Uneven Growth of Government Expenditure in India:An Analysis of the Trends between 1974-75 and 1990-91

Government expenditures in India during the period under study (1975-91) in per capita terms show three distinct phases of growth-fluctuations around a rising trend (1975-82), fiscal expansion (1982-87) and fiscal restraint (1987-91). Growth rates of expenditures during the first and the third phases were nearly the same but much lower than that of the second. During the entire period, in particular after 1980-81, expenditure growth was higher than that of revenue receipts. Within total expenditure, revenue expenditure grew at rates higher than that of capital expenditure; per capita capital expenditure grew very little in the earlier part of the period under study. In the subsequent phases, it stagnated and declined in real terms.

Growth of revenue expenditure was particularly sharp in the case of interest payments, subsidies, wages and salaries while those on maintenance of capital assets lagged behind. Interest payments have risen at all levels of governments, both due to increasing indebtedness and rising average effective rate of interest on government loans. The rise in wages and salaries (due to both increase in employment and rising per employee salaries) and subsidies could perhaps be attributed to effective lobbying by concerned interest groups.

Considering the functional classification, expenditure on social services have risen fast, but due to the rising unit cost of supply (mainly rising wages and salaries), actual provision of these services may not have improved much. Economic services have suffered due to reduced capital expenditure which constituted more than 60 per cent of total expenditure on these services in 1974-75, but only about 33 per cent in 1990-91.

A notable feature of the growth of government expenditure in India has been the relatively high growth of expenditure on heads which could be related to interest group activities. The analysis throws up possibilities of interest group influence on government expenditure determination, even during period of low overall growth.