Development Expenditure and Non-developmental Expenditure

Development expenditure relates to growth and development activities of the government. It includes expenditure incurred under such head as social and community service and economic services.

• Non-development expenditure relates to non-development activities of the government. It is incurred under such head as defence, interest payments, subsidies, public administration, etc. Further, it should be noted that development schemes are included in both revenue and capital budgets.

Importance of Public Expenditure

Public expenditure is of great significance in the context of a welfare state like India. This can be seen from the following points:

 

(i) Public expenditure increases economic growth:

It accelerate the process of economic growth.

1)New industries can be set up.

2) Infrastructure like roads, dams, bridges, canals, flyover, etc., can be constructed.

3) Research and innovation are encouraged.

4) Rate of investment and capital formation is increased.

 

(ii) It increases economic welfare:

This happens when public expenditure is directed towards programmes of poverty eradication, health and education of the poorer sections of the society etc.

 

(iii) It corrects depression and checks unemployment:

Depression in an economy is the result of the fact that there is an inadequate aggregate demand for goods and services. This causes unemployment and further fall in incomes.

A government can create more employment opportunities for increasing its own expenditure. Once more employment is created, it generates more income and increase demand for goods and services.

 

(iv) It leads to reduction in inequalities:

Public expenditure can be used to

1. reduce inequalities in income distribution, and
2. remove regional disparities in growth.

It is largely because of the above operations; the public expenditure has been continuously rising almost in all countries.

Is increasing Public Expenditure Necessary Good or Evil?

• It is difficult to take sights on this issue. This is, however, clear that as an economy grows and the sphere of government activity expands, the size of public expenditure will keep on increasing.
• It is difficult to determine any common yardstick for all the nations of the world. The proper level of Expenditure would depend upon a number of factors, among these, the more important ones are:

1. Designers and needs of the community.
2. Effects of government spending and the revenue supporting the spending.
3. Willingness of the population to be taxed.
4. Resources and population of a community.
5. Distribution of wealth and income.
6. Stage of economic development, etc.