Aditi Dixit

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LEVELS AND COMPOSITION OF PUBLIC EXPENDITURE IN INDIA FROM 1960-61 TO

2009-10

Aditi Dixit

PhD. Student

Tata Institute of Social Sciences

I. Introd !t"on

The paper attempts an analysis of level and composition of public expenditure in India between

1960-61 and 2009-10. The central overnment expenditures are analysed for the period between

1960-61 and 2009-10. !or the state overnment "all states# expenditures$ the analysis has been

conducted for the period between 19%2-%& and 2009-10. 'ection II and section III provide details of

the data sources used in this paper and the methods employed to analyse the data sets. 'ection I(analyses level and composition of the central overnment expenditure from 1960-61 to 2009-10.

'ection ( analyses levels and composition of state overnment expenditures "all states# for the

period between 19%2-%& and 2009-10. The concludin section briefly summarises the ar uments

made in the precedin sections.

Theories of public expenditure are premised on the rationale for state intervention in mar)et i.e.

under what circumstances is 'tate intervention desirable* These debates implicitly also comment on

the size of the overnment sector desirable for efficient functionin of mar)ets. +roadly$ the

literature on 'tate intervention in the economy can be divided into four different streams. First $ the

function of the 'tate is to ,set the rules of the ame, or the politico-le al structure institutions

necessary for the optimal functionin of mar)ets. Second $ 'tate intervention is held important in the

case of ,mar)et failures,. T hird $ 'tate intervention is necessitated as a result of the failure of the

mar)et to deliver stable macroeconomic outcomes. In this case$ the 'tate acts as a mana er of

a re ate demand in the economy. Fourth $ 'tate intervention is needed to provide impetus for the

development of bac)ward economies. 'o$ intervention by the 'tate is necessitated in myriad

circumstances$ each of which ains si nificance for the analysis of public expenditures attempted in

this paper.

II. D#t# So r!$%

The data on public expenditure for the central overnment is sourced from different publications of

inistry of !inance " o!# and /handho) "1990#. !or data between 1960-61 and 19 9-90$ I

referred to /hand)o) "1990#. !or data between 1990-91 and 2009-10$ the annual publication of

o! titled Indian Public Finance Statistics " !'# was used to complete the series. hile the data in


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/handho) "1990# is calculated for a period between 1930-31 and 19 9-90$ for the 1930s only two

data points have been provided4 1930-31 and 1933-36. Therefore$ the series be ins from 1960-61

onwards.

The non-developmental expenditures consists of 12 sub-items$ of which$ I consider only 1# defenseservices5 2# administrative services5 pension and other retirement benefits5 # subsidies to !/I5 3#

interest payments5 and 6# social security and welfare "plan#. The remainin six items are a ain

classified as ,others,. The developmental expenditures consist of 9 sub-items. 'ome of these sub-

items$ such as social and community services$ are disa re ated further into specific functions li)e

education$ art and culture5 medical and public health etc. !or social and community services all the

disa re ated fi ures are considered. !or others I have referred to only the broad heads of

expenditures.

7urin the time period under consideration there have been two chan es in accountin

classifications. In the year 19% $ accountin for public expenditures was re-oriented towards a

functional cum pro ramme basis. The reasons for this were primarily to present public transactions

in terms of functions$ pro rammes and schemes and to brin about a reater correspondence

between accountin classification and plan heads of development. Therefore$ a five-tier

classification was introduced. The five tier classification dealt with sectors$ functions$ schemes and

inputs of overnmental activities. In the 19 %$ another reclassification of accountin was inserted.

This was to reduce the ap between plan head schemes and accountin heads. In the new

classification$ which is followed to date$ a six tier classification was presented. 8ere$ many ma or

heads were promoted to the level of sub-sectors and new ma or and minor heads were also

introduced. lan pro rammes were )ept at the level of minor heads. The data in the two sources

considered confines itself to the 19% classification system$ considerin broad sectors alone. Thus$

both are comparable.

'ince the basic time-series here consists of only the broad sectors and sub-sectors in the functional

classification$ we have also used data from !inance :ccounts$ published by the /omptroller

;eneral of :ccounts "/;:# of o!$ between 19 %- and 2009-10. This data provides details

re ardin the functional heads of public expenditure. !inance account is a statement of the actual

cash receipts and disbursements$ as well as$ specified financial statistics durin a financial year. The

fi ures in this statement represent the net accounts of the state$ after ad ustin for recoveries. The

information in the finance accounts is presented in three parts and 1 statements$ wherein$ part 1

reflects the consolidated fund of the state$ art 2 represents the contin ency fund of the state and


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part & reflects the public account of the state. ithin the consolidated fund$ which concerns this

study$ the account follows a functional classification. !urther$ within each of these$ the account is

classified as sectors$ sub-sectors$ ma or head$ sub-ma or head$ minor head and the detailed head. In

this research we have used the data pertainin to sectors and sub-sectors.

7ata for the state overnments is sourced from various publications of


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also calculated for selected years. The chan in composition of public expenditures "identified

throu h inter-sectoral variations# provides an indication of the direction of the social policies and

chan in priorities of the 'tate.

b Social Allocation #atio "':


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IV. C$ntr#' *o+$rn,$nt P '"! E /$nd"t r$ L$+$'% #nd Co,/o%"t"on

The chan es in the level of central overnment a re ate expenditure as a share of ;7 i.e. public

expenditure ratio " =


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"10.& per cent# than 7= "6.31 per cent#. The increased rowth in B7= resulted due to the rise in

expenditure on defense in the presence of external threat after 1962. Bonetheless$ a fairly hi h

rowth in 7= was necessitated by the de&elo"%entalist stance adopted by the Indian state post

independence " atnai) 19935 atnai) and /handrase)har 1993#. Dirigis%e $ as a policy stance of the

overnment$ necessitated an immediate increase in the a re ate levels of public expenditure " .29 per cent#. 8owever$ this hi h rowth rate in total public spendin must be located a ainst the

bac)drop of the prevailin low base in terms of public expenditures durin the colonial rule. In fact$

the total expenditures incurred by the Indian 'tate durin the first fifteen years remained below the

levels proposed by both the +ombay lan "19 # and eople,s lan document "19 6#.

:ccordin to /ha)ravarty "19 %#$ in this phase public expenditures were focused on sectors which

directly helped au ment industrial rowth$ li)e industries and minerals$ transport andcommunication$ public wor)s etc. The development strate y was tolerant towards a certain level of

ineCuality which was supposed to aid hi her rowth. In essence$ however$ this presented a variant

of the ,tric)le-down, thesis as far as public investments in social-sectors were concerned.

=xpenditures on crucial social sectors li)e education and health were found lac)in . 7urin phase I$

thou h a rowth in expenditures on education was re istered$ its advanta es accrued to a narrow

social base. This was because the expenditures on education were concentrated on hi her and

technical education$ eared towards the rowin demand for s)illed personnel for Indian industry.

8owever$ the problem of access at the level of primary education remained unresolved. !urther$

successive 'tate committees on public health$ such as the +hore committee "19 6# and u)her ee

committee "1966# also emphasiAed the need for hi her expenditure allocation on public health.

hase I culminates with mid 1960s recession$ followin two successive drou ht years in 1963-66

and 1966-6%.

IV.1.2. P%$ II 1966-6 to 19 7- 8

The crisis mar)s the be innin of phase II and the first structural brea) in 'tate policy.

/onseCuently$ core areas for 'tate intervention also underwent considerable chan es. +etween

1966-6% and 19%&-% "phase II#$ the rowth in T= was ne ative$ with a reduction in the rowth of

both B7= and 7=. The decrease in levels of public expenditure was brou ht about by the structural

inability of the state to increase its spendin $ in the wa)e of recession on the one hand$ and inflation

on the other. Thus$ the inability of the 'tate to step up its expenditure$ in the time of crisis$ was

structural in character. In phase II$ both 7= and B7= as share of T= fall. ithin B7=$ an increase

is witnessed only in administrative services. :ccordin to Toye "19 1#$ the food crisis followin the


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two successive drou ht years reCuired an increase in the expenditure on administrative services and

subsidies.

IV.1.7. P%$ III 19 8- 5 to 19 9-90

+etween 19% -%3 and 19 9-90 "phase III#$ the /:;


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and a riculture and allied activities "6.&3 per cent# increased$ there was a drastic cut bac) in

expenditures on industry and minerals "-13.31 per cent# and transport and communication "- . 1 per

cent#. Thus the process of radual disen a ement of the 'tate with industry is evident here.

The shift in the expenditure priorities from sectors favorin industries$ to sectors favorina riculture was due to two factors. !irstly$ a radual disen a ement of 'tate from intervention in

industry had be un to ta)e hold. 'econdly$ rowth of output in a ricultural sector had reduced$

resultin in a wa e oods bottlenec). The new a ricultural strate y "B:'# reCuired public

investment in crucial areas which would aid rowth in a ricultural output$ such as$ a ricultural

extension$ research$ subsidies.


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"6.9 per cent# and family welfare "%.39 per cent#$ in particular. The attention iven to education$

medical and public health was due to$ firstly$ the introduction of policies tar etin improvements in

education and health achievements$ li)e$ 7 and the national health policy 20025 and secondly$

due to the millennium development resolution "2000# which also tar eted for improvements in the

same sectors.

IV.1.5. P%$ V 2005-06 to 2009-10

+etween 2003-06 to 2009-10 "phase (#$ the /:;< for T= was 11.%% per cent. 8owever$ such a

hi h rowth in T= must be seen in the bac)drop of the sharp fall in T= in the previous phase. The

component of 7=$ in particular$ received more attention. :s a result of this$ the share of education$

health and family welfare in total public expenditures increased substantially. The share of

a riculture and allied activities and transport and communication in T=$ which had dwindled in phases of low rowth$ also increased durin phase (. The increase in public expenditures durin

this phase is due to a combination of factors. !irst$ this phase is mar)ed by the proliferation of /''

and other schemes tar etin improvements in human development indicators. 'econdly$ durin this

phase various ri hts based movements emer ed such as the ri ht to food campai n and ri ht to

education$ which asserted the le al ri hts of citiAens to basic services. :nd finally$ in 200 $ the

mandate of the > :-I overnment rested on their resolution to implement the common minimum

pro ramme "/ # which also addressed the same issues.


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T# '$ 1 Co,/o nd #nn #' (ro:t& r#t$% o4 /$r !#/"t# r$#' $ /$nd"t r$ o4 t&$ !$ntr#' (o+$rn,$ntnd$r %$'$!t$d &$#d%3 r$+$n $ #nd !#/"t#'3 1960-61 to 2009-103 "n /$r !$nt /$r #nn ,

Item

1960-61to 1963-66

1966-6%to 19%&-%

19% -%3 to19 9-90

1990-91to 200 -03

2003-06 to2009-10

:. Bon-7evelopmental =xpenditure 10.& 1.6& 3. 6 . 3 . 2

1. 7efence 'ervices 19.0 1. % &.93 &.2& 3. 32. Interest ayments 9.3% . 9 .9&&. :dministrative 'ervices 2.&6 .6 &.10 3.2 9.29. ension and @ther


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T# '$ 2 Sr$ o4 %$'$!t$d &$#d% o4 $ /$nd"t r$ "n tot#' $ /$nd"t r$ o4 !$ntr#' (o+$rn,$nt3 r$+$n $#nd !#/"t#'3 1960-61 to 2009-103 "n /$r !$nt

It$,1960-61

1966-6

19 8-5

19 8-5

1990-91

1996-9

2005-06

2009-10

:. Bon-7evelopmental=xpenditures & .13 .%0 %.&0 &.&1 .33 39.&3 39.3% 3 .%&I. 7efence 'ervices 16.2& 19.9 2 .03 1%.26 13.29 13.26 16.22 1&.&0II. Interest ayments 11. 0 1 . 3 21.&1 &0.%6 26.%1 21. &III. :dministrative 'ervices &.63 2. 9 &.%2 2. 1 2. &.66 .00 &.69I(. ension and @ther


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F"( r$ 7 So!"#' #''o!#t"on r#t"o #nd %o!"#' %$!tor $ /$nd"t r$ #% # %r$ o4 *DP3 !$ntr#' (o+$rn,$nt3

r$+$n $ #nd !#/"t#'3 19 8- 5 to 2009-103 "n /$r !$nt

IV.7. So!"#' Pr"or"t) R#t"o SPR

'ocial riority


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IV.8. ; ,#n E /$nd"t r$ R#t"o

8uman =xpenditure


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and :llied :ctivities b# Industry and inerals c# !ertiliAers d# ater and ower 7evelopment e#

Transport and /ommunication f# ublic or)s #


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cent of the total non-plan expenditures incurred on these sectors "


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$ /$nd"t r$%3 %t#t$ (o+$rn,$nt #'' %t#t$% 3 r$+$n $ #nd !#/"t#'3 19 2- 7 to 2009-103 "n /$r !$nt

=xpenditure on social and community services "'/'# as a proportion of T= decreased from 29.6 per cent 19%2-%& to 2%.36 per cent in 19% -%9 "!i ure &. #. +etween 19%9- 0 and 19 9-90$ the

share of '/' in T= rew from 2 .6 per cent to &2. 1 per cent. 8owever$ between 1990-91 and

200&-0 $ the ratio of '/' in T= declined sharply from &1.&9 per cent in 1990-91 to 2&. per cent

in 200&-0 $ which was lower than the levels attained in any precedin year. The trends improved

between 200 -03 and 2009-10$ with the share of '/' in T= risin sharply from 26.&6 per cent to

&6.62 per cent.

/onversely$ the share of economic services in T=$ increased sharply from 1%. 3 per cent in 19%2-%&

to & .09 per cent in 19%%-% . Thereafter$ the share of economic services in T= re istered a secular

decline from &&.%% per cent in 19% -%9 to 22. % per cent in 2002-0&. 8owever$ within this period

i.e. between 19% -%9 and 2002-0& a brea) is discernible. +etween 19% -%9 and 19 9-90 the decline

in the level of economic services in T= was radual and minimal. 'ubseCuently$ between 1990-91

and 2002-0&$ a sharp decline in the share of economic services in T= occurred. :n improvement

was witnessed from 200&-0 to 2009-10$ with the shares risin from 2&. per cent to 29. 0 per

cent$ which however was still lower than the levels attained in 1990-91.

V.1. Int$r-S$!tor#' Co,/o%"t"on o4 P '"! E /$nd"t r$%

To analyse the inter-sectoral composition of the developmental expenditures for state overnments$

compound annual rowth rates "/:;


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services. This translated into an increase in the share of ener y sector in T=. The /:;

non-tax revenue are also discernible.

The decrease in revenues from tax sources occurred as a result of reater sops bein provided to the

private sector$ in order incentivise investments. ith the end of centralised plannin $ the states

needed to compete with each other in providin such benefits and incentives to private capital

"=

hit as a result of the policies followed by the central overnment "


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rates of interest$ which were usually hi her. This put a burden on state overnment finances and

from a situation of revenue surpluses$ the overnments showed deficits on the revenue account after

19 %- "

fourth reason for the deterioration of state overnment finances was precipitated by the upward

revision in the pay scales of state overnment employees after the implementation of fifth pay

commission in 199%-9 " lannin /ommission 20025 =

The constraints applied on state expenditure had an adverse impact on capital formation in the states

"In this context$


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activities in T= declined$ while that of irri ation and flood control and transport and communication

increased mar inally.

T# '$ 7 Co,/o nd #nn #' (ro:t& r#t$% o4 /$r !#/"t# r$#' $ /$nd"t r$ o4 t&$ %t#t$ (o+$rn,$nt #''

%t#t$% nd$r %$'$!t$d &$#d%3 r$+$n $ #nd !#/"t#'3 19 8- 5 to 2009-103 "n /$r !$nt /$r #nn ,

It$,%

19 8- 5 to

19 -

19 - 9 to

1996-9

199 -9 to

2007-08

2008-05 to

2009-107evelopmental =xpenditure 3. 1.& .0 10.&Social and 'o%%unity

Ser&ices 5.62 *.58 7.88 * .35=ducation$ :rt and /ulture .61 1.3& 2. %. %edical and ublic 8ealth &.& -1. % 1.9& %.09!amily elfare - - 0.01 3.%0ater 'upply and 'anitation - 1. % 2.96 3. 18ousin 3.&% -0.%1 2.0 20. &

>rban 7evelopment - . % 10. 26.36elfare of '/$ 'T and @+/ - 2.0% &.16 9.02?abour and =mployment 6.3% -1.31 -1.6& .32'ocial 'ecurity and elfare &. 9 1.01 .19 2 .1%

Butrition - 10.09 -0.60 2&.91


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er capita ;7 at constant

prices 2.0% &.1% &.63 6. 3Source: 'o%"uted fro% data in &arious issues of #BI -onthly Bulletin; and the $andboo( of Statistics on

State /o&ern%ent Finances; )9 * , #eser&e Ban( of India

T# '$ 8 Sr$ o4 %$'$!t$d &$#d% o4 $ /$nd"t r$ "n tot#' $ /$nd"t r$3 %t#t$ (o+$rn,$nt #'' %t#t$% 3

r$+$n $ #nd !#/"t#'3 19 8- 5 to 2009-103 "n /$r !$nt

It$,%19 8-5

19 0-1

19 5-6

1990-91

1995-96

2000-01

2005-06 2009-10

:. 7evelopmental=xpenditure 60.23 60.20 6&.&% 6&. % 60.&2 3%.2 32. 9 66.02

I. Social and 'o%%unitySer&ices 9+.59 92.69 7*.85 79. 6 7*.33 7*.23 96.8 73.391. =ducation$ :rt and/ulture 16.&1 1&. 9 13. 1%.&6 16.3 1%.&6 1 .0 16.2. edical and ublic8ealth %.&0 %.10 6.2 3.29 .0& &.96 &.33 &. 6&. !amily elfare 0.93 0.6 0.3% 0.62. ater 'upply and'anitation 1.93 2.19 2.2% 2. 2 2.2& 2.13. 8ousin 0.%0 0.39 0.39 0.60 0.60 0.36 0. % 0.906. >rban 7evelopment 0.3% 0.%& 0. 3 0.99 1.60 &.&1%. elfare of '/$ 'T and@+/ 2.03 2.10 2.0 1. % 2.1& 2. 9. ?abour and =mployment 0.32 0.92 0.36 0.30 0. 2 0.&3 0.&1 0.&9. 'ocial 'ecurity andelfare 2.32 &.2& 1.%1 1.3& 1.& 1. 3 1.63 &.6010. Butrition 0.&% 0.39 1.22 0.%2 0.66 1.11.


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V.2. So!"#' A''o!#t"on R#t"o SAR #nd So!"#' S$!tor E /$nd"t r$ SSE #% # %r$ o4 *DP

'ocial sector expenditures for state overnments have been defined as the sum of expenditures on a#

education$ art and culture5 b# medical and public health5 c# family welfare5 d# water supply and

sanitation5 e# housin 5 f# urban development5 # welfare of '/$ 'T and @+/5 h# labour andemployment5 i# social security and welfare5 # nutrition5 )# relief on natural calamities5 and l# rural

development. In this section$ trends in ''= as a share of ;7 and ''= as a share of T= "or social

allocation ratio J':


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per cent to 1. per cent. +etween 1993-96 and 2009-10$ a secular decline in the levels of ' :-I overnment$ supported by the left parties$ rested on increasin expenditures on

important sectors$ identified in the /ommon inimum ro ramme "200 #. 'econdly$ many social

movements emer ed at this sta e$ carryin forward demands for 'tate intervention. This constituted

an ideal framewor) of public action$ resultin in the subseCuent increase in public expenditure.

8owever$ the current advance in the neo-liberal stance of the overnment creates stron doubts

about the sustainability of the rowth in public expenditures documented in the last phase.


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R$4$r$n!$%

+haradwa $ Nrishna "19%2#$ LBotes on olitical =conomy of 7evelopment4 The Indian /aseM !cono%ic and Political


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