Public Expenditure: Growth and Classification

Public expenditure is the spending incurred by public authorities to perform their functions — maintaining law and order, providing defence, building infrastructure, and promoting social and economic welfare. Public expenditure across the world, including in India, has shown a persistent, long-run tendency to grow over time, for several reasons:

• Expanding functions of the state — the modern state has moved well beyond the traditional roles of defence and law-and-order into welfare functions (education, public health, social security, subsidies), a broadening often described in economic literature as the state naturally taking on more activities as an economy develops.
• Population growth and urbanisation — more people, and more of them living in cities, require proportionately more spending on civic amenities, housing, transport and sanitation.
• Defence and internal security needs — modern defence technology and internal-security requirements are far more expensive than in earlier periods.
• Development expenditure — building and maintaining infrastructure (roads, power, irrigation) needed for economic growth.
• Rising interest payments — as a government accumulates public debt (Section 5) over successive years, the annual interest burden on that debt itself becomes a growing component of expenditure.
• Inflation — a general rise in the price level raises the nominal (rupee) cost of the same physical quantity of goods and services the government buys, inflating expenditure figures even without any real increase in activity.

Public expenditure is classified into two broad types: …