Expenditure Trends and Pattern:

Total expenditure of the Centre has risen twice as fast as total revenue, although much of this reflects rising interest payments. Revenue expenditure consists of  interest payments, subsidies, public administration, and defence expenditure. The non-plan expenditure of the Central Government forms almost three-fourths of the aggregate expenditure, with the revenue component constituting a significant proportion. The principal non-plan components are  interest payments, defence, subsidies and non-plan grants to States and Union Territories (UTs) on the revenue side, and non-plan loans to States and UTs on the capital side. While the rates of growth in defence and subsidies were contained substantially, the interest expenditure continues to strain Central finances.  

Furthermore, interest expenditure, on an average, absorbed 28.6 per cent of the revenue receipts during the eighties as compared with 46.4 per cent in the nineties. This reflects the mounting pressure on Centre's finances arising out of debt accumulation. Another major item of expenditure which exerted pressure on the Centre's finances is the non-plan loans to States and UTs against small savings. Thus, the earmarking of an increasing proportion of Centre's resources towards meeting non-plan expenditure has resulted in reducing the leverage of the Central Government in directing financial flows towards developmental needs. The inability on the part of the Government to raise larger revenue receipts in view of the growing expenditure commitments constituted yet another structural weakness of the Central finances.  

A rigid distinction between developmental and non-developmental expenditure with regard to their contribution to growth is somewhat difficult since certain non-developmental expenditure items such as expenditure on administrative services also exercise some influence, although of an indirect nature, on economic development. Within the developmental expenditure, the relative importance of social services has increased even though its share in total expenditure has been broadly stable. This outcome is due to a steady decline in the share of expenditure on economic services in total expenditure. There is little doubt that the country's infrastructure remains woefully inadequate. Even then, the Central Government's expenditure on infrastructure as a percentage of total expenditure is on the decline. Expenditure on infrastructure gets broadly classified under the head of capital expenditure. For the Centre, capital expenditure accounted for as little as 23.5 per cent of its overall expenditure, with the rest of the expenditure getting covered under revenue expenditure, accounting for 76.5 per cent of total expenditure. There was a large drop in the Centre's capital expenditure from 2000-2003. From 24 per cent during the early 1990s, it dropped by ten percentage points during 2000-2003. But it has now recovered to its original levels. As far as the Centre goes, 13 per cent of the total share of 17 per cent in GDP goes as revenue expenditure while the remaining 4 per cent gets counted as capital expenditure.   

There is probably little room to cut capital expenditures. Of course, in the future, the private sector rather than the Government should meet most of the enormous infrastructure needs of a growing economy. Further progress is needed in reductions in each of the four main areas of current spending.