Question

Performance Budgeting has been defined as budgeting that links the funds allocated to measurable results. There are three broad types. Discuss each of the following linkages to resource allocation:

A. Presentational,

B. Performance-informed, and

C. Direct performance budgeting.

Answer 1

Performance-based budgeting is a system of presenting performance budget in terms of functions and programmes reflecting the government output and its cost. Performance budget is an output-oriented budget emphasizing the accomplishment rather than means to accomplishment.

Why Performance based budgeting?
Even though planned economies like India moved from imperative planning to indicative planning since economic liberalization, the welfare role of government has increased public expenditures and brought with them a good deal of complexity. Planners have been thinking how to control and regulate the increasing public expenditures, and how to make it more efficient. PBB has been designed to serve the purpose of long range planning.

How is it done?
The most important requirement for PBB is a programme of action for any given year with specific indications regarding the tasks and the costs of achieving them. Programme formulation, allocation of resources and budget execution are the core steps giving effect to PBB.
1. Establishing a meaningful functional classification of public expenditure.
2. Establishment, improvement and extension of activity schedules for all measurable activities of the government.
3. Establishment of work output, employee utilization, standard or unit costs by objective methods, i.e. bringing the system of accounting and financial management into accord with the classification.
4. Creation of related cost and performance recording and reporting system.

Merits:
1. It improves legislative review by presenting a comprehensive view of the various departments and agencies of the government. In fact this system ensures the advantages that are likely to accrue from an organic integration of the process of planning and budgeting.
2. It helps to improve public relations by providing clearer information for a rational public appraisal of responsible government.
3. It brings the financial (program funding) and physical (expected results) aspects together, interweaving them in a lace, right from the beginning of the proposal to the final stage of the scheme. This was absent in the traditional planning, programming and budgeting process.

Limitations:
1. The programme and activity classifications developed are sometimes too broad to reveal the significant activities of the department to serve as a basis for budgetary decisions and management.
2. Due to its goal-oriented nature, PBB technique focuses on quantitative rather than a qualitative evaluation.
3. PBB without decentralized accounting and systematic reporting mechanisms would be ineffective and inefficient.

Difficulties:
1. Functional classification is not easy as governmental works are not done in well-organised, watertight compartments. There is bound to be some overlapping. So, what we need is the convergence of the programmes.
2. Resource allocation on paper is difficult to put in practice, because of both structural bottleneck and political reasons.

However, despite its difficulties and limitations, PBB provides a meaningful basis for administrative planning, executive coordination, legislative scrutiny and administrative accountability at all levels of government. Most importantly, a progressive budget based on PBB would strengthen the democratic process and evoke meaningful participation of the citizens in the implementation of the tasks set out in the budget.