Here is an essay on ‘Performance Budgeting’ for class 11 and 12. Find paragraphs, long and short essays on ‘Performance Budgeting’ especially written for school and college students.
Essay on Performance Budgeting
- Essay on the History of Performance Budgeting
- Essay on the Meaning of Performance Budgeting
- Essay on the Concept of Performance Budgeting
- Essay on the Process of Performance Budgeting
- Essay on the Advantages of Performance Budgeting
- Essay on the Assessment of Performance Budget Functioning in India
Essay # 1. History of Performance Budgeting:
The concept of Performance Budgeting originated in U.S.A. Since 1950, the United States Government adopted performance budget, many countries of Asia, Africa and Latin America opted for it as well. In India, the movement for performance budgeting, gained momentum in the mid fifties.
The Estimates Committee deliberated upon budgetary reforms in its 20th report and recommended, “Performance-cum-programme system of budgeting would be ideal for a proper appreciation of the schemes and outlays included in the budget, especially in the case of large-scale developmental activities.” The same recommendations were again emphasized by the Estimates Committee in 73rd report in 1960.
In 1964 an American expert, Frank W. Krause also recommended the adoption of a comprehensive though phased plan of action to introduce performance budgeting. The Administrative Reforms Commission of India Report submitted in 1968 also recommended the introduction of performance budgeting, both at the Centre and in the States.
It exhorted the Ministry of Finance to assume responsibility for introducing the system and give lead to the states in the matter.
The Central Government agreed to accept the recommendations in 1968. In four ministries, performance budgets were prepared. In 1977-78 about 38 developmental departments in the Central Government also adopted performance budgeting. Several state governments have also introduced it in selected departments.
Essay # 2. Meaning of Performance Budgeting:
A Performance Budget is a challenge to the traditional budget system. It presents public expenditure in terms of functions, programmes and activities. It thus clearly differs from the line-item budget which emphasizes staff, furniture, equipment’s, etc.
In the words of Administrative Reforms Commission, a Performance Budget is “a technique for presenting government operation in terms of functions, programmes, activities and projects.” Burkhead opines- “Performance budgeting can be most appropriately associated with a budget classification that emphasizes the things which government lays. Performance budgeting shifts the emphasis from the means of accomplishment to the accomplishment itself”.
The Mayor’s Committee on Management Survey in U.S.A. explained ‘programme budgeting’ which practically speaking is the same concept as the Performance Budgeting in these words :
“A programme budget tells in advance what activities the departments and the government as a whole are authorized to carry forward in terms of expenditure” for a given year. It emphasizes the work to be done, not the number of clerks, pencils and paper to be used in doing that work.”
The Hoover’s Commission of the U.S.A. also explains the concept lucidly in the following words:
“We recommend that the whole budgetary concept … should be refashioned by the adoption of a budget based on functions, activities and projects; this we designate a ‘performance budget’. Such an approach would focus attention upon the general and relative importance of the work to be done or upon the services to be rendered rather than upon the things to be acquired…”
An analysis of the above views reveals that performance budgeting indicates a process that seeks the implementation and control of programmes through budget allocation. The governmental operations are presented in terms of functions, programmes, activities and projects.
Such a functional classification of government transaction results in identification of government activities in the annual budget in the financial and physical terms.
Thus a direct correlation of inputs and outputs is established and performance is assessed in terms of costs. The emphasis is shifted from the means of accomplishment to the accomplishments themselves. In fact the performance budgeting is concerned with the ends to be served by the government rather than the expenditure incurred on several objects.
The most vital part of this technique relates to defining the work to be performed precisely and correctly estimating the cost of that work.
All this leads us to conclude that a performance budget is prepared in functional categories, viz., education, health or agricultural development. Each functional category is then divided into programmes, for instance, education may be divided into Higher Education, Secondary and Primary Education.
Each ‘programme’ is thereafter divided into ‘activities’, which, in turn, are divided into ‘Projects’. To be more precise, training of school teachers is an activity whereas construction of a school building is a ‘project’.
Essay # 3. Concept of Performance Budgeting:
The concept of Performance Budgeting has assumed significance in the recent past, as it constitutes an integral part of the processes of reform in financial administration. This budget radically differs from the traditional budget termed line-item budget’ which is centralized on the items of expenditure.
The Performance Budget undertakes allocation of expenditure by reference to particular objectives and functions. In other words, a clear shift from itemized expenditure to functions or activities is discernible in this type of budgeting.
Essay # 4. Process of Performance Budgeting:
Following are the phases of performance budgeting:
(i) Establishing a functional classification of all governmental operations;
(ii) Developing a system of cost-accounting and financial management which may accord with the functional classification;
(iii) Establishing quantitative hours and yardsticks of performance and unit costs;
(iv) Evolving under each programme and activity objective system of reporting and evaluation which in its turn provides timely feedback to the programme managers.
The process of classification in performance budgeting follows the under-mentioned steps:
(a) Prepare a comprehensive list of all the objectives and scope of work of the Ministry/ Department or Undertaking;
(b) Frame from this list a functional classification that indicates vividly the range of work of the Ministry, Department or Undertaking;
(c) Lay down the programmes and activities in such a manner as would lend itself to treatment for allocation of funds from the priority point of view;
(d) The programmes and activities be so classified as to facilitate the compilation of accounts and computation of costs. It may also facilitate the consideration of alternative courses of action for arriving at a specified goal of action.
Essay # 5. Advantages of Performance Budgeting:
Following are some of the striking advantages of performance budgeting:
(a) It enables the correlation of the physical and financial aspects of every programme and activity. The existing budgetary system does not make such a correlation possible.
(b) It helps in effecting improvement in the procedure of budget formulation and reviewing the actual progress of programmes at all levels of government.
(c) It helps improving decision-making and management of programmes and objectives, a sort of indirect help to the administrative authorities.
(d) It leads to overall efficient financial management and programmes and projects. It eliminates the callous waste of money that occurs during the closing months of the financial year to avoid the lapse of the financial grants.
(e) It facilitates the better appreciation and review of the objectives of the government, the direction of outlays and the results accruing out of these outlays, for the benefit of the legislature.
(f) It affixes the responsibility very precisely. It indicates who was responsible for what and earmarks authority for executing the work for the next year.
(g) It provides a clear and true picture of spending and revenue alternatives.
(h) It clearly shows as to what was done in the previous year and at what cost, both unit- wise and programme-wise.
The Administrative Reforms Commission (1969-70) also visualized the following benefits of Performance Budgeting:
(i) It presents more clearly the purposes and the objectives for which the funds are sought and to bring out the programmes and accomplishments in financial and physical terms.
(ii) It helps in a better understanding and better review of the budget by the legislature.
(iii) It improves the formulation of the budget and facilitates the process of decision-making at all levels of government.
(iv) It enhances the accountability of the management and provides an additional tool to management control of financial operations.
(v) It renders performance audit more purposeful and effective.
Essay # 6. An Assessment of Performance Budget Functioning in India:
An analytical assessment of working of Performance Budgeting in India, reveals that it has belied the hopes of its enthusiasts.
In fact its implementation has been deficient in many ways, as stated below:
(a) There has been no correlation between inputs and outputs.
(b) Unit cost data has not been adopted regarding important programmes. This has impaired efficiency a great deal.
(b) Fixing up targets and measuring performance is not rational, unless scientific norms and standards are adopted. In fact such norms and standards are the pre-requisites of target fixation and performance measurement. The data available is not based on objective and true facts and likewise the targets fixed are not rational and the funds required to achieve the targets are not calculated in accordance with the scientific standards of cost measurement.
(d) In performance budgets, target and achievements of the previous years and the current year are shown. In India the achievements are not indicated in many cases. This reduces its effectiveness as a tool of management control.
(e) The technique of performance budgeting has not been followed by each cost-centre. It has made the budgeting less realistic and useful.
(f) Though a good many projects extend over a period of years, the future years costs are not shown in the performance budget. The cost escalation or the relevance of individual schemes to the national objectives are not explicit in the performance budget.
If performance budgeting is to be made useful, these deficiencies are to be removed. A performance budget should be made useful management tool for administrative and financial control for implementation of development programmes and for evaluating performance.
Besides, it should enable the Parliament to hold the executive accountable to it. A complete integration of planning and budgeting is essential for better planning and efficient implementation of the plan programmes and projects.
The Administrative Reforms Commission also suggested a reform in the accounting system. “The Budget Estimates included in the demands for grants and the corresponding Central accounts, compiled in the various accounts offices, should be made more compact and comprehensive.”
In order to effect a proper reform in accounting system, there is also a great need for reorganizing and rationalizing the administrative organisation of the Ministries and departments. The O and M unit of the Ministry concerned can play a leading role in this respect.