Government’s Engaging in Development through Expenditure
- Public spending plays a vital in long term growth, particularly in infrastructure development in India.
- Budget constraints entail balancing priorities, as there is need for the government to fund its functioning besides social and physical infrastructure development.
Trends in Capital Expenditure and Revenue Expenditure
- Capital expenditure (Capex) has a much higher multiplier effect than revenue expenditure, with stronger effects on growth sustained over longer periods.
- Here are the changes in Capex over the years: the ratio of capital expenditure to GDP from 1.7% to 1.2% between 1991 96 has been downsized due to fiscal constraints.
- 2003-08: Increased to 2.2% of GDP following fiscal reforms.
- Between 2013-20, it range between 1.3% 1.6% of GDP as focus shifted in post global financial crisis scenario.
- Post 2020 Pandemic recovery measures led to an increase in Capex to reach by 4.6% during 2024 25 (Budget Estimate).
Issues in Fiscal Management
- Continuing high level of general government debt.
- Need to increase revenue collection to support continued growth in Capex.
- Goods & Services Tax (GST) rationalization could be an option to increase revenues.
Reservations on Private Investment
- Still, despite increasing Capex private investment is rather weak.
- It augurs well for the government to address issues faced by businesses in revamping investment trust while easing the fiscal burden.
Risks of Populism in Spending
- State wise populist schemes due to political consideration are threats for fiscal gains.
A blade political consensus is needed to balance welfare with fiscal sustainability.
The government must maintain its Capex momentum while ensuring fiscal prudence. Revitalize private investment to minimize dependence on public expenditures. The two important arrows for the long term resilience of the economy are policy stability and fiscal discipline.
