Meaning of Public Expenditure

 MEANING

Public expen­diture consists of expenditure by central government, state governments and local authorities (such as municipalities and public corporations), with central government accounting for the major portion of such expenditure.

It consists of expenses which a government incurs in protecting its citizens and in increasing their economic and social welfare.

The Governments followed laissez faire economic policies and their functions were only confined to defend the country from foreign aggression and to maintain law and order within their territories. But now, the expen­diture of Government all the world over has greatly increased. Therefore, the modern econo­mists have started analysing the effects of public expenditure on production, distribution and the levels of income and employment in the economy.


IMPORTANCE

i. Economic Development:

Without government support and backing, a poor country cannot make huge investments to bring about a favourable change in the economic base of a country. That is why massive investments are made by the government in the development of basic and key industries, agriculture, consumable goods, etc.

Public expenditure has the expansionary effect on the growth of national income, employment opportunities, etc. Economic development also requires development of economic infrastructures. A developing country like India must undertake various projects, like road-bridge-dam construction, power plants, transport and communications, etc.

These social overhead capital or economic infrastructures are of crucial importance for accelerating the pace of economic development. It is to be remembered here that private investors are incapable of making such massive investments on the various infrastructural projects. It is imperative that the government undertakes such projects. Greater the public expenditure, higher is the level of economic development.

ii. Fiscal Policy Instrument:

Public expenditure is considered as an important tool of fiscal policy. Public expenditure creates and increases the scope of employment opportunities during depression. Thus, public expenditure can prevent periodic cyclical fluctuations. During depression, it is recommended that there should be more and more governmental expenditures on the ground that it creates jobs and incomes.

On the contrary, a cut-back in government’s expenditure is necessary when the economy faces the problem of inflation. That is why it is said that by manipulating public expenditure, cyclical fluctuations can be lessened greatly. In other words, variation of public expenditure is a part of the anti- cyclical fiscal policy.

It is to be kept in mind that it is not just the amount of public expenditure that is incurred which is of importance to the economy. What is equally, if not more, important is the purpose of such expenditure or the quality of expenditure. The quality of expenditure determines the adequacy and effectiveness of such expenditure. Excessive expenditures may cause inflation.

Moreover, if the government has to impose taxes at high rates there will be loss of incentives. So, it is necessary to avoid unnecessary expenditure as far as practicable, otherwise benefits of better economic development may not be reaped. As a fiscal policy instrument, it may be counter-productive.

iii. Redistribution of Income:

Public expenditure is used as a powerful fiscal instrument to bring about an equitable distribution of income and wealth. There are good much public expenditure that benefit poor income groups. By providing subsidies, free education and health care facilities to the poor people, government can improve the economic position of these people.

iv. Balanced Regional Growth:

Public expenditure can correct regional disparities. By diverting resources in backward regions, government can bring about all-round development there so as to compete with the advanced regions of the country.

This is what is required to maintain integration and unity among people of all the regions. Unbalanced regional growth encourages disintegrating forces to rise. Public expenditure is an antidote for these reactionary elements.

Thus, public expenditure has both economic and social objectives. It is necessary to ensure that the government’s expenditure is made solely in the public interest and does not serve any individual’s interest or that of any political party or a group of persons.

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