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For cost effectiveness
Can be adopted as a complement to current method
Laissez-faire economies of the West do their accounting with it. Foremost MNCs of the US do their Budgeting through this methodology. And these countries owe success of their economies to this technique – Capital Budgeting! And that’s exactly the reason why developing economies should adopt it. And why should India bereft itself from it? With increasing expansion and complications of government functioning and intricacies of the economic structure, the addictive hype about revenue budget, capital Budgeting provides a method to the madness of understanding the entire amount of capital that is generated within the country under various flows.
But this technique has to be used prudently, otherwise it would generate hitches like rigidity and improper focus of decision making. No doubt, it gifts benefits like cost effectiveness, analysis of risk factors et al giving a more realistic picture, as it supports the development of a financial model that accounts for all these above mentioned factors.
To put things in a proper perspective, Capital Budgeting would give a fuller picture about revenues and expenditure, would complement the revenue Budgeting, which is already practiced, and would closely help monitor infrastructure developments. Though India doesn’t have a completely open economy, incorporating such an approach can alleviate capital movement, which will then create a business-friendly environment along with robust economic growth. Transparency and process orientation would become the hallmarks of any national accounting process; two factors that the world expects as hygiene factors!
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