Classification of Public Expenditure | Economics Optional Notes for UPSC PDF Download

Introduction

Budget or Public expenditure refers to estimated expenditure of the Government on its ‘developopment and non-development programmes’, or on its ‘plan and non-plan programmes’ during the fiscal year.Public expenditure of the Government is broadly classified as:

Revenue Expenditure

Revenue expenditures of the government are those expenditures which have the following two characteristics:

• These expenditure do no create assets for the government. For example, expenditures by the government on old-age pensions, salaries and scholarships are to be teated as revenue expenditures. Because these are just routine expenditures, not creating assets of any sort.
• These expenditures do not cause any reduction of liability of the government. Expenditure on the repayment of loans, for example, causes reduction of government liability. According, this is not to be treated as revenue expenditure

In short, revenue expenditure refers to estimated expenditure of the govenmnet in a a fiscal year which does not either create assets or cause a reduction in liabilities.

Capital Expenditure

Those expenditures of the government are capital expenditures which:

• Create assets for the government. Equity(or shares) of the domestic or multinational corporations purchased by the government may be cited as an example.
• Cause reduction in liabilities of the government. Repayment of loans certainly reduces liability of the government. According this is to be treated as capital expenditure.

In short, capital expenditure refers to the estimated expenditure of the government in a fiscal year which either creates assets or causes a reduction in liabilities.

Other Types of Public Expenditure

Public expenditure are classifies in may ways. However, principal types of public expenditures are as under:

Development Productive Expenditure

• This relates to growth and development activities of the government. It results in the improvement of productive capacity. This includes expenditure on education, health, industry, agriculture, transport, roads, canals, rural development, waterworks and generation of power.

Non-development or Unproductive expenditure

• Non-development expenditure of the government related to non-development activites of the government, It does not raise the productive capacity of the nation. This includes expenditure on administration, police and military, law and order, collection of taxation, interest on loans, payment of old age pensions, etc.

Plan Expenditure

• Plan expenditure refers to that expenditure which is incurred by the government within the purview of its planned development progrmmes. This includes both consumption as well as investment expenditure by the government or planning commission of the government. Expenditure on agriculture, power, communication, industry, transport, public utilities, health and education are some of the notable examples of plan expenditure.

Non-plan Expenditure

• This refers to all such government which happened to be beyond the purview of its planned development programmes. This includes both consumption as well as investment expenditure by the government. This includes expenditure on subsidies, defence, law and order as well as payment of interest on loans by the government.

Transferable and non-transfereable Expenditure

Prof. Pigou has classified public expenditure  into transferebale and non-transferebale expenditure.

• Transferable Expenditure: These are the expenditure by the government which are not related to the production of goods and services or generation of income in the economy. These expenditure cause transfer of income from government to the individual and households. Scolarships and unemployment allowance by the government are two notable examples of transferable expenditures.
• Non-Transferable Expenditure: These are the expenditures which result in the exchange of goods and services for money. These are called real expenditures. These include mainly the payments made by the government on the use of factor services for productive activities. Expenditure on armaments, education, post and telegraph, agricultural development and railways are some important examples of non-transferable expenditures.

Current and Capital Expenditure

• Current expenditure is that expenditure which is met out of the current revenue and does not lead to creation of some capital assets. Government expenditure on defence, administration, etc. are the example of current expenditure.

Primary and secondary Expenditure

• On the basis of importance, public expenditure can be classified as primary and secondary expenditure.Primary expenditure are those expenditure which are necessary for the existence of a country. On the contrary, secondary expenditure are meant for achieving welfare and development of the country. In the modern times both primary and secondary expenditure are necessary for the development of a country.

Progressive, proportional and Regressive Public Expenditure

• On the basis of effects of public expenditure on society, Prof. Dalton classified public expenditure as progressive, proportional and regressive. In case of progressive public expenditure higher income bracket people get less benefit out of the government expenditure. Government expenditure on education, health care, fairs, price shops, etc. benefits most to the poor than rich. Proportional public expenditure are that expenditure which benefited proportionately irrespective of the level of income. A fixed percentage increase in the salary will have proportional effect on every.