Pattern Of Revenue Expenditure

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In India, government expenditure – as per the provision in the Constitution – is divided into Revenue Expenditure and Capital Expenditure. However, the adoption of economic planning shifted emphasize on the division of expenditure into Plan and Non-Plan. The share of Non-Plan expenditure has remained close to 70% and that of Plan at 30% all these years. The Planning Commission, in the 11th Plan (2007-12) document prepared in 2007, had proposed abolition of this “illogical and dysfunctional” distinction citing several issues (mentioned later in the ARTICLE). A high-level committee on Efficient Management of Public Expenditure, was then, constituted by the Planning Commission which recommended that the usual distinction made in the government budget between Plan expenditure and Non-Plan expenditure be done away with.

As the free market principles were accepted, role of government in Indian economy changed from being a controller to regulator. Government is the one which decides about the various factors controlling our economy and decides the rules and regulations keeping in mind the welfare of the public. Apart from this the government undertakes expenditure on economic and social sector. Increased priority to development expenditure results in better human and physical asset formation which will further increase Growth prospects of the state. It also steps in for production of goods or Services in areas which are either economically unviable for private enterprise, natural monopolies requiring heavy capital investments or are restricted from private Industry participation.

Governments (Central, State and Local governments) incur expenditures to satisfy the collective social needs of the people, to correct market distortions as well as to regulate private activities hazardous to the Society. All kinds of government consumption and Investment are considered as Government spending. Though, it can be sub-categorized into government final consumption expenditure (acquisition of goods and services by the government for current use to directly satisfy individual or collective needs of the society), gross fixed Capital Formation (acquirement of goods and services for future benefits such as Infrastructure-2/”>INFRASTRUCTURE investment, research spending) and Transfer Payments.

Thus, through public expenditure, the government influences directly or indirectly production, consumption and distribution of the nation, helping towards the economic and social wellbeing of the society .

India has adopted economic planning (through Five Year Plans) as a strategy for Economic Development. The expenditure incurred on the items relating to five year plans is termed as Plan expenditure and are estimated after discussions between each of the ministries concerned and the Planning Commission.

They are spent on productive asset creation through Centrally sponsored programmes and flagship schemes. Non-Plan expenditure in social sectors, a very large part of this category of expenditure in the states is meant for the salaries of staff working for the government.

Increasing Expenditure and Sustainability of Fiscal Deficit

Adoption of various policies relating to revenue and expenditure results in an efficient and sustainable reduction in the fiscal deficit. A government in need to cut the fiscal deficit may at times find it difficult or impossible to raise the level of revenue in the short run, could be because of the economic downturn, policy hindrance etc. Increasing the quality of public spending is one of the alternatives at disposal to the authority which can release Resources to reduce the deficit. Failing to do so, the government could fall back on internal (via market borrowing) and/or external borrowings. However, higher debt leads to higher interest payments putting further pressure on the non-developmental expenditure and fiscal deficit, raising concerns about fiscal sustainability.

Recently, the RBI governor too has underlined the need for returning to the path of Fiscal Consolidation to contain borrowing requirements. And the finance minister came out with the budget statement that the high fiscal deficit was not sustainable and assured to scale down fiscal deficit at 4.8% of GDP in 2013-14.

The Union Budget 2018 unveiled by finance minister Arun Jaitley outlined various allocations for government expenditure. As expected, government spending focused primarily on rural development and overall Infrastructure Development. The expenditure budget has been increased marginally for the 2018-19 period owing to higher allocations in various sectors. All expenditure including allocation for central projects and establishment expenditure has been raised from the previous year.

Overall expenditure budget The overall government expenditure in the Union Budget 2018 (2018-19) was estimated to be around Rs.24.42 lakh crore. When discussing the fiscal situation of 2017-18, the finance minister revised the total expenditure estimate to Rs.21.57 lakh crore. This represents a marginal increase from the budget estimate of Rs.21.47 lakh crore. He also noted that the central government would receive GST revenues for 11 months rather than 12 months in the 2017-18 period. This fiscal effect has been offset by the higher revenues generated from Direct Tax and Disinvestment receipts. Also, fiscal deficit for 2018-19 has been estimated to be 3.3%.

Fiscal deficit and possible slippage

Fiscal deficit refers to difference between the government’s revenues and expenditure. In the Union Budget 2017, the government set a fiscal deficit target of 3.2% for the current fiscal year. However, analysts across the country expect that the finance minister may announce a slippage from the fiscal deficit target mainly because of declining revenues. While capital expenditure has remained under control for the last year, lower revenues that followed the GST rollout in mid-2017 could very well be the reason behind this slippage.  

Expenditure in previous budgets

Compared to Union Budget 2016, the government has increased spending in various sectors in last year’s budget. For instance, the defense sector received an additional Rs.14,000 crore and the Education sector received an additional Rs.4,500 crore in the previous budget. In the previous budget, total expenditure through budget stood at Rs.21.47 lakh crore. Of this, central spending totaled more an Rs.17 lakh crore. Expenditure budget for last year increased significantly mainly because of government spending in infrastructure and other central schemes.

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The pattern of revenue expenditure in India has been changing over the years. In the early years of independence, the government spent most of its revenue on defence and administration. However, in recent years, there has been a shift towards social security and welfare expenditure. This shift is due to a number of factors, including the increasing Population, the growing demand for social services, and the government’s commitment to providing a safety net for its citizens.

Administrative expenditure is the cost of running the government. It includes the salaries and allowances of government employees, the cost of office space and equipment, and the cost of providing essential services such as law and order, education, and Health. Administrative expenditure has been increasing in recent years, due to the growing size of the government and the increasing cost of providing essential services.

Defence expenditure is the cost of maintaining the armed forces. It includes the salaries and allowances of military personnel, the cost of weapons and equipment, and the cost of training and exercises. Defence expenditure has been declining in recent years, as a Percentage of GDP. However, it is still a significant component of the government’s budget.

Interest payments are the cost of borrowing Money. The government borrows money to finance its expenditure, and it pays interest on this borrowing. Interest payments have been increasing in recent years, due to the government’s growing debt.

Subsidies are payments made by the government to reduce the prices of goods and services. Subsidies are given to a variety of sectors, including agriculture, food, fuel, and Fertilizers. Subsidies have been declining in recent years, as the government has sought to reduce its fiscal deficit.

Social security and welfare expenditure is the cost of providing social security and welfare benefits to the poor and vulnerable. It includes the cost of pensions, Unemployment benefits, and social assistance programs. Social security and welfare expenditure has been increasing in recent years, due to the growing number of people living in POVERTY and the government’s commitment to providing a safety net for its citizens.

Economic services expenditure is the cost of providing economic services such as infrastructure, education, and health. Economic services expenditure has been increasing in recent years, as the government has sought to promote economic growth.

Other expenditure is a catch-all category for all other expenditure not covered by the above categories. It includes the cost of running the President’s office, the Prime Minister’s office, and other government departments. Other expenditure has been declining in recent years, as the government has sought to reduce its fiscal deficit.

The pattern of revenue expenditure in India is likely to continue to change in the coming years. The government is committed to providing a safety net for its citizens, and this will lead to an increase in social security and welfare expenditure. The government is also committed to promoting economic growth, and this will lead to an increase in economic services expenditure. However, the government is also facing a number of challenges, such as the growing fiscal deficit and the increasing debt burden. These challenges will put a constraint on the government’s ability to increase expenditure in all areas.

What is revenue expenditure?

Revenue expenditure is the expenditure incurred by the government on the normal functioning of the government, such as salaries, pensions, and interest payments.

What are the different types of revenue expenditure?

The different types of revenue expenditure are:

• Personal emoluments: This includes the salaries and allowances of government employees.
• Pensions: This includes the pensions paid to retired government employees.
• Interest payments: This includes the interest paid on government debt.
• Subsidies: This includes the subsidies given by the government to various sectors, such as agriculture, industry, and exports.
• Grants-in-aid: This includes the grants given by the government to state governments and local bodies.
• Other expenditure: This includes expenditure on various other items, such as defense, law and order, and social services.

What is the pattern of revenue expenditure in India?

The pattern of revenue expenditure in India has been changing over the years. In the early years, revenue expenditure was mainly on defense and law and order. However, in recent years, there has been a shift towards social sector expenditure, such as education and health.

What are the challenges in managing revenue expenditure?

The challenges in managing revenue expenditure are:

• The rising cost of government employees: The salaries and allowances of government employees have been rising steadily over the years. This has put a strain on the government’s finances.
• The rising cost of pensions: The number of retired government employees is increasing, and the government has to pay them pensions. This is another strain on the government’s finances.
• The rising cost of interest payments: The government has to pay interest on its debt. This is another strain on the government’s finances.
• The rising cost of subsidies: The government gives subsidies to various sectors, such as agriculture, industry, and exports. This is another strain on the government’s finances.
• The rising cost of grants-in-aid: The government gives grants to state governments and local bodies. This is another strain on the government’s finances.

What are the reforms needed to manage revenue expenditure?

The reforms needed to manage revenue expenditure are:

• Reduce the cost of government employees: The government can reduce the cost of government employees by freezing salaries, reducing the number of employees, and Outsourcing some of the government’s functions.
• Reduce the cost of pensions: The government can reduce the cost of pensions by raising the retirement age, reducing the pension benefits, and introducing a defined contribution pension scheme.
• Reduce the cost of interest payments: The government can reduce the cost of interest payments by reducing its debt.
• Reduce the cost of subsidies: The government can reduce the cost of subsidies by targeting subsidies to the poor and needy, and by reducing the subsidies on non-essential items.
• Reduce the cost of grants-in-aid: The government can reduce the cost of grants-in-aid by reducing the number of state governments and local bodies, and by reducing the amount of grants given to them.

1. Which of the following is not a type of revenue expenditure?
   (A) Salaries and wages
   (B) Interest payments
   (C) Depreciation
   (D) Capital expenditure

2. Which of the following is the most common type of revenue expenditure?
   (A) Salaries and wages
   (B) Interest payments
   (C) Depreciation
   (D) Capital expenditure

3. Revenue expenditure is incurred for the purpose of:
   (A) Generating revenue
   (B) Maintaining the current level of operations
   (C) Investing in new assets
   (D) Paying off debt

4. Revenue expenditure is classified into two main categories:
   (A) Current expenditure and capital expenditure
   (B) Operating expenditure and capital expenditure
   (C) Discretionary expenditure and mandatory expenditure
   (D) Developmental expenditure and non-developmental expenditure

5. Current expenditure is expenditure that is incurred on a regular basis to maintain the current level of operations.
   (A) True
   (B) False

6. Capital expenditure is expenditure that is incurred on assets that will have a useful life of more than one year.
   (A) True
   (B) False

7. Revenue expenditure is funded from current revenue.
   (A) True
   (B) False

8. Capital expenditure is funded from capital revenue.
   (A) True
   (B) False

9. Revenue expenditure is recorded in the income statement.
   (A) True
   (B) False

10. Capital expenditure is recorded in the balance sheet.
    (A) True
    (B) False