The welfare of the people of India highly depends on the expenditure of the Government of India (GOI). Government expenditure is a very important aspect of the government’s budget presented by the finance minister every fiscal. Through it GOI tries to maximise the welfare of the people by appropriately allocating economic resources to various government activities.

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Government expenditure can be broadly classified into four categories:

1. Functional Classification or Budget Classification: In April 1974, the GOI introduced a new accounting structure in order to serve the requirement of financial control and accountability. Under this structure, a five tier classification has been adopted – sectoral, major head, minor head, subhead, and detailed heads of accounts. Sectoral classification has clubbed the government functions into three sectors, namely, General Services, Social and Community Services and Economic services. In the new structure, a major head is assigned to each function and minor head is assigned to each programme. Each minor head include activities or schemes or organizations as subheads.
2. Economic Classification: Economic classification of the government expenditure signifies the way of the allocation of resources to various economic activities. It involves listing the government expenditure by significant economic categories, separating current expenditure from capital expenditure, spending for goods and services from transfers to individuals and institutions, inter-governmental loans from grants etc. This classification provides a record of government’s influence in each sector of the economy.
3. Cross Classification or Economic-cum-functional Classification: Cross classification provides the break-up of government expenditure both by economic and by functional heads. For example, expenditure on medical facilities, a functional head, is split as current expenditure, capital expenditure, transfers and loans.
4. Accounting Classification: Accounting classification of the government expenditure can be presented under (i) Revenue and Capital (ii) Developmental and Non-Developmental and (iii) Plan and Non-Plan. Each classification of expenditure has an objective associated with it. For instance, Revenue and Capital expenditure indicates the creation of assets by government expenditure and unproductive expenditure. Further, the developmental and non-developmental classification differentiates the government classification as the expenditure on social and community services and economic service from that against general expenditure. Similarly, the Plan and Non-Plan expenditure represents the expenditure on planned schemes of government and non-plan expenditures.

The above classification of the government expenditure serves one or more of the purposes of the government, such as, parliamentary control over expenditure, economic development, price stability etc.

Analysis of Government Expenditure in India

The chart given below shows the division of government expenditure in terms of capital and revenue expenditure for some selected years. The percentage share of revenue expenditure in government expenditure has increased over time due to increase in expenditure in society welfare.

The growth story of the India can be said in terms of five year plans which give an account of government expenditure during the plans. The first five year plan (1951-56) laid emphasis on agriculture, including irrigation and power, wherein the government had spent 36% of its subject on these heads. The second five year plan (1956-61) marks the foray towards industrialization with an increased government spending in transport and communication sector with an contribution of 28.9% of its expenditure. The urge for industrialization continues even during the third five year pan (1961-66) with 24% and 20% pub