Government Finances

THE Economic and Functional Classification (EFC) of the Central budget for 1980-81, released recently, places the government's total expenditure for 1979-80 (revised estimates) at Rs 18,651 crore, which was only 5.3 per cent higher than that for 1978-79. With an increase of over 17.1 per cent in the wholesale prices index in 1979-80. this implies a substantial fall in the government's expenditure in real terms. Likewise, the budget for 1980-81 places total expenditure at Rs 21.353 crore, an increase of only 14.5 per cent over the previous year, despite inflation running at nearly 20 per cent. The supplementary demands for grants approved by parliament recently may at best maintain real expenditure at the 1979-80 level. This is significant in so far as past experience shows that a significant step-up in government expenditure has generally been accompanied by a notable improvement in industrial out- put. In 1978-79, when there was general price stability, government expenditure rose by 18.2 per cent and industrial output by 7.6 per cent. Earlier, sizeable improvements in industrial output had occurred in 1975-76 (7.2 per cent) and 1976-77 (9.5 per cent); the former year had seen a phenomenal increase of 23 per cent in government expenditure together with a decline in the wholesale prices index. In 1976-77, marked by general price stability again, there was a further increase of about 9,2 per cent in government expenditure.