Meaning, Objectives and Scope of Public Expenditure

Public Expenditure

Objectives and Scope

Meaning of Public Expenditure

Public Expenditure refers to Government Expenditure. It is incurred by Central and State Governments. The Public Expenditure is incurred on various activities for the welfare of the people and also for the economic development, especially in developing countries. In other words The Expenditure incurred by Public authorities like Central, State and local governments to satisfy the collective social wants of the people is known as public expenditure.

Objectives of Public Expenditure:

The major objectives of public expenditure are

a)      Administration of law and order and justice.

b)      Maintenance of police force.

c)       Maintenance of army and provision for defence goods.

d)      Maintenance of diplomats in foreign countries.      

e)      Public Administration.

f)       Servicing of public debt.

g)      Development of industries.

h)      Development of transport and communication.

i)        Provision for public health.

j)        Creation of social goods.

Scope of Public Expenditure

Public Expenditure refers to Government Expenditure for maintenance of the government and to preserve the welfare of society as a whole. It is incurred by Central and State Governments or local authorities. The Public Expenditure is incurred on various activities for the welfare of the people and also for the economic development, especially in developing countries. In other words The Expenditure incurred by Public authorities like Central, State and local governments to satisfy the collective social wants of the people is known as public expenditure.

Public expenditure shows the decisions of the parliament and other independent executive bodies for the scope of public expenses. It is measured with respect to the public expenses made by the government in the previous year or last financial interval. Public expenditure are classified into two parts: current expenditure and capital expenditure. In the present world, public expenditure is very important due to the following two reasons:

a) The economic activities of the government have increased manifold.

b) The nature and volume of public expenditure have important effects on production, distribution and the general level of economic activity.

Therefore, it is the need of the hour that state should participate in almost every field and the government is responsible even for small matters. Some writers advocated that public expenditure should be forced to deal with many day-to-day activities like re-allocation of resources, redistribution activities, stabilizing activities and commercial activities.

Role/Significance/Importance of Public Expenditure

Gone are the days when any kind of state intervention in the socio-economic affairs of a country was considered as a positive hindrance in the smooth working of the economy. The state was to act as passive spectator and the countries were left to the free working of the economic forces. It was Prof. J. M. Keynes in the twentieth century, who realised that state interference is necessary to keep the economy of a country in a stable equilibrium and the road leading to the destination of full employment. At a time when there was world-wide depression (1929-30), the economies of the world were facing the acute problems of overproduction and mass unemployment, private investment was showing a chronic deficiency, the emphasis was shifted from private spending to public spending. The doses of public spending served to uplift the economic system of the world through the interaction of multiplier principle, from the cruel hands of worldwide depression. The importance/significance/role of public expenditure may be studied under the following heads:

1)      Economic Development and Planning: Public expenditure plays a crucial role in the economic development and planning. The success of economic planning depends on the public expenditure because: (i) Economic planning itself requires heavy public expenditure; (ii) For the success of economic planning proper allocation of public expenditure is to be done on different items, such as, roads, transport, irrigation, electricity and power, industries, agriculture etc; (iii) the government is required to establish and manage the working of several government undertakings including public utility undertakings; (iv) Speedy capital formation is to be undertaken, and (v) balanced economic development. All these require heavy public expenditure. Planned development programmes cannot be undertaken without increasing public expenditure.

2)      Reduction in Disparities of Income and Wealth: Today, great emphasis is being given in almost all countries of the world to the reduction of disparities of income and wealth. Public expenditure has a vital importance in the attainment of this vital objective. Programmes for the uplift of the poor and backward classes may be undertaken by adopting a suitable policy of public expenditure.

3)      Economic Stability: Economic stability of a country depends on the public expenditure. In case of depression, heavy public expenditure is to be incurred for increasing investment, capital formation and employment and also for saving the economy from adverse effects of depression. On the contrary, in case of boom period public expenditure is incurred in such a way as to increase production and control the rising price-level.

4)      Economic-Social Welfare: Economic-social welfare in a country depends on the amount of public expenditure incurred on them. Economic and social welfare programmes like labour welfare, child welfare, women welfare, welfare of physically and mentally handicapped persons, welfare of scheduled castes, scheduled tribes, backward classes and backward areas, welfare of economically and socially weaker sections of the society etc. all these require huge public expenditure.

5)      Economic Development of Underdeveloped Countries: It is now unanimously agreed that public expenditure plays a positive role especially in the economic development of an underdeveloped country. The problems of underdeveloped countries are in such a magnitude that they cannot be left at the mercy of the old laissez-faire policy. Private sector cannot undertake the development projects, where the large amount of risk and capital investment is involved. The only available solution lies in the rapid increase of public expenditure.

6)      Increase in State Activities: Formerly, the activities of the state were limited, i.e. internal administration, maintenance of peace and order, judiciary and defence of the countries. Now-a-days the state is required to perform several functions over and above the basic functions, such as education, providing basic necessities like water and electricity, transport, establishment of basic industries in particular, labour welfare, banking including issue of currency, agricultural development, socio-economic welfare, medical assistance to industries and trade, entertainment etc. All these require huge public expenditure.