Public Expenditure is one of the ways that Government all over the world has resorted to solve the problem of Global Economic crisis. Fiscal Stimulus is another strategy adopted by many governments including India to over come the repercussion of Economic crisis. The main idea behid increasing the investments in Public Expenditure is to improve the status of Purchasing power of common man. Even wars which is a form of investing in Public Expenditure helped US, UK to reduce the severity of Economic slowdown that their country is facing. Any investments which leads to productive output or unproductive output as part of Public Expenditure is desired as it increases the demand for goods and services. The bale out plan by US Government to tune of $700 billion was an act of stimulant to improve the financial situation in their country.
Selection of Schemes to improve efficiency of Public Expenditure
The investment schemes that the government decides to invest upon as a part of Public Expenditure has to be carefully choosen. The investment should have well defined return which may be Long term or short term, but it is expected to go for project/schemes which has definite returns especially in Developing countries such as India which needs return on every rupee spent in order to sustain the growth to reach status of Developed Country.
The schemes which is selected to impart impetus to provide soultion to fatal Economic slowdown is based on its capacity to drive the GDP of Country. Infrastructure is one of the schemes which has definite returns and it drives GDP of country to great extent, but the problem with it is that it has long gestation period. The empowerement of Public’s purchasing power takes a long time in this form of investment. Schemes such as Rural Employment schemes, Housing schemes have direct impact on laymen and have shorter gestation period so such schemes is favoured. The other way for judicious investment is to provide incentives to SME sector, Microfinance organization which is marching at a rapid rate to become a major contributor on nations GDP.
Fiscal Stimulus
Fiscal stimuls adopted at times of Great Depression is different from that of todays recession due to differnt methods involved in functionality of Governemnt. Government of India functions as a welfare state now where as US fucntioned as Liberal state during depression. Fiscal stimulus may be in form of reducing the direct taxes or it may be reduction in Indirect taxes such as Excise duties. Both of them tries to empower common mans purchasing power.
Source: The Hindu, January 19, 2009
