Does investment necessarily increase with growth in Public Expenditure ?

What are the causes of increase in Public Expenditure ?

Ans.

Causes of Increase in Public Expenditure

Causes of Increase in Public Expenditure. There are following causes-

(1) Increase in Population : Increase in population is a world wide phenomenon. Rising population calls for greater public expenditure for the provision of health and civic amenities, education facilities and the like. This is a very important factor explaining the rise in public expenditure over time.

(2) Establishment of Welfare State: Every government is making attempts to establish a welfare state. In such states, the government does not merely have to maintain law and order, but has also to arrange various types of social facilities: this has resulted in a great increase in public expenditure. A welfare state has to spend a lot on collective goods, such as, parks, bridges, roads, free education, free medical care, etc.

(3) Increase in Social Securities : Almost all the countries of the world have started to provide to the workers and other residents social securities, such as, Social Insurance, Provident Fund Scheme, Compensation for injury, Pension, Unemployment Allowance, Maternity Benefits, etc. This, too, has caused an increase in the government expenditure.

(4) Rise in Price Level: Since World War II, price level has tended to rise in all the countries of the world. This has also caused a stupendous rise in public expenditure in public. Owing to price rise, the government has had to pay dearness allowance to its employees, besides revising their salaries periodically. The expenditure of the development projects of the government has also gone up. Since 1975, rise in the price of petroleum has also led to an increase in the Public expenditure of petroleum importing countries.

(5) Extension of Public Sector and Nationalisation : Extension of public sector has constantly been taking place in various countries for some time now. Specially, the responsibility of the extension of the major sectors of the economy in developing countries like India, such as, Telegraph, Railways and Roads, Radio, Air Traffic, etc., has been with the central government. Apart from it, keeping in view the development of the country, several basic industries like Steel, Chemicals, Railways, Aviation, etc., have had to be nationalized. As a result, public expenditure has been constantly increasing.

(6) Encouragement and Help to Private Sector : The government has also to encourage and financially assist the private sector. The government of India provides a lot of help to Khadi, handloom, export industries and agriculture. This also results in the increase in public expenditure.

(7) Planning and Development: In the modern age, it has been natural to initiate planning programmes linked with economic development in every country. In order to achieve this objective, the governments of all the developing countries have launched economic planning, programmes like Five Year Plans of India. These Plans have resulted in a lot of increase in the government expenditure. Government has to spend large funds on the development of industries, agriculture, research and development to achieve overall economic development of the country.

(8) Increase in Defence Expenditure : Defence has been eating a big chunk of the total government expenditure. In order to prevent war, the easiest acknowledged way is to make oneself strong. Under the circumstances, almost every government has been indulging in incurring huge expenditure on acquiring and manufacturing arms and ammunition of the sophisticated nature.

It has enormously risen the public expenditure. Atom Bomb and other costly armament are responsible for increasing this expenditure.

(9) Increase in the Standard of Living: Over time, standard of living of the masses has generally tended to rise. As a result expectations of people from the government have also increased, and the government has been forced to make more expenditure than ever before on public welfare.

(10) Civil Administration : Upsurge in the social and political terrorism has become a global phenomenon forcing the government to employ a large number of the civil officials and servants. It increases the administrative expenditure to a great extent.

(11) Influence of International Organisations: For the last several years, some international organisations such as, International Labour Organisation, World Health Organisation, U.N.O. etc., too, are responsible for increasing the expenditure of various governments. Also, it is incumbent on the governments to have their embassies in the foreign countries to maintain diplomatic relations.

(12) Urbanization: The extent of urbanization has increased in almost all countries of the world. As such,. the government has to make large expenditure on the development of urban areas. Owing to increasing urbanization, the government has to spend a lot on the means of transport, buildings, electric supply, educational institutions, hospitals and other such facilities.

(13) Establishment of Democracy : After World War II, all newly independent countries have adopted democracy as their way of life. India is no exception. All democratic institutions require periodical elections to Parliament, State Assemblies, local self institutions, Panchayats, etc. Holding of these statutory and bye-elections is a very costly affair, obliging the centre and state governments to incur huge expenditure.

(14) Rural Development Programme : India lives in more than 5 lakh villages with 75 percent of country’s population. To remove poverty, open and disguised unemployment; illiteracy and disease government has to launch variety of developmental programmes involving huge expenditure.

Summing up we can say that even when there are emerging trends towards privatisation, welfare functions of the state have risen so substantially that there has been a spurt in public expenditure in almost all countries of the world. Expenditure on law and order and defence, besides on social security, have tended to emerge as the principal components of public expenditure.