Government Spending

By Y.Srinivasa Rao, Principal Senior Civil Judge, Tirupati.

“Nobody spends somebody else’s money as wisely as he spends his own.” – Milton Friedman


”The quick-growing grass is crowding out native plants.” Similarly, the government officials cost, corruption, and the ‘crowding out’ effect which may occur in any kind such as rising interest rates or inflation (raising prices), etc. are some of the potent factors why overflowing government spending should be given up. Government Spending is one of the major components of Growth Domestic Product. It refers to public expenditure on goods and services. Government spending policies like setting up budget targets, adjusting taxation, increasing public expenditure and public works are very effective tools in influencing economic growth. According to recent reports,
‘Government Spending’ in India is averaged 2065.20 INR Billion from 2004 until 2019, reaching an all time high of 4086.45 INR Billion in the third quarter of 2018 and a record low of 735.82 INR Billion in the second quarter of 2004. It is suffice to say that ”Government Spending in India” is increased to 3686.66 INR Billion in the first quarter of 2019 from 3411.26 INR Billion in the fourth quarter of 2018.

Government expenditure:-

When it is compared the expenditure of the Government from year to year, it reveals that government expenditure has been increased. See. The overall government expenditure increased from Rs. 20,144 billion for the financial year, 2016-17) to Rs. 21,467 billion for the financial year 2017-18. It is thus clear that it is an increase of almost Rs. 1.32 trillion. To show employment to the rural people, Government spends Rs. 480 billion to the scheme of the Mahatma Gandhi National Rural Employment Guarantee Scheme. It is needless to say that this is the highest-ever allocation to MGNREGS scheme. Another important factor is that the subsidy bill is also risen by 3% to Rs. 2.4 trillion. Government plans to start dairy-processing fund. For this dairy processing, it needs Rs. 80 billion over 3 years. Instead of privatising the public banks, It is significant to see that the government infused Rs. 2.1 trillion for purpose of improving Health of Public sector Banks. Why cannot it plan for privatisation of public banks as an alternative to save money is one of the critics about the government spending.

Loan Waiving :-

It is another instance for the government spending. In Uttar Pradesh, the worth of loan waivers is of Rs. 360 billion wherein it is Rs. 300 billion in Maharashtra. Spending public money on ”ads” is one of the others important factor. Central Government spends public money of Rs. 37.5 billion only on ”ads” as per the recent reports of the information obtained by the Right to Information Act.


Nominal GDP per capita actually does not indicate any difference between the cost of living of citizen and inflation rates of the country. GDP is monetary measure of the market value of all the final goods and services produced in specific period of time. The long-run multiplier in high-income countries was 0.80. That means for every rupee that a government spent, only 80 paise worth of output was
generated which means 1/5th of the amount was ‘crowded out.’ Whereas, the long run multiplier for developing countries was 0.18 which means
more than 4/5th of the spending was crowded out. 2. The multiplier in countries with an open trade policy was negative and varied between -0.28 (in the short run) and -0.75 (in the long run). In countries with closed trade policies, however, the multiplier varied from 0.02 (in short run) to 1.29 (in the long run). 3. The multiplier for countries whose debt to GDP ratio is more than 60% (India’s debt to GDP ratio is at present 69%) was close to 0 (in the short run) and -2.3 (in the long run). The bureaucratic cost, corruption, and the ‘crowding out’ effect which could take place in any form (such as rising interest rates or inflation, etc.) are some of the reasons why higher government spending should be avoided. People worry that inflation, corruption etc are crowding
economic growth out of their country’s economic development.


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