A Study on Central Government’s Developmental and Non-Developmental Expenditure with Special Reference to Selected Variables

 

Dr. N. Eswaran¹, Dr. A. Selvamurugan²

 

¹Professor and Head, Akshaya Institute of Management Studies, Coimbatore-641032.

²Associate Professor of Economics, Department of Commerce, Hindustan College of Arts and Sciences, Coimbatore-641028.

 

ABSTRACT:

Public expenditure consists of revenue expenditure and capital expenditure of Centre and State. This paper has examined the developmental and non-developmental expenditure of Centre only. The study found that the exceeding non-developmental expenditure over its developmental expenditure. It is observed that developmental expenditure has helped to bring not only higher growth of GDP but also reducing poverty. Whereas, non-developmental expenditure is considered as non-productive sectors that not generating revenue to the government. Unnecessary spending that makes burden to the government. Hence, the government should make expenditure on developmental sectors that transforming the resource for the wellbeing of the public. The study would help to know the trends and changing patterns of developmental and non-developmental expenditure of Centre.

 

 

 

INTRODUCTION:

In the 17th and the 18th centuries public expenditure was considered as a wastage of money. Until the 19th century, public expenditure was limited as laissez-faire philosophies believed that money left in private hands could bring better returns. In the 20th century, John Maynard Keynes argued the role of public expenditure in determining levels of income and distribution in the economy. Since then government expenditures has shown an increasing trend.

 

 

Public expenditure is not only a financial mechanism. It is rather a means securing social objectives. Every public expenditure is considered desirable when it is not wasteful, but has a positive effect upon production and distribution, and thus, maximizes economic and social welfare of the country as a whole.

 

The developing country like India has been followed the macro economics in terms of monetary and fiscal policy that helped the country to maintain the growth and stability in an economy.

 

The fiscal policy relates to taxation, public expenditure, revenue, debt, etc. The above instruments which can be adopted for the smoothening of the economy. The spending made by the government of a country on collective needs and wants such as pension, provision, infrastructure, etc.

 

Need and Importance of Growth of Public Expenditure

There are several factors which determining the growth of public expenditure in a country are as follows:

1.      Defense expenditure:

Due to modernization of defense equipment by navy, army and air force to prepare the country for prevention or forward which are causes for growth of public expenditure.

 

2.      Population growth:

Public expenditure increases with the increase in population, more of investment is required on the core sectors such as law and order, education, health, infrastructure, etc.

 

3.      Welfare activities:

It includes mid-day meals, pension, provision of public and utility services like transportation, etc. Accelerating economic growth,  in order to raise the standard of living of the people. With rise in public revenue government is bound to increase the public expenditure.

 

4.      Wars and social crises:

War, drought, earthquake, hurricanes, unemployment, poverty, etc. may lead to increase in public expenditure of a country.

 

5.      Creation of international organizations:

The organizations such as the United Nations, NATO, European Community, SAARC, BRICS and other multinational organizations that are responsible for the provision of public goods and services on an international basis, have to be financed out of funds subscribed by member states, thereby adding to their public expenditure.

 

The study has mainly focused on developmental and non-developmental expenditure of Centre (combined revenue and capital expenditure). It is noted that the major two variables were taken in each category of developmental and non-developmental expenditure for the present study.

 

i. Developmental Expenditure of Centre (Combined Revenue and Capital)

It consists of various components. The researchers have selected the major two factors come under developmental expenditure such as social and community services and general economic services because, they are highly determining the growth of developmental expenditure of Centre.

 

 

A. Social and Community Services	B. General Economic Services
i) Education, art and culture ii) Scientific services and research iii) Medical, public health, sanitationand water supply iv) Family welfare v) Housing vi) Urban development vii) Broadcasting viii) Labour and employment ix) Social security and welfare x) Information and publicity xi) Others	i) Foreign trade and export promotion ii) Co-operation iii) Investment in general financial and trading institutions iv) Investment in international financial institutions v) Co-operation vi) Special and backward areas vii) Foreign trade viii)Others

 

ii. Non-Developmental Expenditure of Centre (Combined Revenue and Capital)

Non-developmental expenditure also combines various factors. The major variables like (A) Interest Payments and (B) Defence Services which were taken for the study because they are highly influencing the growth of non-developmental expenditure of Centre.

 

OBJECTIVES OF THE STUDY:

·        To study the growth and changing patterns of developmental and non-developmental expenditure of both revenue and capitalof Centre. 

·        To know the trends of socialand community services and general economic services come under developmental expenditure of Centre.

·        To know the trends of interest payment and defense services come under non-developmental expenditure of Centre.

·        To find out the share of developmental and non-developmental expenditure of Centre to the Gross Domestic Product (GDP).

 

SCOPE OF THE STUDY:

·        The study would help to know the growth and patterns of developmental and non-developmental expenditure of Central Government.

·        The study would light throw on the trends of social and economic services come under developmental expenditure of Centre.

·        The study would help to understand the trends of interest payment and defense come under non-developmental expenditure of Centre.

·        The study would help to find out the share of GDP in the developmental and non-developmental expenditure of Centre.

 

LIMITATION OF THE STUDY:

·        The study focused on only the selected variables come under developmental and non-developmental expenditure of Centre. Therefore, results of the study are not covered other variables of developmental and non-developmental expenditure.

·        The expenditure of Centre covered developmental and non-developmental only.

 

STATEMENT OF THE PROBLEM:

Investment is a major economic factor which leads to enhance the overall growth of entire economy. The creation of investment on different sector is not possible without spending made by government. In this context, public expenditure which is one of the main instruments of fiscal policy. Public expenditure is inevitable for the growth of developing nations like India. The growth of economy depends upon the fiscal instrument of public expenditure of both the State and Central Government.

 

The share of GDP has been increased by way of enhancing expenditure for the recent years. The study mainly focused on whether the selected variables of developmental and non-developmental expenditure increase or not and find out its impact on growth of GDP in India. In this regard, the study entitled “A Study on Central Government’s Developmental and Non-Developmental Expenditure with Special Reference to Selected Variables”

 

REVIEW OF LITERATURE:

Gupta, (1971) in his study has examined the impact of the Central Government expenditure on selected variables in terms of economic inequality, poverty and on the pattern of consumption. The central government expenditure which has helped to create employment opportunities in a society. The author concluded that the inverse relationship between public expenditure and inequality and poverty.

 

Reddy, K.N., (1972) in his study, has analyzed a secular and time pattern of the growth of public expenditure in India. The study period from 1872 to 1968. In an effort to establish a theoretical link between the growth of public expenditure and National Income of the country, the study highlighted the important guidelines to whose main concern is expenditure policy formulation. The author concluded that increase in public expenditure has led to augment the growth of national income.

 

Madhavachari, (1982) in his study, “Wagner’s Law of Public Expenditure - An Empirical Test”, analysed the validity of Wagner’s Law. The author concluded that the government expenditure under the different components have grown at a faster rate than per capital GNP.

 

Vijay L.N. Gangal and Ms. Honey Gupta, (2013), in their article has been attempted to analyse the impact of public expenditure on economic growth of India from 1998 to 2012. The authors have used various statistical tools for the study like ‘ADF Unit Root Test’, ‘Co integration Test’ and ‘Granger Causality Test’. It was found that there was positive impact of total public expenditure on economic growth.

METHODOLOGY:

The following methodology has been used for the present study.

1.      Nature of Research Design:

As the study intends to analyze the growth and changing pattern of developmental and non-developmental expenditure of Central Government, the analytical research design used for the present study.

 

2.      Nature of Data:

The collected data for the present study were secondary in nature.

 

3.      Sources of Data:

The collected data from a secondary source of Ministry of Finance, Department of Economic Affairs, Indian Public Finance Statistics and Central Statistical Organisation (CSO).

 

4.      Period of Study:

The study covered a period of nine years i.e. from 2007-08 to 2015-16.The selection of the period of study based on recent years to find out the current trends.

 

5.      Statistical Tools Used:

The percentage analysis and annual growth rate used for the present study.

 

Data Analysis and Interpretation

The selected major variables in the expenditure of Central government have analyzed in the following tables.

 

1. Total Expenditure of Central Government (Combined Revenue and Capital) (Rs. in Crore)

Source: Ministry of Finance, Department of Economic Affairs, Indian Public Finance Statistics.

 

The total expenditure of central government is given in above table 1. It was found that the total expenditure has increased from Rs.7,01,985 Crore in 2007-08 to Rs.17,61,812 Crore in 2015-16. However, the growth rate of total expenditure of Centre has terribly declined from 24.62 to 5.48 during the study period.

 

 

2. Developmental Expenditure and Non-Developmental Expenditure of Centre (Combined Revenue and Capital)

(Rs. in Crore)

Source: Ministry of Finance, Department of Economic Affairs, Indian Public Finance Statistics.

 

From the above table 2, it was revealed that the developmental expenditure has increased from Rs.3,04,293 Crore to Rs.6,11,153 Crore in 2007-08 and 2015-16 respectively. However, the percentage share of developmental expenditure in total expenditure has declined from 43.35 per cent to 34.70 per cent during the study period.

 

Likewise, non-developmental expenditure of Centre has also increased from Rs.3,69,942 Crore in 2007-08 to Rs.10,48,436 Crore in 2015-16. It was found that the percentage share of non-developmental expenditure in total expenditure of Centre has shown an increasing trend i.e. from 52.70 per cent to 59.51 per cent during the study period.

 

3. Developmental Expenditure of Centre: Social and Community Services and General Economic Services (Combined Revenue and Capital Expenditure) (Rs. in Crore)

Years	Social and Community Services	% Share in Developmental Expenditure	General Economic Services	% Share in Developmental Expenditure	Developmental Expenditure
2007-08	67,757	22.27	46,798	15.38	304,293
2008-09	90,386	23.59	7,583	1.98	383,107
2009-10	105,314	25.45	5,734	1.39	413,852
2010-11	128,906	24.55	28,067	5.35	525,019
2011-12	139,404	24.00	23,707	4.08	580,897
2012-13	146,815	24.37	20,838	3.46	602,503
2013-14	165,526	25.94	24,681	3.87	638,124
2014-15	141,076	22.19	41,087	6.46	635,684
2015-16	159,374	26.08	43,776	7.16	611,153

Source: Ministry of Finance, Department of Economic Affairs, Indian Public Finance Statistics.

 

It is clear from the table 3, it was showed that the social and community services has steadily increased from Rs.67,757 Crore to Rs.1,59,374 Crore in 2007-08 and 2015-16 respectively. Its share in developmental expenditure has also increased from 22.27 per cent to 26.08 per cent during the period of study.

The highly fluctuation was observed in the case of general economic services throughout the study period. Similarly, its share come under developmental expenditure was also recorded fluctuation in all the years.

 

4. Non-Developmental Expenditure of Centre: Interest Payments and Defense Services (Combined Revenue and Capital Expenditure) (Rs. in Crore)

Source: Ministry of Finance, Department of Economic Affairs, Indian Public Finance Statistics.

 

From the above table 4, it was observed that the interest payments has steadily increased from Rs.1,69,179 Crore to Rs.4,56,145 Crore in 2007-08 and 2015-16 respectively. However, the percentage share of interest payments in non-developmental expenditure was observed meager fluctuation over the period of study.

 

Like-wise, there was steadily upward trend in the case of defense services comes under non-developmental expenditure from Rs.91,681 Crore in 2007-08 to Rs.2,46,727 Crore in 2015-16. On the other hand, its share was recorded as little variation between 24.78 and 23.53 during the study period.

 

5.Interest Payments of Centre: (Combined Revenue and Capital Expenditure) (Rs. in Crore)

Year	Interest Payments	% Share in Total Expenditure	Total Expenditure
2007-08	169,179	24.10	701,985
2008-09	192,204	21.97	874,831
2009-10	213,093	21.03	1,013,193
2010-11	234,022	19.70	1,187,898
2011-12	273,150	21.22	1,286,997
2012-13	313,170	22.47	1,393,577
2013-14	374,254	24.28	1,541,466
2014-15	411,354	24.63	1,670,220
2015-16	456,145	25.90	1,761,812

Source: Ministry of Finance, Department of Economic Affairs, Indian Public Finance Statistics.

 

The percentage share of interest payments to the total expenditure of Centre is given in the above table 5. The interest payment is the major variable of non-developmental expenditure. Its share was nearly half of the percentage of non-developmental expenditure and one-fourth of total expenditure of Centre. It was found that the highest percentage share of interest payment in total expenditure (25.90 %) and lowest percentage share (19.70 %) were observed in 2015-16 and 2010-11 respectively.

 

 

 

6. Percentage share of Developmental and Non-developmental Expenditure of Centre to GDP: Factor Cost at 2004-05 Prices (Actual Value at Current Prices) (Rs. in Crore)

Years	Share to Total GDP at current prices
	GDP	Developmental Expenditure	% Share to GDP	Non-developmental Expenditure	% Share to GDP	Total Expenditure	% Share to GDP
2007-08	4,582,086	304,293	6.64	369,942	8.07	701,985	15.32
2008-09	5,303,567	383,107	7.22	457,717	8.63	874,831	16.46
2009-10	6,108,903	413,852	6.77	562,609	9.21	1,013,193	16.58
2010-11	7,248,860	525,019	7.24	620,199	8.56	1,187,898	16.39
2011-12	8,391,691	580,897	6.92	660,551	7.87	1,286,997	15.34
2012-13	9,388,876	602,503	6.42	740,381	7.89	1,393,577	14.84
2013-14	10,472,807	638,124	6.09	842,986	8.05	1,541,466	14.71

Source: Ministry of Finance, Department of Economic Affairs, Indian Public Finance Statistics; Central Statistical Organisation (CSO) - 31.10.2014.

 

The percentage share of developmental and non-developmental expenditure of Centre to GDP are given in the table 6. It was revealed that the highest share of developmental expenditure to GDP was 7.24 in the year 2010-11 and the least share was 6.09 in 2013-14.

 

The share of non-developmental expenditure to GDP between 7.87 per cent and 9.21 per cent during the study period. The percentage share of total expenditure to GDP between 14.71 and 16.58 in 2013-14 and 2009-10 respectively.

 

 

 

FINDINGS OF THE STUDY:

The findings have been framed by the authors as follows

·        It was found that the total expenditure of Centre has shown increasing trend throughout the study period. Whereas, the growth rate of total expenditure of Centre has shown declining trend.

·        It was observed that the share of non-development expenditure was observed higher percentage growth in total expenditure of Centre than the share of developmental expenditure over the study period.

·        It was showed that the social and community services have steadily increased during the study period. Whereas, the highly fluctuation was observed in the case of general economic services throughout the study period.

·        It was observed that the interest payments and defense services under non-developmental expenditure of Centre have shown upward trend during the study period.

·        It was found that the interest payment is the major variable of non-developmental expenditure. Its share was nearly half of the percentage of non-developmental expenditure and as well as one-fourth of total expenditure of Centre.

·        It was revealed that the share of non-developmental expenditure to GDP was higher growth percentage when compared with developmental expenditure to GDP during the study period.

 

CONCLUSION:

From the above analysis, it was concluded that the share of non-developmental expenditure in total expenditure was observed highly dominating than the developmental expenditure. In generally, the contribution of developmental expenditure is considered as more productive than the non-developmental expenditure in the economy. The developmental expenditure which leads to increase national economy with the result of employment generation and it also reduces inequality and poverty in a developing country like India.

The government has been facing more risk in the case of non-developmental expenditure in terms of interest payments and defense services. It is highlighted that sometimes the spending by the government on non-developmental sectors like pension, elections, subsidy, incentives, grants-in-aids, etc. which may have chance to utilize the funds in an inappropriate manner. Hence, the government should allocate the finance and make spending according to the requirements of the productive sectors of the economy.

 

REFERENCES:

1.       Anuradha De, Tanuka E, (2008), ‘Public Expenditure on Education in India: Recent Trends and Outcomes’, Research Consortium on Educational Outcomes and Poverty.

2.       Aschauer, D. (1989): “Is Government Spending Productive?”, Journal of Monetary Economics, 23, 177-200.

3.       Barro, R.J. (1990): “Government Spending in a Simple Model of Endogenous Growth”, Journal of Political Economy, 98, 5 (October), Part II, S103-S125.

4.       Devarajan, S., Swaroop, V., Zou, H. (1996): “The Composition of Public Expenditure and Economic Growth”, Journal of Monetary Economics, 37, (1996), p.313-344.

5.       Jandhyala BGT (2006) On Allocating 6 Percent of GDP to Education, Economic and political weekly.

6.       Tasleem Araf C, (2016), ‘Trends, Growth and Changing Patterns of Public Expenditure on Education in India’, Journal of Global Economics, 4:4.

7.       Vijay L.N. Gangal and Ms. Honey Gupta, (2013), ‘Public Expenditure and Economic Growth: A Case Study of India’, Global Journal of Management and Business Studies, 3.2., pp. 191-196.

8.       An analysis of Budgetary Expenditure on Education. Ministry of Human Development, Govt.of India, various issues.

9.       World Economic Outlook Database.

 

 

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