapter makes an attempt to understand

the concept of administrative reform, to analyse the initiatives of
reforms after Independence, and understand the changing patterns
of administrative reforms in India in the post-liberalization era.
Public administration was born out of a zeal for reforms, and
since the publication of Wilson’s founding easy in 1887, change
and reform have remained a constant refrain of administrative
analysis. The initial impulse came from reformers’ interest in sepa-
rating politics from administration to rid the latter of corruption
and to professionalize it. Successive efforts in disciplinary growth
were aimed at ‘organizing’ decision-making and policy refine-
ment, behavioural reorientation of employees and managers, and
public administration more and more towards the open system,
environment-sensitive, and client-responsive direction. A major
breakthrough in recent years was the ‘public choice’ perspective,
posing the market-versus-state issue, relocating the discipline in a
neoliberal political economy perspective. In the ‘third’ world, public
administration became development administration with a new
focus, objectives, and modalities of functioning. The development-
reform nexus has spawned a variety of responses from interna-
tional agencies, like the World Bank as well as from developing
countries themselves. Good governance, participative develop-
ments, and de-bureaucratization have gained in importance in
conceptualizing contemporary public administration.

Theoretical Underpinning of
Administrative Reforms
Public administration as an academic discipline was born with a
bias towards change and reform. The term ‘reform’ literally means
forming again. The Oxford English Dictionary defines ‘reform’ as
‘to convert into another and better form, to amend or improve
by some change of form, arrangement or composition; to free
from previous faults or imperfection’. Following this definition,
‘administrative reform’ is to convert public administration into a
better, improved form. In other words, administrative reform is
a deliberately planned exercise to improve public administration

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(Maheshwari 2002: 2). Gerald Caiden defines administrative re-

form as ‘the artificial inducement of administrative transforma-
tion, against resistance’. According to him, ‘it is artificial because
it is manmade, deliberate, planned, it is not natural, accidental or
automatic. It is induced because it involves persuasion, argument,
and the ultimate threat of sanctions; it is not universally accepted
as the obvious or true course’ (Caiden 1969: 65). What is striking
in Caiden’s formulation is the importance of the political ambience
in shaping the nature and meaning of administrative reform. To
Hann-Bee, administrative reform is an ‘effort to apply new ideas
or combinations of ideas to an administrative system for positive
goals of national development’ (Lee 1976: 114). Arne Leemans de-
scribes administrative reform as ‘induced change in the machin-
ery of government undertaken in an effort to bridge a gap between
reality and desirability’ (Leemans 1976: 65). Although there is no
universally accepted definition of administrative reform, there is
fundamental agreement among scholars that is meant to improve
administrative capability and capacity, for the purpose of achiev-
ing national goals effectively. In other words, it is meant to encour-
age an effective administration to enhance and increase the quality
of public services and deliver such goals and services to citizens
more economically, efficiently, and effectively.
Administration is dynamic and its role is being constantly re-
defined in response to the changing circumstances in which it is
located. Hence, Caiden argues that administrative reform is based
on the premise that governments need effective machinery to
operationalize their policies and that effective machinery can be
designed on rational principles. What it suggests is that (a) ad-
ministrative reform is about deliberate planned change affecting
the society in purview; (b) it is synonymous with innovation; (c)
improvements in public service efficiency and effectiveness are the
intended outcomes of the reforms; and (d) the reforms are justified
by the need to cope with the uncertainties and rapid changes in the
organizational environment.
The need for administrative reform arises from the malfunc-
tioning of the natural processes of administrative change. Reform
movements begin with the intention of removing obstacles to

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