Public Expenditure | Various Causes for Growth of Public Expenditure | Adverse Effects of Public Expenditure

Public Expenditure
Various Causes for Growth of Public Expenditure
Adverse Effects of Public Expenditure

Meaning of Public Expenditure

Public Expenditure refers to Government Expenditure. It is incurred by Central and State Governments. The Public Expenditure is incurred on various activities for the welfare of the people and also for the economic development, especially in developing countries. In other words The Expenditure incurred by Public authorities like Central, State and local governments to satisfy the collective social wants of the people is known as public expenditure.

Objectives of Public Expenditure:

The major objectives of public expenditure are

a)      Administration of law and order and justice.

b)      Maintenance of police force.

c)       Maintenance of army and provision for defence goods.

d)      Maintenance of diplomats in foreign countries.      

e)      Public Administration.

f)       Servicing of public debt.

g)      Development of industries.

h)      Development of transport and communication.

i)        Provision for public health.

j)        Creation of social goods.

Causes for increase in Public Expenditure

There has been a persistent and continuous increase in public expenditure in counties all over the world. It is due to the continuous expansion in the activities of the state and other public bodies on several fronts. The modern governments not only perform such primary functions as the civil administration as well as defence of the country, but also take considerable interest in promoting economic development of their countries. Today, the state is taking active part in social and economic matters, such as education, public health, removal of poverty and in commercial and industrial development. The public expenditure has increased enormously in recent years mostly due to the development activities of the state. Hence, the increase in public expenditure is fully justified.

FACTORS OR CAUSES OF INCREASE IN PUBLIC EXPENDITURE

One of the most important features of the present century is the phenomenal growth of public expenditure. Some of the important reasons for the growth of public expenditure are the following.

1) Welfare state: Modern states are no more police states. They have to look in to the welfare of the masses for which the state has to perform a number of functions. They have to create and undertake employment opportunities, social security measures and other welfare activities. All these require enormous expenditure.

2) Defence expenditure: Modern warfare is very expensive. Wars and possibilities of wars have forced the nation to be always equipped with arms. This causes great amount of public expenditure.

3) Growth of democracy: The form of democratic government is highly expensive. The conduct of elections, maintenance of democratic institutions like legislatures etc. cause great expenditure.

4) Growth of population: tremendous growth of population necessitates enormous spending on the part of the modern governments. For meeting the needs of the growing population more educational institutions, food materials, hospitals, roads and other amenities of life are to be provided.

5) Rise in price level: Rises in prices have considerably enhanced public expenditure in recent years. Higher prices mean higher spending on the part of the govt. on items like payment of salaries, purchase of goods and services and so on.

6) Expansion public sector: Counties aiming at socialistic pattern of society have to give more importance to public sector. Consequent development of public sector enhances public expenditure.

7) Development expenditure: for implementing developmental programs like Five Year Plans, Modern governments are incurring huge expenditure.

8) Public debt: Along with debt rises the problem like payment of interest and repayment of the principal amount. This results in an increase in public expenditure.

9) Grants and loans to state governments and UTs: It is an important feature of public expenditure of the central government of India. The government provides assistance in the forms of grants-in-aid and loans to the states and to the UTs.

10) Poverty alleviation programs: As poverty ratio is high, huge amount of expenditure is required for implementing alleviation programmes.

Justification for increase in Public Expenditure

Increase in public expenditure can be justified on the following grounds:

a)      Assists in increasing state activities,

b)      Increase in welfare activities,

c)       Reduces disparities between rich and poor,

d)      Boom for rapid economic development specially in underdeveloped and backward economy,

e)      Provides economic stability, and

f)       Brings prosperity etc.

Adverse effects of public expenditure

According to Prof. J.K. Mehta, “Public expenditure is a double-edged weapon. It can be much goods to the community, but if it is unwisely made, it can be do much harm.” The bad or adverse effects or dangers involved in the increase of public expenditure are as follows:

1)      Unnecessary Assistance to Industries and Business: If the government gives protection and provides financial assistance to those industries and business which have lost their shape and do not occupy any importance in the economic development of the country then it is mere wastage of public resources. It will lead to development of those industries and business which hinder the path of economic development and thereby the country is likely to go to the worse.

2)      Excessive Expenditure on Defence: If the government incurs excessive expenditure on defence, it will adversely affect the development of the poor and backward community of the country. Pakistan is the burning example of the same. From moral and human points of view also, excessive expenditure incurred on defence is treated as uneconomic and unnecessary. It will also affect the security and peace of the entire region.

3)      Tendency of gaining Political Influence: Now-a-days the concept of public expenditure is being applied by ministers in particular for gaining political influence and sounding vote bank. Huge amount of public expenditure is being done by both Central and State ministers in their respective areas just to gain political influence at the cost of other backward areas of the country / state. It leads to severe criticism and dissatisfaction amongst the masses. It is also one of the major factors of political instability in the country.

4)      Advantages to a Particular Community: Sometimes public expenditure is incurred just to give advantage to a particular community or class over the above the other communities. It will lead to division of the society in two clear-cut classes leading to class conflicts, feelings of superiority and inferiority and more movement’s unrest, strikes, dharnas etc. As a matter of fact, the peace of the entire country is badly hurt and disturbed .

5)      Rapid Increase in Taxation: In order to meet the rising public expenditure, government imposes new taxes every year leading to heavy incidence of taxation on the community. If it is not enough, then the government takes the shelter of deficit financing which leads to rapid inflation. The service class and poor classes in particular are adversely affected.

6)      Government Expenditure in Misuse of Scarce and Limited Resources and also Unproductive: According to traditional economists, government expenditure is the misuse of scarce and limited resources of the country and also unproductive. They are of the opinion only that public expenditure is productive which leads to physical increase in the production of commodities mean for direct consumption.

7)      Fear of Minority Political parties: Political parties led by minority groups are always fearful of the increases of public expenditure on the ground that the political party or parties in power, with use the public expenditure in fulfilling their own political interests.

8)      Dominance of Public Sector Reduced the Authority of Private Sector: While citing the dangers of increase in public expenditure, capitalists argue that it reduces the authority of private sector which is the backbone of capitalist’s economy.

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