Public Expenditure

Meaning -Need/Importance/Significance

1.Collective wants and social welfare2.Socio-economic overheads3.Balanced Regional Growth4.Development of Agricultural and Industrial Sectors5. To promote Trade and Commerce6.Rural Development

7. Full Employment8. Price Stability9. Equal Distribution of Income10. Rapid Economic Development

Classification/Types of Public Expenditure

a) Revenue and Capital Expenditureb) Productive and Unproductive Expenditurec) Transfer and Non-Transfer Expenditured) Plan and Non-Plan Expendituree) Dalton’s Classification

a) Revenue and Capital Expenditure Revenue Expenditure –Consumption Expenditure- Public administration,

defence forces, public health and education, maintenance of Govt. machinery, subsidies and interest payments Classified – i. Development Expenditure Contributes to the development of the country. Example- maintenance of education and public health infrastructure –

Human Development, Productive of Capital

ii. Non-Development Expenditure Not directly contribute to economic

development Example –Administrative expenditure, interest payments. Capital Expenditure –Form of investment-Add net productive assets- Classified- i. Development Expenditure -

Example- Agricultural and Industrial Development, Public Enterprises. ii. Non-Development Expenditure-

Example- Expenditure on Defence and Administration

b) Productive and Unproductive Expenditure- Productive Expenditure-Social-Economic Overhead, Infrastructure Facilities, Public

Utilities – Electricity, Water Supply, Educational and Health Facilities etc. Tax and Non-Tax Revenue Unproductive Expenditure – Example – Expenditure on Defence and Administration

c) Transfer and Non-Transfer Expenditure-

Transfer of resources from one group to another – Equality and Social Justice- No output and Income

Example – >Subsidies >The Tax Revenue raised from the rich and distributed to the poor > Pensions > Financial aid between countriesNon-Transfer Expenditure –

Purchases current services of productive resources – creates output and incomeExample – Public Administration, Defence, Development Plans etc.

d) Plan and Non-Plan Expenditure – Plan Expenditure - Included in ongoing five - year plan Example – Implementation of NREGS, Sarva Shiksha Abhiya ect.

Non-Plan Expenditure - Not included in ongoing five - year plan Example – Defence and Internal Security.

e) Dalton’s Classification-

i. Administrative Expenditure – To maintain the general administration

ii. Security Expenditure - To maintain the armed forces and police forcesiii. Development Expenditure – To promote growth and development iv. Social Expenditure – On public health,

welfare, social security.