Public Expenditure: Importance and

Objects of Public Expenditure

by Smriti Chand Economics

Public Expenditure: Importance and Objects of Public

Expenditure!
Public expenditure is not merely a financial mechanism. It is rather a
means of securing social objectives. Socialism, in any sense, can be
realised only through progressive taxation and their distribution
afterwards.
Traditional economists held the view that the State should not
interfere in the general activity, for the government is merely an agent
of the people to keep the political organisation intact, hence it should
spend public funds discretely and sparingly.
A new approach to public finance has, however, evolved in the thirties
since the Keynesian revolution in economic thought. Modern
economists believe that public expenditure has a positive role to play
to achieve definite ends. Its goal is to promote maximum social
welfare.
In fact, the significance of public spending lies in the supply of those
essential services by the government for the satisfaction of collective
wants, which might not otherwise be provided economically and
efficiently by the private sector.
Its importance lies in its lubricating character also, as deficit spending
of the government leads to the creation of additional money, which
facilitates trade and exchange and stimulates further production and
growth of national income.
In the modern era, public expenditure has the following
objectives:

(a) provision of collective wants in order to optimise societys

consumption in a rational way and to maximise social and economic
welfare.
(b) Control of the depressionary tendency in the market economy.
Public spendings should be designed to optimise the level of
investment in such a way as to maintain full employment with growth.
In a free enterprise economy, through public expenditure incurred for
appropriate public works programme, the gap of inadequacy of
investment in the private sector has to be filled adequately. According
to Keynes, public spending is, thus, required to sustain the level of
effective demand in an economy.
(c) In a backward economy, public expenditure should accelerate the
tempo of economic development by constructing the infrastructure of
the economy and by increasing capital formation for augmenting
industrial activity for the production of goods and services,
(d) A better distribution of income is also an equally important goal
under socialism. Public expenditure for providing public services
should lead to a just distribution of welfare.
Indeed, economic and social environment in a country is profoundly
affected by public spending. In recent years, with the increase in its
scope and magnitude, the economic consequences of public
expenditure are very significant in the realisation of the general
economic welfare. Public expenditure affects economic welfare in a
community through its effects on production, distribution and
economic growth at large.
Public expenditure has a vital role to play in the developmental
process of a country.
It can promote economic development as follows:
1. By building economic overheads, e.g., roads, railways, irrigation,
power, etc., the tempo of economic development can be boosted.

Similarly, undertaking of social overheads such as hospitals, schools,

etc. are also of great help.
2. By bringing about balanced regional growth, public expenditure can
channelise the allocation of resources in a proper way and avoid lopsided development and correct regional imbalances. More public
spending may be incurred in the backward regions to uplift their
economy.
3. By augmenting the development of agriculture and industry.
4. By exploiting and developing mineral resources, coal and oil.
5. By rural electrification programmes, it can bring about rural
development.
In short, public expenditure has to create and maintain conditions
conducive to economic development. It has to improve the climate for
investment. It should provide incentives to save invest and innovate.
The major objects of public expenditure may be summarised
as under:
i. Administration of law and order and justice.
ii. Maintenance of police force.
iii. Maintenance of army and provision for defence goods.
iv. Maintenance of diplomats in foreign countries.
v. Public administration.
vi. Servicing of public debt.
vii. Development of industries.
viii. Development of transport and communications.

ix. Provision for public health.

x. Creation of social goods.