CHAPTER III

REVIEW OF LITERATURE

In this chapter a review of the earlier studies on the expenditure trends has been
attempted. The review of the literature in this study has followed a chronological order.
Theories in books have been reviewed first; articles from journals have been reviewed
second, followed by Ph.D., Thesis. The chapter concludes with a summary of the major
findings of the existing studies.

Mathews, (1958) in his study, “Pattern of Indian Public Expenditure”, presents the
pattern of Public expenditure from 1937 to 1956 and considered only the large items of
expenditure significant in the process of economic development is one of the purposes of
examine the extent to which the changes in the pattern of expenditure are the result of
deliberate policy of whether they have been the outcome of the government. According to
him, the expenditure – Pattern through emerged at the end of the first five-year plan was
mostly the result of deliberate policies of the government.

Mukerjee,(1965) in his study, “Level of Economic Activity and Public Expenditure

in India”, has presented a statistical and quantitative study. The study is an exercise in the
reconstruction of historical statistical and developmental of the first half of the 20th
century, moreover, he has not made any effort to go behind his statistical results to
establish a theoretical link between aggregate economic activity and the activity of the
public sector.

Madalgi, (1966) in the study, “The Trends and growth in State Governments
Expenditure in India since Five Year plans”. The study covered from 1951 to 1966,
witnessed the completion of the first three five year plan.” He has analyzed only the
Revenue Expenditure and has not considered Capital Expenditure.

Purshottam Dass and Thakura Das, (1966) Research Wing studies present, “A
Factual study of public finance of the Government of India from 1950-51 to 1964-65”.
Besides period of 14 years, this work endeavours of analyse the important issues and focus
 22

attention on them in such a manner that further exploration and that critical examination
may be possible.

Panchmukhi, (1966) in his study, “Measurement of the Effects of Public

Expenditure”, presents the applied theory of public expenditure. He brings out the
importance of cost-benefit analysis in the process of public expenditure. His study
represents a step towards clarifying the economic aspects of the effects of expenditure on
education and health, the knowledge of which is essential for making rational decision in
these fields.

Gupta, (1971) in his study “who benefits from Central Government Expenditure”,
has examined and evaluated the extent of the impact of the Central Government
expenditure on economic inequality and poverty and on the pattern of consumption in a
society for generation of employment opportunities.

Reddy, K.N., (1972) in his study, has analyzed a secular and time pattern of the
growth of public expenditure in India. He has taken time period from 1872 to 1968. In an
effort to establish a theoretical link between the growth of public expenditure and National
Income of the country Reddy has examined the applicability of Wagner‟s hypothesis in
India. Reddy concludes that the study conducted by Peacock and Wiseman for great
Britain also holds good in case of India. The study provides important guidelines to whose
main concern is expenditure policy formulation. While examining the shorter period (i.e.
periods after the two world wars and independence of the country) he sees the relevance
and validity in the concept of displacement effect propounded by Wiseman and Peacock.
His study of the growth of public expenditure in India over roughly a century, is a modest
attempt and the line of the pioneering study “Growth of Public Expenditure in the UK”
done by Wiseman and Peacock.

Zahir, (1972) in the study, “Public Expenditure and Income Distribution of India”,
has examined the role of Public Expenditure in the field of income distribution during the
period 1951-52 to 1965-66. He concluded that the growing Public Expenditure in India
has made by insignificant – contribution towards the achievement of social justice which
is a very important objective of Public policy in out country.
 23

Nanjundappa, (1972) in his study, “State Governments Expenditure”, has

examined both current and capital Expenditure of States for the year 1960-61. He has
made inter-State comparisons and also brought out the functional and economic
classification of the State Expenditure.

Thimmaiah (1977) in his study, “Growth of public expenditure in Karnataka”, has

studied the growth pattern of Public expenditure in Karnataka and has taken 21 years
period from 1957-1958 to 1977-1978. He has aimed at testing a few theoretical hypotheses
in the context of public expenditures of particular state of the Indian union. He concludes
that the growth pattern of public Expenditure in Karnataka is not linear. Besides, he
categories various items of the Public Expenditure of the State under relevant heads.

Shanmugam, (1977) in his study, “Public Expenditure of the Government of Tamil

Nadu from 1965-66 to 1974-75” has presented the facts on the trends of Tamil Nadu
Government‟s Welfare expenditure. The study covered a period of ten years from 1965-66
to 1974-75.

The main objectives of the study were:

i. To analyse the trends in the Public Expenditure in Tamil Nadu.
ii. To analyse the overall growth in Public Expenditure.
iii. To analyse the variations in its consumption and Capital Components and,
iv. To analyse the trends in the distribution of Public Expenditure among the different
sections.

The study has adopted a survey method. Secondary data were collected from the
Records and Annual Reports of the Tamil Nadu Government for study. By the
Formulation of tables and calculation of simple averages, Percentages have been done. Bar
and pie diagrams and time-series trend lines have also been drawn to show the structure
and growth of the Government Expenditure.

The Followings are the finding of the study

1. Total State government expenditure in Tamil Nadu has increased from `.24, 142
lakhs in 1965-66 to `.58,456 lakhs in 1974-75, with a cumulative growth of 10.6 per cent.
 24

2. A near threefold increase from `.15,545 lakhs in 1965-66 to `. 42,814 lakhs in

1975-75 has been felt in consumption expenditure of the state government. The increase in
consumption expenditure has far outstripped the increase in capital outlay during this
reference period with the result the consumption components in the state Budget has
sharply risen from 64.4 per cent to 73.3 per cent. The impressive growth in consumption
expenditure during the reference period was mainly due to
i. additional employment generated in government Administration
ii. upward revisions in pay scales and dearness allowances of Government
employees and
iii. Increased allotment of Government outlay on social welfare activities which
were mainly in the form of services.

3. The capital components of the government Budget, on the other hand, declined
from 20.6 per cent in 1965-66 to 19.4 per cent in 1974-75. However, in absolute terms, the
total expenditure by the state Government for capital formation purpose has increased by
128.7 per cent during this period from `. 4, 966 lakhs to `. 11, 359 lakhs.

Net capital which was defined as gross capital formation – minus expenditure on
renewals and replacements, has increased by 61 per cent during the reference period from
`. 9, 167/- lakhs to `. 14,747/- lakhs. However, its share in total budgetary outlay has
declined from 39.3 per cent to 28.2 per cent.

The factors that have accounted for a decline in the constituent share of capital
expenditure in total expenditure as follows:
i. Inadequacy of surplus funds available for purpose of capital formation as a result
of the sharp increase in consumption expenditure together with the reduced
availability of current surplus from departmental, commercial undertakings.
ii. Government during the reference period has transferred a number of its capital
functions to the State sponsored bodies, like the various Industrial Corporations,
Transport Corporations etc., capital expenditure incurred by these undertakings is
not reflected in the general budget and
iii. In the present classification, grants given to local bodies for education have been
shown as consumption expenditure. If these were to be treated as expenditure
 25

meant for human capital formation, capital expenditure by the Government would
be substantially higher than what was indicated in the study.

In general the declining share of capital expenditure in the state Budget was not
really an encouraging feature. There were also wild fluctuations year by year in capital
expenditure. Roughly stated capital expenditure of the state Government was only 2.71 per
cent of the State Income at current prices in 1974-75.Irrigation and Power have accounted
for most of the capital outlay. The sharp increments in the consumption component of the
government expenditure indicated that the administrative expenditure incurred by the
government has been on the uptrend. The departmental commercial undertaking have
regularly contributed a negative surplus to the government current account. The capital
component of State expenditure can be increased by adopted the following measures:
i. By cutting down wasteful administrative expenditure by the government
ii. By improving the operational efficiency of departmental commercial undertakings
and
iii. By working out a reasonable balance between social services and economic
services in the budgetary allocation of funds.

Govinda Rao, (1981) in his study, “Political Survey of Tax and Expenditure
Determinations – A Case Study of Four Indian States” has chosen the States economic
and political determinants of public expenditure using time income real terms , share of
primary sector income in state domestic product and consumer price index. His results
show that the growth of expenditure on various services is found to be mainly due to the
increased cost of parties in power. It is not found to affect significantly the level of
expenditure in the States.

Rao, M. Govinda, (1981) in his study “The determinant of tax revenue and non-
plan revenue expenditure of the States”, has chosen the states of Karnataka, Kerala, Orissa
and West-Bengal in studying the time series determinant. In this study, both the political
and economic determinants have been considered. The effects of various economic and
political factors on the fiscal decisions of the four states are also quantified. While
discussing the determinants of non-plan revenue expenditure the study summaries that in
all the four states except Orissa, the growth expenditure on various services is of providing
them. Only in Orissa the growth in non-plan revenue expenditure is due to increased
 26

quantity of public services. The results of the study confirm Down„s Hypothesis „that
fiscal decisions are essentially guided by the desire to maximize the length of their tenure
by the parties in power and are not influenced by their ideological doctrines.

Murthy, (1981) in his study, “Endogenous Government Evidence for the

Economy” has examined the government consumption in India. It is endogenous and is an
increasing function of gross domestic product. It also shows that its dynamics is related to
economic variables lime GNP and lagged government consumption.

Wise man and Peacock. Rao, M. Govinda, (1981) in their study, “Growth of
public expenditure in the U.K.” make a modest attempt to study and to identify the
determinant of tax revenue and non plan revenue expenditure of the states towards making
their medium term projections. The researcher has chosen the states of Karnataka, Kerela,
Orissa and West-Bengal for the purpose in studying the time series determinant. In this
study, both the political and economic determinants have been considered. The effects of
various economic and political factors on the fiscal decisions of the four states are also
quantified. While discussing the determinants of non-plan revenue expenditure the study
summaries that in all the four states except Orissa, the growth expenditure on various
services is of providing them. Only in Orissa the growth in non-plan revenue expenditure
is due to increased quantity of public services. The results of the study confirm „Down‟s
Hypothesis‟ that fiscal decisions are essentially guided by the desire to maximize the
length of their tenure by the parties in power and are not influenced by their ideological
doctrines.

Madhavachari, (1982) in his study, “Wagner‟s Law of Public Expenditure - An

Emperical Test”, Margin, analyses the validity of Wagner‟s Law. He concludes the
government expenditure under the different components have grown at a faster rate than
percapital GNP.

Rajendran, (1987) in this study, “Public Expenditure of the Tamil Nadu

Government its structure and growth during 1980-81 to 1984-85”, has presented the trends
of Tamil Nadu government‟s welfare Expenditure. The study covered a period of five
years from 1980-81 to 1984-85.
 27

The following were the objectives of the study

i. to study the trends of the government expenditure
ii. to study the structure of the government expenditure
iii. to study the growth of the government expenditure

A survey method has been used. Secondary data were collected from the Records
and Annual Reports of the Government of Tamil Nadu for study. Formulation of tables,
calculation of simple averages, percentages have been done. Bar and pie diagrams and
Time-Series trend lines have also been drawn to show the structure and growth of the
Tamil Nadu Government Expenditure.

The following were the findings of the study.

i. In Tamil Nadu during the five year period from 1980-81 to 1984-84 the total
Government Expenditure that is current Expenditure, capital Expenditure, Loans
and advances(Net) increase from `. 1,379.99 crores to `. 2,363.66 crores and
overall increase of 1,171.23 per cent.
ii. The capital Expenditure increased from `. 235.45 crores to `. 489.60 crores and
overall increase of 212.81 percent during the five year period.
iii. The Economic expenditure or Services has increased from `. 1379.99 crores to
`. 2363.06 crores, an overall increase of `. 171.23 per cent during the five year
period.
iv. The social security and welfare expenditure increased from `. 4,536 lakhs to
`. 13,488 lakhs, an overall increase of `. 297.35 per cent.
v. Expenditure of other social and community services increased from `. 1,823 lakhs
to `. 3,133 lakhs, an overall increase of 171.38 per cent.

Chelliah, Raja. J. (1991) in his essays say that in an with the era of liberalization
and privatization the relative position of states has enhanced. Hence state level reforms are
as important as the reforms at the Centre. Each state must set its own house in order. The
reforms should include area of taxation with introduction of VAT; cut of subsidies cut of
staff of general administration, privatization of SEBs etc. The tax reform, which was
carried out in South East Asian countries, can provide the lessons for the future.
 28

Rao, Govinda (1992) in his study examines the present state of public finance at a
state level with a view of tracing the emerging trends in the medium as well as long term.
The major objective of the paper is to identify the major problem areas and indicate policy
changes to tackle them. The precarious fiscal position in states calls for bold and decisive
policy measures which include reduction in employment, levy of appropriate user charge
on services, phase of non merit subsidies, privatization of state electricity boards,
rationalization of tax system by introduction of VAT and determine the shares of states in
aggregate Central taxes rather than percentage share of two taxes.

Sivakumar, (1993) in his study, “A study of Public Expenditure in Pondicherry”, he

has presented the trends of Public Expenditure in Pondicherry. The study covered a period
a 25 years from 1966-67 to 1990-91.

The following were the objective of this study.

i. To study the growth, pattern, causes control and composition of public
expenditure.
ii. To examine the trends and the pattern of public expenditure for various
expenditure functions in the union territory of Pondicherry during 1966-67 to
1990-91 and
iii. To identify the constituents of development and non-development expenditure.

Survey method and purposive sampling method have been used. By the formulation
of table, calculation of simple averages, percentages have been done. The study has made
use of the Secondary data. They were obtained from, “The Reserve Bank of India
Bulletin”, Budget memoranda of Pondicherry government, “Reports of the Finance
Commission of Government of India”. “Economic Appraisal of Pondicherry” and Census
of India (1971, 1981 and 1991) and abstract of statistics of Pondicherry. Multiple
regression technique was used to measure the impact of various explanatory variables on
the growth of Public expenditure functionwise.

The following were the findings of the study,

i. The increase in the revenue expenditure is around 62 times between 1966-67 and
1991-92, whereas the increase in revenue receipts is hardly 47 times during the
 29

same period. The study finds similar trend in capital expenditure too. For instance,
the aggregate capital expenditure increased by 20 times.
ii. In the composition of development and non-development expenditure, Expenditure
on education tops the list of development expenditure, followed by health and
medial welfare which in turn followed by expenditure on water and power
department. In fact, these three items constitute over 80 per cent of development
expenditure. The remaining is accounted by expenditure on agriculture, industry,
minerals and social security services.
iii. In the composition of non-development expenditure, Expenditure on
Administrative services tops the list holding rank I throughout the 25 years.
Expenditure on interest and debt services follows this. However, when compare the
growth rate between expenditure on Administrative Services and that on debt and
interest services, the latter exceeds the former sizably. The expenditure on pension
and other services is also on rise registering a 20 fold increase over the study
period. Besides, the expenditure on the organs of per cent of overall non-
development expenditure.
iv. The rate of increase between development and non-development presents a
discouraging situation. This clearly reveals the financial strain for the state and
resource to finance the developmental schemes.
v. There is a positive association between per capital income and per capita
expenditure.
vi. In Pondicherry the expenditure on education, administrative services, debt account
and interest services and per capita grants-in-aid all account for a sizable share. It
is to be noted that Grants-in-aid is a significant non-tax revenue contributors to the
state facilitating the growth in expenditure.

Anuradha, (1994) in her study, “Public Economics an Analysis of Union

Budgetary Policy” has presented the budgetary operations of the Central Government over
a period of 12 years, starting from 1981-82 to 1992-93. The study covered a period of 12
years from 1981-82 to 1992-93

The following details are the objectives of the study

i. To study the review if literature and budgetary theories of central government.
ii. To analyse the revenue and capital receipts of the central government from 1981-
82 to 1992-93.
 30

iii. To analyse the structure of the revenue and capital expenditure.

iv. To bring out deficit trends and its various measures.

Survey method has been used, Formulation of tables calculation of simple

averages, percentages and trend line have been done. The study made use of the secondary
data. They were obtained from Government documents, reports and books. For this
analytical study, the method of least squares is used to obtain the line of best fit.

The following were the findings of the study.

i. The income of the Central government is based on revenue receipts rather than
capital receipt in the form of borrowing. So it is very essential to improve tax
compliance and to mobilize additional resources. In the sphere of revenue, special
attention must be paid to increase the Tax Revenue and Non-tax Revenue which
have hardly-augmented as a proportion of GDP in recent years.
ii. The disquieting feature of the centre‟s finance is the phenomenon of growing deficit
on the revenue account. The ratio of the revenue deficit is much greater in 1993-94
as compared with 1980-81.
iii. The Expenditure on revenue account. The growth of non-development expenditure
is at a faster rate than the development expenditure. The increase in revenue
expenditure is more than six times in 1990-91 than it was during 1980-81.
iv. The analysis of capital expenditure shows an increasing trend but not much when
compared to the rise in the revenue expenditure.
v. A combined development expenditure by sectors of both capital and revenue shows
that grants to States/UTs takes away nearly 12 per cent of the total share and only 4
per cent for general economic services, social and community services respectively.
vi. A comparison between the revenue and capital budget clearly shows how the deficits
in the former is not compensated by the surplus in the later. All this not only
aggregated the problem of resources crunch, also adds to the mounting pressures on
debt burden to the centre.
vii. Though fiscal adjustment proved successful initially there is persistent deficits in the
Governments‟ budget and the resulting growth of Public debt have led to a tendency
for fiscal discipline to weaken. The right remedy for containing the deficits is an
awareness of the problem and a consensus about which items of expenditure can be
cut.
 31

Natarajan. P, (1996) “Expenditure trends of Government of Tamil Nadu – An

Economic Analysis”, has presented the trends of Tamil Nadu government. The study
covered a period of thirty years from 1965-66 to 1995-95.

The following details are the objectives of the study

i. To study the trends of the government expenditure
ii. To study the trends in per capital Expenditure of the Government of Tamil Nadu.
iii. To study the Budgetary Deficits / surplus of the Government of Tamil Nadu.
iv. To study the Overdrafts resorted to by the Government of Tamil Nadu.

Ramakrishnan (1999) in his analysis “Recent fiscal trends in Tamilnadu and the
sustainability of fiscal stance” the key indicators of fiscal performance, during the period
1980/81 - 1998/99. The review indicates the emergence of large and persistent current and
fiscal deficits from 1987/88. Revenue financed expenditures have grown rapidly as
successive five year plans have led to increasing magnitudes of committed non-plan
development expenditure. Plan expenditures in the current budget are also quite
substantial in Tamil Nadu. The rising current account deficits coupled with large annual
increases on wages and subsidies have emerged as major structural problems in the
budget. Currently, a very large proportion of the current budget is allocated to wages,
interest payments, subsidies and grants making it extremely difficult to bring about any
realignment of expenditures. The trends in debt/SGDP ratio are also reviewed as well as
the recent increases in the average cost of financing the deficits.

Tripathi Rao (1999) in his analysis of fiscal policy in India has stated that the
financing difficulties were due to the constraints in tax and non-tax revenue collection.
The pattern of Public Expenditure has shifted towards revenue expenditure which doubled
to 2.3 per cent of GDP in the late eighties outstripping the rise in current revenue. Non-
Plan expenditure doubled to 13.5 per cent% in 1991. The total subsidies increased to a
margin of 14.4 per cent of GDP in 1995. Fiscal deficit rose of 6.1 per cent in 1997-98 and
it is estimated to be around 5.8 per cent. Therefore, this calls for more meaningful
deliberation of fiscal operation. Fiscal prudence is not just containment of Public
Expenditure but importantly altering the pattern of Public Expenditure in terms of Public
investment and a more productive use to as to supplement the private sector in boosting
the economy.
 32

Kurian, N.J. (1999) in his study attempts to bring out the deteriorating trend in
state finances in recent years. “Failure to contain wasteful expenditure and reluctance to
raise additional resources” on the part of the states are the main problems afflicting most
of the state finances. Tax wars among the states government to attract private investment
in the wake of economic reforms as well as competitive populism and the pay revision of
employees led to starvation of funds of states. Unless drastic measures are resorted to
without delay finances of states will collapse.

Nirupam Bajpai and Jeffrey D. Sachs, (1999) in his study “The State of State
Government Finances in India” the financial condition of the state governments in India
has been a cause for concern for some time now. Over the years, the consolidated financial
position of the state governments has shown a marked deterioration in some of their major
deficit indicators. One of the fundamental weaknesses of state government finances in
India can be attributed to an increase in non-developmental expenditure, particularly the
revenue component of the non-developmental expenditure, and interest payments as a
proportion of revenue receipts. In the area of expenditure reduction, we have identified
several potential areas for controlling expenditure of the state governments. In our view,
by raising user charges on water in accordance with the costs incurred in providing water,
and aligning tariff rates of the SEBs in line with their costs, the state governments could
significantly cut their budgetary losses. In addition, a freeze on state government
employment can help save scarce resources to be used for productive purposes elsewhere
in the states.

S.Ramakrishnan‟s (1999) study entitled “Recent fiscal trends in Tamil Nadu and
the sustainability of fiscal stance”, Revenue financed expenditures have grown rapidly as
successive five year plans have led to increasing magnitudes of committed non-plan
development expenditure. Plan expenditures in the current budget are also quite
substantial in Tamil Nadu. by highlighting the premium on fiscal reform for the state
government so as to maintain the tempo of development and suggests briefly the most
critical areas for immediate policy reform as well as process reforms to strengthen the
planning and management of public expenditures in Tamil Nadu.

M. Govinda Rao (2000) in his study “State Level Fiscal Reforms in India” the
areas of reform the States focuses on to impart efficiency and improve revenue
 33

productivity of revenues and prioritisation and compression of unproductive expenditures.

These, however, require a strong political will and administrative competence and
involvement of the public in the reform process.

Howes, Stephen, Ashok, K. Lahiri and Nicholas, (2000) in their study “The states
level reforms in India”. Enumerate the causes that lead to the spread of state level reforms
in India. According to them India cannot succeed with reformed and revived state
governments.

Montek Singh Ahuluwalis‟s (2000) is entitled “The Centre should attach

conditionalities on the development funds that it gives to the states, Planning Commission
member”. He said that the central aid to the states for development purposes should go
with conditionalities so that the reforms process gains momentum at the state-level”.

Howes, Stephen, Ashok, K. Lahiri and Nicholas (2000) in their article discuss the
state level reforms in India. They also enumerate the causes that lead to the spread of state
level reforms in India. According to them India cannot succeed with reformed and revived
state governments.

Anit N. Mukherjee, (2001) in his study “Public expenditure on education: A

review of selected issues and evidence”. The role of education in economic development
has been recognised for quite some time in mainstream economic literature. Divergence
between the private and social rate of return from education is the rationale for
intervention by the state in ensuring equity in opportunity across the population. The so-
called `New Growth Theories' predict that higher levels of schooling and better quality of
workforce will lead to an increase in the rate of growth, further strengthening the case for
public expenditure on education. The outcome of these lines of research also has
implications for the financing of education. However, the effectiveness and efficiency of
resource allocation by the government has generated considerable debate, both from
ideological and technical points of view. It is widely acknowledged that there is a large
scope for improvement in both the level, and the quality of publicly-funded education.
New institutional arrangements are being designed to address the deficiencies in incentives
and monitoring, thereby improving quality.
 34

Anand, Mukesh, Bagchi. Amaresh, Sen, K. (2002) Tapas in their article have
discussed the causes of fiscal indiscipline at the state level. Even after the launch of the
reform process in India significant attention is not given to the fiscal reforms at state level.
Despite several years of fiscal consolidation effort, large and persistent fiscal deficits
remain.

Bagchi, Amaresh (2002) have observed even after a decade of correction the
consolidated fiscal deficit (FD) of the government (Centre plus states) stood at about the
same level at the close of decade as it is in the beginning10% of GDP. The crises in state
finances have their origin in some deep-seated weakness of the fiscal system that call for
structural reform. The weakness is in revenue system, budgeting system and system of
inter government financial relations. If fiscal deficit is to bring down the weakness of the
fiscal system noted above need to address frontally.

Bhargava, P.K., (2002) discussed the state level fiscal reforms. The state should
play complementary and supplementary role and performance to the efforts of the Centre
to play and improve the fiscal situation. It is high time that agriculture income tax should
be included in the constitution to raise the revenue of the states.

Chelliah, J. Raja, Rao, Kavita R. (2002) in their study discuss about the rational
ways of increasing the tax revenue of Central and state governments in India. According to
them no serious effort has been made to modernize tax administration. The administration
of all the states is manual based. A reform and modernization of the administration of the
major taxes through computerization and strong deterrent action against tax evaders and
corrupt taxmen are two important steps to be taken to increase revenues.

M.Govinda Rao, (2002) in his study “State Finances in India: issues and
Challenges”, studies, the areas of reform the states should focus on to impart efficiency
and improve revenue productivity and prioritisation and compression of unproductive
expenditures.

In the planning commission report “The strategies and objectives of the plan
period”. The First Plan aimed at creating the base for a rapid economic and industrial
 35

development, the main emphasis of the Second Plan was on widening and strengthening
the industrial base of the State through power development and increasing the food
production to attain self-sufficiency.

In the third five year plan, studies is an the stagnation in the agricultural sector due
to drought conditions in the latter half of the Plan brought down the overall rate of growth
of the economy in this five-year period.

The three annual plans an emphasis was laid on stepping up agricultural production
through quick yielding schemes and completion of the spillover schemes in sectors like
irrigation and power. Strategy was to correct regional imbalances through balanced
regional development and dispersal of economic activity and to reduce disparities of
income and wealth through fiscal and educational measures.

The State's fourth plan envisaged a minimum growth rate of 5 to 6 per cent in the
State Domestic Product during 1969-74. The fifth plan of the State was doubling the per
capita, Decentralizing planning, development and resource mobilization. In the sixth five
year plan 1980-85 of the Union Planning Commission, the following objectives were
proposed, reduction of economic and social inequalities in opportunities and income,
reduction of unemployment. The basic priorities for the Seventh Plan were on food, work
and productivity. This required a strategy built around higher agricultural growth and
creation of employment, improvement in efficiency and in quality of production, and
technological upgradation in industry and infrastructure, the use of less capital intensive
and more labour intensive techniques and shift in investment priorities towards items of
mass consumption and measures to improve the quality of life.

The State's Eighth Plan accorded priority to

i. Generation of adequate employment to achieve near full employment by the turn
of the century.
ii. Containment of population growth through active people's cooperation and
effective scheme of incentives and disincentives
 36

iii. Universalisation of elementary education and complete eradication of illiteracy

among the people in the age group of 15 to 35 years
iv. Provision of safe drinking water and primary health care facilities, including
immunization, accessible to all the villages and the entire population, and complete
elimination of scavenging
v. Growth and diversification of agriculture to achieve self sufficiency in food and
generate surpluses for export and
vi. Strengthening the infrastructure in order to support the growth process on a
sustainable basis.

The State's ninth plan spelt out more explicitly the following strategies to be
adopted in major sectors in the light of past performance, present circumstances and future
aspirations
i. Priority to agriculture and rural development with a view to generating
adequate productive employment and eradication of poverty;
ii. Accelerating the growth rate of the economy with stable prices;
iii. Ensuring food and nutritional security for all, particularly, the vulnerable
sections of Society;
iv. Providing the Basic Minimum Services of safe drinking water, primary
health care facilities, universal primary education, shelter and connectivity
to all in a time bound manner;
v. Containing the growth rate of population;
vi. Ensuring the environmental sustainability of the development process
through social mobilisation and participation of people at all levels;
vii. Empowerment of women and socially disadvantaged groups, such as
Scheduled Castes, Scheduled Tribes and other Backward Classes and
Minorities as agents of socio-economic change and development;
viii. Promoting and developing peoples‟ participatory institutions like Panchayat
Raj Institutions, co-operatives and self help groups and
ix. Strengthening efforts to build self-reliance. In concord with the National
Plan.

The Tamil Nadu's tenth plan has been drawn envisaging the same 8% growth rate
as for national economy. The goal is to make Tamil Nadu the numero uno State among all
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the States in the country during the tenth five year plan. The aim is to provide
opportunities for a healthy and productive life for all. The Chief Minister's 15 Point
Programme is the road map for development during the Tenth Plan.

Edward B. Sennoga (2003) in his study “Local Government Revenues and

Expenditures in Uganda”, empirically tests the temporal relationship between local
government revenues and expenditures in Uganda, a low income developing country. The
importance of aligning both local and central government expenditures with revenue
mobilization capacity. Such alignment will also improve the efficiency in the allocation of
resources particularly to the growth-enhancing categories including infrastructure, health
and education. The resulting control over expenditures rather than an increase in tax
revenues will enhance Uganda‟s fiscal discipline consequently fostering an effective
medium term budgeting framework.

Kurian, N.J. (2003) in his work pointed to some extend that success has been
achieved at the Centre but there has been steep deterioration in the finances of the states.
Any decline in the Union government and the associated fall in devolution to the states
will have further deletions effect on regional imbalances of the country.

D Souza (2006) in his study, “Investment Credit to Agriculture”, examines the

report of the Reserve Bank of India's expert group on investment credit to agriculture. The
expert group seems to have overlooked the "complementarity" of public expenditure on
the capital and revenue accounts, emphasising only public capital expenditure and
institutional investment credit to farmers.

In Arindam Das-Gupta (2010) study entitled “The 13th Finance Commission and
improving Fiscal Outcomes: An Assessment” It has been suggested in the discussion here
that the THFC has not chosen the best possible route to meet its mandate of
recommending ways to make public expenditure more outcome oriented. However,
elsewhere in its Report, it has a number of important suggestions that should help achieve
output-oriented outlays, though these do not add up to a comprehensive reform package
for output-oriented expenditure reform. Two major problems with its approach, according
to this writer, are not noting the importance of unit costs of public outputs and
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inadequately treating the distinction between outputs and outcomes. The latter is a
problem also found in central government output budgets.

Dr. Ratna Vadra, (2010) in his study “Fiscal Refoms of States in India” see
whether fiscal reforms taken by the states for resources mobilization led to reduction in
deficits .The present study level fiscal Reforms in India is to test the hypothesis that:
Fiscal Reforms have helped the states in improving their fiscal health. The study aims to
test the hypothesis on macro level.

Dr. Ratna vadra (2010) in his study “State Finances in India: problem and
prospects” stress on, the areas of reform the States should focus on to impart efficiency
and improve revenue productivity of revenues and prioritization and compression of
unproductive expenditures. These, however, require a strong political will and
administrative competence and involvement of the public in the reform process.

Natarajan.P. and Sujatha.P., (2011) in their study “Expenditure trends in

Government of Tamil Nadu: An Economic Analysis from 1990-91 to 2009-10”, analyze
the trends in overall Expenditure, Development Expenditure and Non-Development
Expenditure.

1. The Public Expenditure of the Government of Tamil Nadu in absolute amount has
increased from ` 7,74,722 lakhs to ` 69,72,637 lakhs for the years 1990-91 to
2009-10. It represents an increase of 9 times.

2. The Development Expenditure on Overall Expenditure in absolute amount of the

Government of Tamil Nadu has increased from ` 3,98,556 lakhs to ` 41, 83,727
lakhs for the years 1990-91 to 2009-10. It represents an increase of 10.5 times.

3. The overall growth and annual average growth rate in Development Expenditure
on Overall Expenditure of the Government of Tamil Nadu for the years 1990-91 to
2009-10 in terms of percentage comes to 949.72 and 47.49 respectively.
 39

4. The Non-Development Expenditure on Overall Expenditure in absolute amount of

the Government of Tamil Nadu has increased from ` 1,52,069 lakhs to ` 2,75,286
lakhs for the years 1990-91 to 2009-10. It represents an increase of 18.10 times.

5. The overall growth and annual average growth rate in Non-Development

Expenditure on Overall Expenditure of the Government of Tamil Nadu for the
years 1990-91 to 2009-10 in terms of percentage comes to 1710.86 and 85.42
respectively.

Natarajan.P. and Sujatha.P., (2012) in the study “Reform perspective of Public

Expenditure of the Government of Tamil Nadu: An Economic Analysis -1990-91 to
2009-10”, analyze the following trends in Public Expenditure, Revenue Expenditure and
Capital Expenditure.

1. The Public Expenditure of the Government of Tamil Nadu in absolute amount has
increased from ` 7,74,722 lakhs to ` 69,72,637 lakhs for the years 1990-91 to
2009-10. It represents an increase of 9 times.
2. The Revenue Expenditure of the Government of Tamil Nadu has increased from
` 5,63,822 lakhs to ` 58,93,852 lakhs for the years 1990-91 to 2009-10. It
represents an increase of 10.45 times.
3. The overall growth rate and annual average growth rate in Revenue Expenditure of
the Government of Tamil Nadu for the years 1990-91 to 2009-10 in terms of
percentage comes to 945.34 and 47.27 respectively.

4. The Capital Expenditure of the Government of Tamil Nadu has increased from
` 2,10,900 lakhs to ` 10,78,785 lakhs for the years 1990-91 to 2009-10. It
represents an increase of 5.12 times.

5. The overall growth rate and average growth rate in Capital Expenditure of the
Government of Tamil Nadu for the years 1990-91 to 2009-10 in terms of
percentage comes to 411.51 and 20.58 respectively.
 40

Research gap

1. Period-wise, the present study has covered a longer period of 20 years from 1990-91
to 2009-10 for the analysis than the earlier studies.

2. Methodologically the study has presented a comprehensive analysis of the

Expenditure trends of the Government of Tamil Nadu, the trends in the Public
Expenditure of the Government of Tamil Nadu, both in terms of current and constant
prices, Development and Non-Development Expenditure both in Current and
constant prices, Revenue and Capital Account both in current and constant prices
have been presented while the earlier studies have carried out only one or other of
these aspects.

Again, this study has uniquely presented the analysis of the trends in
Discharge of Public Debt of the Government of Tamil Nadu, which has not been
attempted in earlier studies. The recognition of the Discharge of Public Debt has
enabled the study to present a realistic estimate of the trends in Development and
Non-Development Expenditure of the Government of Tamil Nadu over the years.

Again the study has presented the analysis of the trends in the Expenditure of
the Government of Tamil Nadu under different political regimes and different plan
periods which come under the study period.

3. Statistically, beside the usual statistical tools like average, percentage, growth rate,
the study has employed the test of significance including correlation analysis and
„t‟ test to analyse the trends in the incremental increase in Development and Non-
Development Expenditure on both Revenue and Capital Accounts of the
Government of Tamil Nadu over the years.

Having completed a brief review of the existing literature on Public Expenditure,

the next three chapters deal with data analysis related to the Public Expenditure of the
Government of Tamil Nadu.