Model Answer
0 min readIntroduction
Public expenditure refers to government spending on goods and services, infrastructure, and transfer payments. It plays a crucial role in stabilizing the economy, promoting inclusive growth, and providing essential public services. In recent years, India has witnessed a significant increase in public expenditure, driven by factors such as the economic fallout from the COVID-19 pandemic, the need to stimulate demand, and a renewed focus on infrastructure development. This rise in spending, while intended to bolster economic recovery and social welfare, has also sparked debate regarding its sustainability and potential consequences for the fiscal health of the nation. The question of its desirability, therefore, requires a comprehensive assessment of its benefits and drawbacks.
Reasons for Increased Public Expenditure
Several factors have contributed to the rise in public expenditure in India:
- COVID-19 Pandemic (2020 onwards): The pandemic necessitated increased spending on healthcare, social safety nets (like PM Garib Kalyan Yojana), and economic relief packages to mitigate the economic impact.
- Infrastructure Push: The government has prioritized infrastructure development through initiatives like the National Infrastructure Pipeline (NIP) and PM Gati Shakti National Master Plan, requiring substantial public investment.
- Increased Subsidies: Subsidies on food, fertilizers, and LPG continue to be significant components of public expenditure, aimed at ensuring food security and affordability for vulnerable sections of the population.
- Welfare Schemes: Expansion of social welfare programs like MGNREGA, PM-KISAN, and various pension schemes have increased the demand for public funds.
- Defense Spending: Geopolitical considerations and the need for modernization of the armed forces have led to increased allocation towards defense.
Benefits of Increased Public Expenditure
Increased public expenditure can yield several benefits:
- Economic Growth: Investment in infrastructure (roads, railways, ports) boosts economic activity, creates jobs, and enhances productivity. The multiplier effect of government spending can further amplify these benefits.
- Social Welfare: Spending on education, healthcare, and social security programs improves human capital, reduces poverty, and promotes inclusive growth.
- Demand Stimulation: During economic downturns, increased public expenditure can stimulate aggregate demand and prevent a deeper recession.
- Regional Development: Targeted public investment in backward regions can reduce regional disparities and promote balanced development.
- Improved Public Services: Increased funding allows for better quality and accessibility of essential public services like healthcare and education.
Drawbacks of Increased Public Expenditure
Despite the benefits, increased public expenditure also carries potential risks:
- Fiscal Deficit: Excessive spending without corresponding increases in revenue can lead to a widening fiscal deficit, increasing government debt. (India’s fiscal deficit was 6.4% of GDP in FY23, as per the revised estimates).
- Inflation: Increased government spending, particularly when supply is constrained, can contribute to inflationary pressures.
- Crowding Out Effect: Large-scale public borrowing can crowd out private investment by increasing interest rates and reducing the availability of credit.
- Inefficiency and Leakage: Public projects are often prone to inefficiencies, delays, and corruption, reducing their effectiveness.
- Sustainability Concerns: High levels of public debt can pose a long-term threat to economic stability and limit the government’s ability to respond to future crises.
Comparative Analysis: Public Expenditure Trends
| Year | Central Government Expenditure (% of GDP) | Revenue Deficit (% of GDP) |
|---|---|---|
| 2019-20 | 12.1 | 3.4 |
| 2020-21 | 13.5 | 5.7 |
| 2021-22 | 13.5 | 6.8 |
| 2022-23 (RE) | 14.9 | 6.4 |
(Source: Controller General of Accounts, Government of India. RE = Revised Estimates)
Conclusion
Increased public expenditure in India is a double-edged sword. While it is essential for economic recovery, infrastructure development, and social welfare, it must be carefully managed to avoid unsustainable levels of debt and inflation. Prioritizing efficient spending, improving revenue mobilization, and focusing on targeted interventions are crucial for maximizing the benefits of public expenditure while mitigating its risks. A balanced approach that combines fiscal prudence with strategic investment is necessary to ensure long-term economic stability and inclusive growth.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.