Question

What are the reasons for the recent growth in public expenditure?

Answer 1

Causes for the Increase in Government Expenditure:
The modem state is a welfare state. In a welfare state, the government has to perform several functions viz Social, economic, and political. These activities are the cause for increasing public expenditure.

(1) Population Growth:

• During the past 67 years of planning, the population of India has increased from 36.1 crores in 1951, to 121 crores in 2011.
• The growth in population requires massive investment in health and education, law and order, etc.
• The young population requires increasing expenditure on education & youth services, whereas the aging population requires transfer payments like old-age pension, social security & health facilities.

(2) Defense Expenditure:

• There has been an enormous increase in defense expenditure in India during the planning period.
• The defense expenditure has been increasing tremendously due to the modernization of defense equipment.
• The defense expenditure of the government was? 10,874 crores in 1990-91 which increased significantly to? 2,95,511 crores in 2018-19.

(3) Government Subsidies:

• The Government of India has been providing subsidies on a number of items such as food, fertilizers, interest on priority sector lending, exports, education, etc.
• Because of the massive amounts of subsidies, the public expenditure has increased manifold.

(4) Debt Servicing:

• The government has been borrowing heavily both from internal and external sources, As a result, the government has to make huge amounts of repayment towards debt servicing.

(5) Development Projects:

• The government has been undertaking various development projects such as irrigation, iron and steel, heavy machinery, power, telecommunications, etc.
• The development projects involve huge investments.

(6) Urbanisation:

• There has been an increase in urbanization.
• In 1950 – 51 about 17% of the population was urban-based.
• Now the urban population has increased to about 43%.
• There are more than 54 cities above one million population.
• The increase in urbanization requires heavy expenditure on law and order, education, and civic amenities.

(7) Industrialisation:

• Setting up of basic and heavy industries involves a huge capital and long gestation period.
• It is the government that starts such industries in a planned economy.
• The underdeveloped countries need a strong infrastructure like transport, communication, power, fuel, etc.

(8) Increase in grants in aid to state and union territories:

• There has been a tremendous increase in grant-in-aid to state and union territories to meet natural disasters.