Public ExpenditureVarious Causes for Growth of Public ExpenditureAdverse 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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