Bang for the Buck:

Reforms to Maximize Public Funding Outcomes in India

With A. Santhosh Mathew and Devesh Sharma

Public finance management, or PFM, refers to the rules, systems, and processes that govern revenues, allocations of funds, expenditure, accounting, and auditing of public finances. Without financial resources to run programs, public service delivery will consistently fail, and many have argued it has in India. Somewhere in the pipeline of the government allocating resources and beneficiaries receiving services, public funds remain unspent, leak out of the system or fail to yield results. These leakages of funds out of the system result from non-transparent and inefficient systems of PFM, which many states have hardly reformed for decades.

Both political science scholars and economists have explained India’s weak state capacity through political economy and institutional failures. Bureaucratic decisions are politically influenced; administrators are laden with an overwhelming amount of work; corruption is rampant; and inadequate monitoring produce unaccountable public services. These partially explain why, despite decades of public spending, India’s publicly funded programs haven’t managed to lift approximately 22 per cent of its population out of poverty. However, they do not fully explain why otherwise well-intentioned government programs still suffer from execution failure.

We argue that while many of the failures identified by scholars contribute to poor public service delivery, they are also symptoms of the broken PFM architecture. Corruption, poor monitoring, and overburdened administrators do produce poor services, but the broken PFM system exacerbates these problems, among others. We identify six core deficiencies of India’s PFM system, financial float, corruption, poor auditing, low transparency, administrative burdens, and challenges for beneficiaries.

Bang for the Buck examines the six aforementioned deficiencies through primary interviews and case studies. We then build the case that in order to overcome these critical deficiencies stemming from its finance management framework, the government must modernize the PFM. We focus a section of the book for policymakers and stakeholders who seek such reforms by outlining a policy implementation plan with a sequential and phased approach to actualize modernization.

Overall, the book provides theoretical and empirical evidence on how public finance management impacts public service delivery and builds a holistic action plan for reforms.