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The Central government adopted a new classification of public expenditure from 1987-88 budgets. Under this new classification, all public expenditure is classified into non-plan expenditure and plan expenditure.

Non-plan expenditure of the central govt. is further divided into revenue expenditure and capital expenditure. Revenue expenditure is financed out of revenue receipts, both tax revenue and non tax revenue.

Non-plan revenue expenditure includes (a) Interest payments, defense revenue expenditure, major subsidies (food, fertilizers and export promotion), other subsidies, debt relief to farmers, postal deficit, police, pensions, other general services(organs of state, tax collection, external affairs, etc.) (b) Social services (education, health, broadcasting, etc.) (c) Economic services (agriculture, industry, power, transport, communications, science and technology, etc.)(d) Grants to states and union territories and grants to foreign governments.

Non-plan capital expenditure includes such items as defense capital expenditure, loans to public enterprises, loans to states and union territories and loans to foreign governments.

Plan expenditure consists of (a) central plans such as on agriculture, rural development, irrigation and flood control, energy, industry and minerals, transport, communications, science and technology and environment, social services and (b) central assistance for the states and union territories plans.

Trends in pre-reform period

Government expenditure in India has been growing very rapidly after 1950-51. Before independence, there was no planning in India and no effort on the part of government to establish a welfare state. Public expenditure was, therefore, comparatively small.

During Second World War, government expenditure increased because of the war efforts. In the post war period introduction of planning and the provision by the government of welfare services in a big way caused public expenditure, both at the centre and in the states to increase rapidly.

Moreover the complexion of expenditure has also been changing very conspicuously. Before independence the British government in India was interested primarily in the defense and civil administration of the country. Therefore, a large part of the expenditure of the central and state governments was on these services.

Agriculture and irrigation

Except during the first plan when agriculture and irrigation were allotted 30% of total outlay, all other plans allotted between 20-24% of outlay.

Power Program

The allocation on power development was low during the first four plans between 10-15% of the total outlay. The low priority given to the power development was on the ground that industries had not come up so fast and the progress in rural electrification, use of electric power in railway transport system was inadequate. It was only in the seventh plan that the allocation on power was raised steeply to 28% of the total outlay.

Industries and Minerals

The high priority given to the agriculture in the public sector programs in the first plan was at the cost of low priority given to the industries. But from the second plan onwards the relative share of industries and minerals was raised sharply from 6% in the first plan to 24% of the total plan outlay in second plan. The allocation o industries have been generally around 24% of the total public sector outlay till sixth plan. In the next two plans, outlays to industries declined steeply.

Transportation and Communications

The allocation in transportation and communication was quite high during the first two plans- between 25 to 28%. But since then their share has declined. However, the country was regularly facing serious transport bottlenecks which resulted in retarded output and income. Consequently, the Eighth plan pushed up the outlay to 23%.

Social and Miscellaneous Services

The services include education, health and family planning, housing, labor welfare and welfare of backward class, etc. These services are significant from the point of view of the poor and economically backward people. A considerable amount of scarce resources have been allotted in plans for the provision of these services. But for the first and the third plan, which allotted 23 and 24% respectively for social services, the outlay ranged between 15 to 19% from the second to the eighth Plans.

Trends in post-reform period

Right from 1980s, a marked deterioration was set into the budgetary positions of both the Center and the State. The second oil price rise (1976) affected the state of government finances in a big way. This resulted not only in increase in already high outstanding debt but also a larger interest payment. An efficient response to the shock, involved a thorough reorganization of the macroeconomic setup. Reduction in fiscal deficit, depreciation of exchange rate and a restoration of market forces in the financial sector were all part of the package deal to save the economy.

A program of macroeconomic stabilization was initiated by the government in July 1991. it was during this period that the new economic policy was adopted and the economy gradually underwent towards liberalization, privatization and globalization.

Henceforth a paradigm shift in the pattern of government expenditure was observed during this

period which can be studied as follows:

EIGHTH FIVE YEAR PLAN (1992-97)

The second oil price rise (1976) affected the state of government finances in a big way. This resulted not only in increase in already high outstanding debt but also a larger interest payment. An efficient response to the shock, involved a thorough reorganization of the macroeconomic setup. Reduction in fiscal deficit, depreciation of exchange rate and a restoration of market forces in the financial sector were all part of the package deal to save the economy.

A program of macroeconomic stabilization was initiated by the government in July 1991. It was during this period that the new economic policy was adopted and the economy gradually underwent towards liberalization, privatization and globalization. Henceforth a paradigm shift in the pattern of government expenditure was observed during this period.

The eighth five year plan reflected the process of fiscal reform and also economic reforms which reflected governmentâ€™s attempt to accelerate economic growth and improve the quality of life of the common man.There was a slight improvement in the allocation for social services to 19% in this plan so as to improve â€œhuman capitalâ€Â especially by improving literacy. Also, outlay on energy was increased in order to reduce infrastructure constraint.

During ninth five year plan, infrastructure which became a major constraint due to inadequacy of complementary private investment, was paid due attention. There was a re-orientation of plan priorities and hence the change in public outlay was distinct. By allocating 72% of the plan funds to irrigation, energy, transport and communication and social services, this plan stressed on the development of infrastructure.

Overall increase in the plan outlay for Tenth plan over that of Ninth Plan (Rs. 29944 crores) was 232%.

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