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What is Zero-based Budget

Zero-based Budget

About Zero-based Budget

What is Zero-based Budget

As the name suggests, zero-based Budget refers to planning and preparing the Budget from scratch or ‘zero base’. It is different from a traditional Budget that is based on previous Budgets. The process of zero-based budgeting involves review and justification of each and every ministry’s expenditure in order to receive funding at the beginning of each financial year.
 
In zero-based Budget, no balances are carried forward, or there are no pre-committed expenses. Simply put, it is a procedure for preparing a Budget with zero prior bases. This concept emphasises identification of a task and funding of costs irrespective of the current structure of expenditure.
 
Zero-based Budget is built around what is needed for the upcoming period, regardless of whether each Budget is higher or lower than the previous one.  
 
Under zero-based Budget, all budgeting begins from a ‘zero base’ every year; that is, expenses must be justified afresh each year, no matter what was spent in the year before. While traditional budgeting calls for incremental increases over the previous year and tends to perpetuate waste, this form of budgeting puts pressure on spenders to justify expenses each time, and reduce costs.
 
Here is an example of how zero-based budgeting works.
 
Suppose crores of rupees are allotted to MPs every year under a government scheme. Only a fraction of that is spent and they are allowed to be carried forward. In zero-based budgeting, this money would not be allotted to those who did not spend; the money will be spent where it is needed more or used more effectively. Much bigger gains will mount up when hundreds of crores will have to be justified across departments.
 
Zero-based budgeting identifies alternative and efficient methods of utilising limited resources.
 
ZBB was rejected by policy experts owing to the process being an impractical budget-making decision. However, after the global financial crisis of 2008, ZBB came back into the focus for its emphasis on judicious spending during the Budget formation.
 
Zero-based budgeting in India
 
In India, the ZBB was adopted by the department of science and technology in 1983. In 1986, the Indian government implemented ZBB as a system for determining Expenditure Budget. The government made it compulsory for all ministries to review their activities and programmes and prepare their expenditure estimations based on the concept of ZBB. In the seventh Five-Year Plan, the ZBB system was promoted. However, not much progress could take place later.

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