Effects of Public Expenditure on Economic Development and Growth

Effects of Public Expenditure on Economic Development and Growth:

The term economic development is used interchangeably with such terms as economic growth, economic welfare, economic progress, and secular change. But certain economists like Schumpeter and Mrs. Ursula Hicks have made a distinction between the more commonly used terms economic development and economic growth. Economic development refers to the problems of underdeveloped countries and economic growth to those of advanced countries. Mr. Hicks points out that the problems of underdeveloped countries are concerned with the development of unused resources, even though their uses are well known; while those of advanced countries are related to growth, most of their resources, being already known and developed. However, the problem of under-developed countries is to make rapid and accelerated economic development, i.e., the rapid increase in the output and income of the community, while that of developed countries is to maintain economic stability, a gradual and steady advance of incomes and output. Thus, it is obvious that the problems of underdeveloped countries are different from that of developed countries with respect to increased incomes and output. However, the role of public expenditure in economic development and growth is explained below.

To increase the volume and level of employment- The biggest problem, which developed and underdeveloped countries face, is the problem of employment and increasing incomes. Public expenditure programmes may directly help to provide employment to many individuals and by increasing these people’s demand for goods and services, it may further increase employment opportunities, as the increase in demand will lead to greater production and, thus, will provide employment to large numbers. It is, however, true only, if productive instruments on agriculture and industry are not producing what they can produce within their means. If they are already producing at an optimum level the possibility of increasing production and employment would be less Thus, public expenditure programmes should be so devised so as to increase production with an increase in demand for the products. In other words, the principle of growth with stability should be followed. Thus, public expenditure should not only aim at increasing demand but also at stimulating and supplementing private initiatives and enterprises. The government may make a public expenditure for directly entering productive activities and enterprise to achieve the objective of balancing the demand with the supply.

To encourage investment and production- The private sector may be encouraged for making rapid investments and increasing production, if the public expenditure is liberally incurred for the provision of social and economic overheads education and public health, provision of means of transport and communications and power, etc. In short, public expenditure should come forward to provide external economies and should help to provide internal economies of production. This will increase demand and production. In other words, it may increase production and consumption and may provide better income and a better standard of living to the country.

To undertake heavy industries- The public expenditure should also come forward to undertake those enterprises which do not attract the private sector or where private capital is shy to undertake these enterprises, either because of low-profit margin or because they require huge capital investment and take a long time to give returns. Thus, all the key and basic industries needed for making rapid economic development, such as iron and steel, atomic power, hydroelectric multi-purpose projects, heavy electricals, and engineering, come under this category. However, the objective of public expenditure in a mixed economy should not be, to compete with the private sector, but to act as supplementary and complimentary to it.

Loans, grants, subsidies, tax concessions, and exemptions to stimulate private initiatives- In democratic countries like India, the aim of developmental public expenditure is to stimulate and supplement private initiatives and enterprises rather than to eliminate the private sector. The government may provide direct stimulation to the private sector by providing loans, grants and subsidies, tax concessions and exemptions, market and other information, and research facilities. The government may set up special banking and financial facilities such as an industrial development bank and financial corporation to provide finance for medium and long-term loans at low-interest rates to provide adequate finance for private sector industries.

Infra-structural Facilities- Indirect stimulation may be provided by the Governments by creating social and economic overheads which are an essential pre-requisite for economic growth and development. Education and public health come under social overheads. Besides, economic overheads include transport and communication, water and power facilities, etc.

For steady and balanced economic growth of the country, basic economic objectives and priorities between the various development projects are to be determined. There are differences of opinion on the question; which sector of the economy should be given priority in development. Some want the agrarian sector and exports, while others want priority for secondary and tertiary sectors. A third view is in favor of equal emphasis for all sectors in the interest of balanced growth. Thus, we agree with Lowis who says, In development programmes, all sectors of the economy should grow simultaneously so as to deepen a proper balance between industry and agriculture, and between production for home consumption and production for export.

However, it is important to note that the success of public expenditure policies lies in the fact that their cost of administration should be kept at the minimum level. It means that the advantage of a small increase in the achievement of objectives should be balanced against its costs.

The Khilafat Movement, 1919-1920
The Non-Cooperation Movement (1920-22)
Civil Disobedience Movement (March 12, 1930 – March 5, 1931)
Quit India Movement 1942 or August Revolution
The Left Movement and Congress Socialist Party
Decline of the Mughal Empire
Stages of British Colonialism
The Mountbatten Plan or The June Third Plan (1947)
Cultural Developments in Medieval India-NIOS

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