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Government Borrowings UPSC NOTE


  • In India the power to raise taxes rests largely with the Union government while a greater part of the overall government spending is done by the State governments. 

  • More importantly, when it comes to spending on sectors which affect people’s daily lives, the overwhelming responsibility lies on the shoulders of the State governments.

  • The expenditures of all the States put together was bigger than the expenditure of the Union by 8.6 times in social services as a whole; 2.6 times in education; and by 3.8 times in health.

  • The spending priorities of the Union and the States are guided by the constitutionally allocated powers and functions for them

  • Reserve Bank of India (RBI) has categorised the budgetary expenditures by the Union and the State governments as ‘developmental’ and ‘non-developmental’. 

  • The former includes expenditures on social services and economic services (such as on agriculture and industry) while the latter refers to interest payments, pensions, subsidies, and so on. 

  • It is remarkable that developmental expenditures, and within that, the expenditures on social services incurred by the State governments have risen significantly over the last two decades. 

  • As a proportion of the country’s Gross Domestic Product (GDP), the combined developmental expenditures by all State governments increased from 8.8% in 2004-05 to 12.5% in 2021-22

  • On the other hand, the social and developmental expenditures by the Union government remained somewhat unchanged over the two-decade period.

Kerala Scenario

  • Kerala provides an excellent illustration of the power of government spending to positively transform a region’s economy and society. 

  • The expenditure on education, health and other social sectors as a proportion of the total budgeted expenditures by the State government in Kerala ranged between 40% and 50% for four decades, from the 1960s until the end of the 1990s.

  • A sizeable chunk of the government expenditure on social services is in the revenue account, paid as salaries and for covering day-to-day expenses.

  • In fact, the large body of teachers, nurses, and other government employees in Kerala — half of them women — have been a key driver of the State’s social achievements over the decades.

  • At the same time, the pensions paid to retired government employees as well as to members of the disadvantaged sections (such as the elderly, agricultural workers, widows) make up 16.4% of all budgeted expenditures by the Kerala government. 

  • This is markedly higher than the average proportion allotted for pensions by all Indian States (9.7%). 

  • It is indeed a concern that only 10.6% of Kerala’s budgetary resources was directed to capital expenditure (in 2022-23), which is much needed to build new infrastructure and institutions to speed up future growth

  • State governments receive funds from three sources: own revenues (tax and non-tax); transfers from the Union government as shares of taxes and as grants; and market borrowings.

  • For Kerala to translate its enormous advantage in the social sphere to advances in domestic income creation, there need be more government spending

  • Especially so on higher education and research that will help build a facilitative environment for a knowledge-driven economy. 

  • Given the current state of federal fiscal relations, such an increase in government spending can occur only with greater market borrowings.



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Government Borrowings UPSC NOTE
Government Borrowings UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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