UPSC Economics: Understand the Size of Government in India through Combined Receipts and Disbursements

Public Finance Trends in India (1950–2010)

• Growth in Government Expenditure and Revenue

  • The combined expenditure of Central, State and Union Territory Governments increased more than 1947 times from Rs. 918 crores in 1950-51 to Rs. 17,88,195 crores in 2009-10.

  • Aggregate tax revenue of the same entities increased more than 1918 times from Rs. 627 crores in 1950-51 to Rs. 12,02,412 crores in 2009-10.

  • However, these figures are not adjusted for inflation, so real growth is overestimated.

  • As a percentage of GDP:

    • (i) Combined expenditure rose from less than 10% in 1950-51 to about 32% in 2009-10.

    • (ii) Combined tax revenue increased from 6.6% to 16% in the same period.

• Composition of Government Expenditure

  • Current expenditures make up an increasing share, mainly due to:

    • (i) Consumption expenditure

    • (ii) Transfer payments such as interest payments and subsidies

  • Social sector expenditure—including education, health, sanitation, and family welfare—has deteriorated, especially during the 1990s.

  • This decline is more severe at the Central Government level than in the States.

  • Another adverse consequence has been a reduction in public investment in productive sectors, questioning the quality of fiscal adjustment.

• Fiscal Position of Central and State Governments

  • The combined expenditure as a share of GDP:

    • (i) Rose from 26.8% in the 1990s to 27.4% in 2007–08

    • (ii) Further rose to nearly 32% in 2009–10 due to increased public spending before the general elections

  • Total receipts also increased from about 26% to 31% of GDP between the 1990s and 2008–09.

  • Over 60% of total receipts came from revenue receipts (both tax and non-tax), and the remaining from capital receipts.

  • Major sources of capital receipts include:

    • (i) Debt capital receipts (mainly borrowings)

    • (ii) Disinvestment proceeds

• Capital Receipts and Disinvestment Trends

  • The Central Government’s capital receipts as a percentage of GDP:

    • (i) Were just above 6% until 2000–01

    • (ii) Rose until 2003–04

    • (iii) Then declined to 3.6% in 2007–08

  • Debt capital receipts remained the major component, while disinvestment contributed about 1–2% of capital receipts during the post-reform period.

  • The highest disinvestment level was recorded in 2003–04.