Expenditures of the Union Government

The below mentioned article provides an overview on Different Types of Expenditure.

Revenue Expenditure and Capital Expenditure:

Expenditures of the Union Government before 1987-88 were classified under two heads—on rev­enue account and on capital account.

Expenditures on revenue account were mainly of three types- administrative expenses (for instance, general ser­vices, social services and economic services), defence expenditure and grants-in-aid to States and public undertakings. In addition, one also found another classification before 1987-88.

These were develop­ment expenditure, defence expenditure and other expenditure. Development expenditures consisted of expenditures on social services, economic services and grants to States and Union Territories.

Other ex­penditures comprised expenditure on revenue col­lection. Interest payments, pension, etc. comprised administrative expenditure. Thus, defence and other expenditures of the Government could be described as non-developmental expenditure.

Plan and Non-Plan Expenditure:

In the Union Budget of 1987-88, a new economic classification of total expenditure of Central Govern­ment was introduced. It is now classified as plan ex­penditure and non-plan expenditure. Non-plan ex­penditure falls under two broad heads, viz., revenue expenditure and capital expenditure.

The former comprises interest payments, defence expenditures, subsidies, pensions, other general services (like tax collection), social services (like education, health), economic services (like agriculture, energy, industry, transport and communications, science, technology and environment) and grants to States and Union Territories.

The latter includes capital expenditure on, defence, loans to public sector undertakings, States, Union Territories, and foreign governments.

Expenditures on agriculture, rural develop­ment, irrigation and flood control, energy, indus­try and mineral resources, science and technology, etc. are included in plan expenditure. In addition to these, grants for implementation of Five Year Plans to States and Union Territories are also included in plan expenditure.

Annual receipts and expenditures of the Gov­ernments are shown in the current account of the budget while receipts and expenditures on capital goods are shown in the revenue or current account of the budget. Expenditures on general services, health and education, subsidies, interest payments are all expenditures on the current account.

On the other hand, expenditures for the purposes of cre­ation of capital goods are shown in the capital ac­count. Expenditures on irrigation, railway lines, etc. are capital expenditures. These are treated as plan expenditures or development expenditures.

Since 1951, expenditure of the Central Govern­ment has been increasing. Between 1980-81 and 1993-94 (revised estimates) total expenditure com­prising plan and non-plan expenditure increased from Rs. 24,170 crores to Rs. 1, 43,871 crores.

Out of the total expenditure of Rs. 1, 43,871 crores, plan ex­penditure stood at Rs. 46,026 crores (i.e., 32% of the total expenditure) and non-plan expenditure came to Rs. 97,845 crores (or 68% of the total).

In terms of percentages, plan and non-plan expenditures constituted 42 and 58 of the total expenditure in 1980- 81. Thus, non-plan expenditure is rising. In other words, from the very beginning non-plan expendi­ture predominate plan expenditure.

The different components of the non-plan expenditure that may be both developmental and non-developmental is discussed below:

(a) Interest Payments:

These relate to interest on internal debt, external debt, small savings and other obligations. This expenditure is included in the revenue account. In 1950-51, expenditure on this head came to Rs. 37 crores. In 1993-94 (revised estimates) the figure increased to Rs. 37,500 crores (i.e., 26% of the total expenditure). This is considered to be the most important item of the expenditure of the Central Government at present.

(b) Defence:

This includes revenue and capital expenditures on defence services net of revenue re­ceipts. Defence expenditure rose from Rs. 171 crores in 1951-52 to Rs. 21,500 crores in 1993-94 (revised es­timates). In percentage terms, this comes to nearly 15 of to the total expenditure or 22 of the total non- plan expenditure.

In the 1960’s and 1980’s it was the single largest item of expenditure, (roughly 35- 40%) because of international disorder, turmoil on India’s border and unfriendly relations with neigh­bouring countries. However, its relative importance has gone down in recent years.

(c) Subsidies:

Another component of non-plan expenditure is the payment of subsidies which has been rising phenomenally. In 1980-81, a sum of Rs. 2,028 crores was spent for this purpose. But it rose to Rs. 12,400 crores in 1993-94 (revised estimate).

With the launching of the New Economic Policy in July 1991, the Government felt the necessity of curtailing this sort of expenditure.

No doubt there has been reduction in subsidy in recent years at the insistence of the IMF. In fact, one of the reasons for the re­duction in fiscal deficit in 1991-92 and 1992-93 is the decline in non-plan expenditure, like expenditure on defence, subsidies, etc.

(d) General Services:

It includes expenditures on tax collection, police, pension. This has been ris­ing in recent years. It is slightly less than 7% of the total expenditure of the Union Government. In 1993-94 (revised estimates), this amount came to Rs. 9,466 crores.

Thus, it is clear that expenditures on defence, interest and subsidy payment’s alone comprise 50% of the total expenditures. This amounts to saying that non-plan expenditure is on the rise at the cost of plan or developmental expenditures. This is not a healthy sign.