Public Expenditure, Private Investment and Income: Evidence in Indian States

Abstract

The Fiscal Responsibility and Budget Management (FRBM) Act 2003 was introduced in India in order to reduce revenue deficit by curtailing revenue expenditure. This paper examines the impact of public expenditure by type and nature on the income by constructing new data on combined capital expenditure and combined revenue expenditure of Centre and State governments of 15 major States during the period 1993-94 to 2004-05. This paper finds that, though public expenditure crowds-out private investment, public expenditure of all types and nature positively contributes to state income due to the inclusion of some productive expenditure in the revenue account. All revenue expenditures are not growth retarding, and specifically, infrastructure investment may be used as an instrument by the Central and State governments directly for equitable allocation of private investment to achieve balanced income across states and higher economic growth as a whole.JEL-Code: H72, E22, C23, R11

Globalisation and regional income growth disparity in India and the People’s Republic of China (PRC)

“…The results suggest that human capital and physical investment are important factors for the variation in economic growth across the Indian states. The findings support the earlier studies, including Mallick (2013a), that the FDI affects positively the inter-state income in India, and also it boosts the productivity growth, as evidenced in Kathuria et al (2013), Lal and Siddharthan (2004), Mallick, 2015 andMallick, 2018. The findings are also in conformation with Cherodian and Thirlwall (2015), Mallick (2014) and Trivedi (2006) that human capital and physical investment are crucial for inter-state income in India.…”

“…In the era of globalisation, there is a persistence of regional imbalances in economic growth and development in the emerging countries such as the People's Republic of China (PRC) and India (Li and Wei, 2010;Mallick, 2014;Mallick, 2013a). Examining the factors of growth at national and sub-national levels has always been an important research issue for the policy implications.…”

“…However, the inflow of FDI may not be uniform across the regions in an economy. The regional disparities in the inflows of FDI among the regions within the emerging countries have been very high (Boermans et al, 2011;Bickenbach et al, 2014;Chatterjee et al, 2013;Chikte, 2011;Mallick, 2013a;Mukherjee, 2011;Sharma, 2017;Siddharthan, 2006;Wei et al, 1999;Tanimoune et al, 2013;Yin et al, 2014). The important factors of the regional concentration in these two countries are identified as level of development; human capital development; socio economic indicators; and quality of physical, social and institutional Regional income growth infrastructure.…”

“…Further, there are limited numbers of studies that focus on this issue at the sub-national level mainly due to the unavailability of data in India. There are some studies that tried to establish a positive impact of FDI on the regional income (Mallick, 2013a;Nunnenkamp and Stracke, 2008) in India. Similarly, some studies also explored the positive impact of FDI across the Chinese provinces (Lheem and Guo, 2004;Lin and Liu, 2006;Ran et al, 2007;Yao, 2006).…”

Do Public and Private Project Infrastructure Expenditure in States Contribute to the Economic Growth of Nation? Evidences from India

“…As noted, researchers in the past have examined interstate disparities, with no focus on how successful these states are in transferring the benefit of public and private capital expenditure towards economic growth of nation. To some extent, Mallick (2013b) and Murova and Khan (2017) investigate these issues in India and USA, respectively, but on a smaller sample. The current study, therefore, is an attempt to examine the issues of GI and PI, by using multivariate analysis with the help of time series data, in India at the state level for all 29 states and four union territories (UT)s. Hence, the proposed study tries to understand: whether the growth in state gross domestic product (SGDP) leads to the growth in national gross domestic product (NGDP); the role of growth in GI and PI towards the growth of SGDP and NGDP; and the influence of specific sectors on SGDP and NGDP.…”