Good News For Economy: States’ Expenditure On Salaries, Interest Payments Going Down, Infra Spend Up

A study has found that states have managed to bring down their revenue expenditure and correspondingly spent more in the social sector in what counts as a positive development for the nature of government expenditure in India.

Typically, ‘committed expenditure’ includes payment for wages, salaries, pensions and interest. In India, governments have traditionally faced a problem in reducing this ‘committed expenditure’ so that fiscal space would be available for more productive spending.

The study documents that states have been spending more on social sectors like sanitation, urban development and water supply in comparison to economic services like road, transport and power. Further, it has been noted that tax devolution from the Central Government to the States has been progressive meaning that low per capita income States have received a higher share of central funds compared to the richer states.

The study also attempted to give an overview of the states’ capacity in generating their own tax revenue but lack of a uniform accounting mechanism has made the calculation of the same difficult. Another interesting observation noted by the study relates to the fact that the share of states in capital spending has exceeded that of the Central Government.