Budget Credibility in India: Assessment through PEFA framework

The recent debate regarding likely shortfall of revenue receipts in the central government budget needs to be seen in the light of longer term assessment of budget credibility. The uncertainty in one year could be an outlier. A credible budget while respecting budget contracts voted in the parliament, also improves the efficiency of government expenditure. Deviations, as a result of weak capacity to forecast revenue, pose risks to both existing and future program management. The paper assesses the budget credibility at central government level since 2006-07 following the PEFA framework. The record of budget credibility is examined using the performance indicators that are acknowledged as international standards. The paper looks at revenue and expenditure at aggregate and decomposed level to understand the variance from the budget projection. While the deviation from projected revenue and expenditure at aggregate level was found to be low, there are concerns when fiscal variable are put through the budget credibility test at decomposed level. Strengthening the overarching public financial management system by effectively implementing the budget reform programs undertaken intermittently will further improve the credibility of budget.