MEANING AND
CLASSIFICATION OF PUBLIC EXPENDITURE
PUBLIC FINANCE
INTRODUCTION
1.
PUBLIC EXPENDITURE IS THE EXPENDITURE INCURRED BY PUBLIC AUTHORITIES-CENTRAL,
STATE AND LOCAL EITHER FOR THE SATISFACTION OF COLLECTIVE NEEDS OF THE CITIZEN
FOR PROMOTING O ECONOMIC AND SOCIAL WELFARE. THE VOLUME OF PUBLIC EXPENDITURE
HAS BEEN INCREASING IN ALMOST ALL COUNTRIES OF THE WORLD.
2.
IN THE 17 AND 18 THE CENTURIES PUBLIC EXPENDITURE WAS CONSIDERED AS WASTAGE.
SPEND ONLY ON DEFENCE AND MAINTAIN LAW AND ORDER
3.
IN THE 20 THE CENTURY, J.M KEYNES ARGUED THE ROLE AND SIGNIFICANCE OF PUBLIC
EXPENDITURE.
DEFINITION OF PUBLIC EXPENDITURE
PUBLIC EXPENDITURE REFERS TO THE EXPENDITURE
INCURRED BY THE CENTRAL.STATE OR LOCAL GOVERNMENT OF A COUNTRY FOR ITS OWN
ADMINISTRATION, SOCIAL WELFARE, AND ECONOMIC DEVELOPMENT AND FOR PROVIDING HELP
TO OTHER COUNTRIES.
NATURE OF PUBLIC EXPENDITURE
1.
DIFFER FROM COUNTRY TO COUNTRY AS PER THE NEEDS AND REQUIREMENTS
2.
AS INDIA DEVELOPING ECONOMY AND MIXED ECONOMY WANTS TO ACHIEVE GROWTH WITH
SOCIAL JUSTICE
3.
PUBLIC SPENDING IN DEVELOPED COUNTRIES IS DONE TO CHECK FLUCTUATIONS IN
EFFECTIVE DEMAND
4.
IN DEVELOPING ECONOMIES THE OBJECTIVE IS TO SOCIO ECONOMIC MAKEOVER AND ACCELERATING
THE GROWTH PROCESS
5.
PUBLIC EXPENDITURE HAS MULTIPLIER EFFECT AS IT BOOSTING THE REAL INCOME AND
QUALITY OF LIFE AND ALSO RAISES THE PRICE
OBJECTIVES OF PUBLIC EXPENDITURE
•
ADMINISTRATION OF LAW AND ORDER AND JUSTICE
•
MAINTENANCE OF POLICE FORCE
•
MAINTENANCE OF ARMY AND PROVISION FOR DEFENCE GOODS
•
MAINTENANCE OF DIPLOMATS IN FOREIGN COUNTRY
•
PUBLIC ADMINISTRATION
•
SERVICE OF PUBLIC DEBTS
•
DEVELOPMENT OF INDUSTRIES
•
DEVELOPMENT OF TRANSPORT AND COMMUNICATION
1.
PROVISION FOR PUBLIC HEALTH
2.
CREATION OF SOCIAL GOODS
OBJECTIVES OF PUBLIC EXPENDITURE IN INDIA
1.
PROVIDE SOCIAL GOODS: PARKS, ROADS, BRIDGES, AND EDUCATIONAL FACILITIES.
SOCIAL GOODS ARE WHICH ARE REQUIRED BY FOR THE WELFARE OF SOCIETIES
2.
REMOVES UNEMPLOYMENT:-
3.
INCREASE PRODUCTION: PUBLIC ENTERPRISE
4.
EXPLOITATION OF DEVELOPMENTAL OF MINERALS RESOURCES
5.
PROMOTE PRICE STABILITY
6.
PROMOTE BALANCED GROWTH
7.
REDUCE INEQUALITY OF INCOME’
SCOPE OF PUBLIC EXPENDITURE
1.
ONE SCHOOL RESTRICTS THE FUNCTION OF GOVT MAINLY DEFENCE,LAW AND ORDER AND
NECESSITIES OF CIVIL ADMINISTRATION\
2.
THE OTHER SCHOOL IS IN FAVOUR OF INCREASE IN THE FUNCTION OF STATES
3.
ADAM SMITH,” THE WEALTH OF NATIONS’ POINTED THAT GOVT HAS THREE DUTIES TO
PERFORM:-
1.
PROTECTING THE SOCIETY FROM THE
VIOLENCE AND INVASIONS
2.
DUTY OF PROTECTING AS FAR AS POSSIBLE EVERY MEMBER OF IT OR THE DUTY OF
ESTABLISHING AN EXACT ADMINISTRATION OF JUSTICE
3.
DUTY OF ERECTING AND MAINTAINING CERTAIN PUBLIC WORKS
MODERN VIEW
20 TH CENTURY
THE STATE DOES SPEND MONEY TO THE ADVANTAGE
THE ADOLOPH WAGNER A GERMAN ECONOMIST PRESENTED
LAW OF INCREASE OF STATE ACTIVITIES
PROF R.A MUSGRAVE :
1.
ACTIVITIES TO SECURE REDISTRIBUTION OF RESOURCES
2.
REDISTRIBUTIVE ACTIVITIES
3.
STABILIZATION OF ACTIVITIES
4.
COMMERCIAL ACTIVITIES
CLASSIFICATION AND KIND OF
PUBLIC EXPENDITURE
PUBLIC EXPENDITURE CAN BE CLASSIFIED ON THE
BASIS OF PURPOSE OF EXPENDITURE, ACCOUNT OF EXPENDITURE AND FUNCTIONS OF THE
GOVERNMENT.
BUDGET OR PUBLIC EXPENDITURE REFERS TO THE
ESTIMATED EXPENDITURE OF THE GOVERNMENT ON ITS DEVELOPMENT AND NON DEVELOPMENT
PROGRAMME OR ON ITS PLAN AND NON PLAN PROGRAMME DURING THE FISCAL YEAR.
THE PUBLIC EXPENDITURE IS BROADLY CLASSIFIED AS
:
1.
REVENUE EXPENDITURE
2.
CAPITAL EXPENDITURE
REVENUE EXPENDITURE
1.
DO NOT CREATE ASSETS FOR THE GOVT: LIKE OLD AGE PENSIONS, SALARIES AND
SCHOLARSHIP. THEY ARE JUST ROUTINE EXPENDITURE.
2.
DO NOT CAUSE ANY REDUCTION OF LIABILITY OF THE GOVT:
EXAMPLE OF EXPENDITURE INCURRED ON NORMAL
RUNNING OF THE GOVERNMENT DEPARTMENT AND MAINTENANCE OS SERVICES IS TREATED AS
REVENUE EXPENDITURE. SALARIES OF THE GOVT EMPLOYEES, INTEREST PAYMENT ON LOANS,
PENSIONS, SUBSIDIES, GRANTS, RURAL DEVELOPMENT, EDUCATION AND HEALTH SERVICES.
IT IS HORT PERIOD AND RECURRING IN NATURE. THE PURPOSE IS TO ENSURE NORMAL
FUNCTIONING OF THE GOVERNMENT.
CAPTIAL EXPENDITURE
1.
CREATES ASSETS FOR THE GOVT : EQUITY OR SHARES OF DOMESTIC OR MULTINATIONAL
CORPORATIONS PURCHASED BY THE GOVERNMENT
2.
CAUSE REDUCTION IN THE LIABILITIES OF GOVT: REPAYMENT OF LOAN CERTAINLY
REDUCES THE LIABILITIES OF THE GOVERNMENT.
CAPITAL EXPENDITURE WHICH LEADS TO CREATION OF
ASSETS ARE :
- EXPENDITURE ON PURCHASE OF LAND,BUILDING,MACHINERY
- INVESTMENT IN SHARES,LOANS BY CENTRAL GOVERNMENT TO STATE
GOVERNMENT,FOREIGN GOVERNMENT AND GOVERNMENT COMPANIES,CASH IN HAND AND
ACQUISITIONS OF VALUABLES
- ADD TO THE CAPITAL STOCK OF THE ECONOMY AND RAISES ITS CAPACITY TO
PRODUCE MORE IN FUTURE.
- REPAYMENT OF LOAN IS ALSO CAPITAL EXPENDITURE BECAUSE IT REDUCES THE
LIABILITY
DIFFERENCE BETWEEN REVENUE AND CAPITAL
EXPENDITURE
REVENUE EXPENDITURE
1.
INCURRED FOR NORMAL RUNNING OF GOVERNMENT DEPARTMENT AND MAINTENANCE
2.
DOES NOT RESULT IN CREATION OF ASSETS
3.
RECURRING IN NATURE AND INCURRED REGULARLY
4.
SHORT PERIOD EXPENDITURE
5.
FOR EXAMPLE : EXPENDITURE ON MEDICINES AND SALARIES OF DOCTOR FOR RENDERING
SERVICES IN GOVT HOSPITALS
CAPITAL EXPENDITURE
1.
IT IS INCURRED FOR ACQUISITION OF CAPITAL ASSETS
2.
RESULT OF CREATION OF ASSETS
3.
NON RECURRING IN NATURE
4.
GENERALLY A LONG PERIOD
5.
CONSTRUCTION OF HOSPITAL BUILDING IS CAPITAL EXPENDITURE
OTHER TYPES OF EXPENDITURE
DEVELOPMENT PRODUCTIVE EXPENDITURE: GROWTH AND DEVELOPMENT ACTIVITIES. RESULT IN THE IMPROVEMENT OF PRODUCTION OF
PRODUCTIVE CAPACITY.EXPENSES ON EDUCATION,HEALTH,INDUSTRY
,AGRICULTURE,TRANSPORT ,ROADS,RURAL DEVELOPMENT ETC
NON DEVELOPMENT EXPENDITURE: - DO ES NOT RAISE THE PRODUCTIVE CAPACITY OF
THE NATION. EXPENDITURE ON POLICE, MILITARY, LAW AND ORDER, COLLECTION OF
TAXATION, PAYMENT OF OLD AGE PENSIONS.
PLAN EXPENDITURE: - REFERS TO THE EXPENDITURE WHICH IS INCURRED
BY THE GOVERNMENT WITH IN THE PURVIEW OF PLANNED DEVELOPMENT PROGRAMME. BOTH
CONSUMPTION AS WELL AS INVESTMENT. EXPEDNITURE ON AGRICULTURE,POWER AND
COMMUNICATION,INDUSTRY ,TRANSPORT AND PUBLIC UTILITY
NON PLAN EXPENDITURE: - BEYOND THE PURVIEW OF ITS PLANNED
DEVELOPMENT PROGRAMMES. THIS INCLUDES
BOTH CONSUMPTION AS WELL INVESTMENT EXPENDITURE. THIS INCLUDED EXPENDITURE ON
SUBSIDIES, DEFENCE, LAW AND ORDER AS WELL PAYMENT OF INTEREST ON LOANS BY THE
GOVERNMENT.
TRANSFERABLE EXPENDITURE : PROF PIGOU HAS CLASSIFIED THE PUBLIC
EXPENDITURE INTO TRANSFERABLE AND NON TRANSFERABLE EXPENDITURE,
TRANSFERABLE EXPENDITURE REFERS TO THAT
EXPENDITURE BY THE GOVERNMENT WHICH IS NOT RELATED TO THE PRODUCTION OF GOODS
AND SERVICES OR GENERATION OF INCOME IN THE ECONOMY. THIS EXPENDITURE CAUSE
TRANSFER FROM GOVERNMENT TO HOUSEHOLD AND INDIVIDUALS. TEND TO CHANGE THE
DISTRIBUTION OF INCOME IN THE SOCIETY. SCHOLARSHIPS AND UNEMPLOYMENT ALLOWANCE
NON TRANSFERABLE EXPENDITURE: IS THE EXPENDITURE WHICH RESULTS IN THE
EXCHANGE OF GOODS AND SERVICES FOR MONEY. MAINLY THE PAYMENTS MADE BY THE GOVT
ON THE USE OF FACTOR SERVICES FOR PRODUCTIVE ACTIVITIES.
CURRENT EXPENDITURE:-MET OUT OF THE CURRENT REVENUE AND DOES NOT
CREATE ANY ASSETS. EXPENDITURE ON DEFENCE, ADMINISTRATION.
PRIMARY EXPENDITURE:- NECESSARY FOR THE EXISTENCE OF A
COUNTRY.EXPENDITURE ON LAW AND ORDER,DEFENCE ADMINISTRATION
SECONDARY EXPENDITURE:- WELFARE AND DEVELOPMENT OF THE ECONOMY
PROGRESSIVE ,PROPORTIONAL AND REGRESSIVE PUBLIC
EXPENDITURE:- ON THE BASIS OF EFFECTS OF PUBLIC EXPENDITURE ON THE SOCIETY PR. DALTON CLASSIFIED AS
1.
PROGRESSIVE PUBLIC EXPENDITURE:- HIGHER INCOME BRACT GET LESS BENEFIT
2.
PROPORTIONAL PUBLIC EXPENDITURE:- BENEFIT TED PROPORTIONATELY
3.
REGRESSIVE PUBLIC EXPENDITURE:-
HIGHER INCOME BRACT GET MORE BENEFIT
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