ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Is Public Expenditure Management Sufficient for Sustainable Fiscal Discipline?

In Odisha, the government has made continuous efforts to achieve the objectives of public expenditure management in view of the inherent deficiency of tax capacity to meet the rising public expenditure. Given the necessity of such an expenditure for ensuring the provision of basic facilities for citizens, it needs to be managed well to ensure efficiency, stability and development. Analysing fiscal discipline and strategic prioritisation of public expenditure using secondary data from 1980–81 to 2018–19, and the operational efficiency of public expenditure using primary data about the construction of check dams, it is found that fiscal discipline in Odisha is unsustainable due to lack of strategic prioritisation and operational inefficiency.

The authors are grateful to the anonymous referee and the editorial team for constructive comments and suggestions, which helped in improving the quality of the paper. The authors would like to thank XLRI—Xavier School of Management, Jamshedpur for providing partial financial support for conducting this paper. They also acknowledge the valuable comments of participants of the 20th annual conference of the Indian Association of Social Science Institutes, held on 27–29 February 2020 at the Institute for Social and Economic Change, Bengaluru, where an earlier version of this paper was presented.

Public expenditure management is key to the economic development of countries.1 It requires the achievement of fiscal discipline, strategic priorities and operational efficiency of public expenditure. The literature on public finance widely discusses the issues of public expenditure management (Schick 1999; Ðurović-Todorović and Ðorđević 2009). Mismanagement of public expenditure leads to persistent macro­economic instability, microeconomic inefficiency, and distributional inequity in developed as well as developing countries. Since the main objectives of all economic policies are (i) growth, (ii) equity, and (iii) stability, proper management of public expenditure is important. Financial stability requires fiscal discipline and economic growth and equity are pursued through allocation of resources across sectors (strategic prioritisation), and the above-mentioned three objectives need efficient and effective use of resources (operational efficiency) (Campo and Tommasi 1999).

India has fairly achieved fiscal discipline owing to its measures to manage public expenditure post the fiscal deterioration in 1990. However, we have not hitherto perceived any case of strategic prioritisation and operational efficiency (Jena 2010).2 Arguably, unsustainable fiscal discipline has stemmed from prolonged arbitrary resource allocation and inefficient operations of public expenditure (Ðurović-Todorović and Ðorđević 2009). Due to persistent fiscal indiscipline, citizens are deprived of basic public goods that are expected to be available at a given tax price.3 Thus, it is important to examine the public expenditure management by states, since the Constitution assigns significant expenditure responsibilities to them. Further, the exploration of public expenditure management in a state like Odisha, with high poverty and wide disparity in socio-output indicators,4 assumes greater importance.

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Updated On : 28th Nov, 2022
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