Thursday, November 2, 2017

Public expenditure declining in quantity and quality

"My life has no purpose, no direction, no aim, no meaning, and yet I'm happy. I can't figure it out. What am I doing right?"
—Charles M. Schulz (American, 1922-2000)
Word for the day
Psychomancy (n)
Occult communication between souls and spirits
Malice towards none
All those who termed Elphinston stampede as a national disaster, are distraught is Army is helping to reconstruct the bridge!
First random thought this morning
The only tangible underperformance of the incumbent government seems to be its inability to deliver on the expectations it keeps raising almost on hourly basis. Otherwise everything else is part of a linear trend that perhaps started two decades ago.
DeMo is a classic example. If the government had simply stated that we are replacing old 500 and 1000 rupee bills with new 500 and 2000 rupee bills to weed out the fake currency coming from Pakistan and Bangladesh, it would have been a much simpler and smoother exercise. Projecting it as a panacea for all corruption and non-compliance has made it look like a disaster.

Public expenditure declining in quantity and quality

PMEAC has identified reform in public expenditure as a key focus area for stimulating the economic growth in the country.
In administrative parlance, public expenditure is a complex subject. It involves many classifications and sub-classifications like capital and revenue & capital expenditure, plan and non-plan expenditure, social & economic expenditure, recurring & non-recurring expenditure, etc.
I though like to view it in simple terms. In my view, public expenditure is the amount of money a government spends on (a) managing the administration; (b) creating assets; and (c) discharging its social, political and economic obligations.
The ideal situation for a developing economy, especially an economy that is at a take off stage, is that public spending should be higher. The incremental rise in public expenditure should ideally be used for creating assets and enhancing social services, and administrative and financing costs should gradually decline.
However, this has not been the case in India so far:
(a)          The public expenditure as a percentage of GDP has declined in past three decades, from a high of 19% of GDP in FY87 to 12% in FY17.

(b)          Share of investment (capital expenditure) in public expenditure has fallen materially in past four decades from a high of 43% of GDP in FY79 to 14% in FY17.


(c)        The public expenditure on subsidies (From 1.29% of GDP in FY79 to 1.72% in FY17) and interest payments (From 1.73% of GDP to 3.18%) has risen sharply in past four decades, while allocation for defense has almost halved (from 2.28% of GDP to 1.11%) in this period.




 (d)          The public expenditure on social services has been generally lower in past 3 decades (averaging 3.8% against a high of 5% in FY90). During the global financial crisis it rose to 5.2% in FY11, and has declined steadily since.


...to continue tomorrow

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