BQ Explains: How The Government Spends Its Money

Once the government puts its estimates of how much it earns into place, it starts to decide where it will spend.
(Source: BloombergQuint)
(Source: BloombergQuint)

What are your spending priorities? How much do you spend on day-to-day expenses? How much do you save? How much do you put into creating assets, like a house, for yourself? These are the decisions that plague not just us but even the government.

Once the government puts its revenue estimates into place, it starts to decide where it will spend. A large part of the expenditure, over 85 percent to be precise, is categorised as revenue expenditure, which is essentially short-term expenses in the day-to-day running of the economy.

The remaining is put aside as capital expenditure, which is money set aside for investment to generate longer-term growth and returns. The Indian government has been trying to push up capital expenditure but with limited success.

Apart from that broad classification of expenditure, the government also splits up spending between different ministries, different schemes and important areas of focus for the country.

Defence spending is always closely watched. The amount that government spends on subsidies of food, fertiliser and petroleum products is also tracked. The government also has to shell out a fair amount to make interest payments on small savings parked with it and on money the government borrows from the markets.

To understand the government's priorities, spending on specific schemes is also analysed.

  • Some of these important schemes include the rural employment guarantee scheme which saw the highest allocation last year.
  • The Pradhan Mantri Awas Yojana is the cornerstone of the government's efforts to provide housing for all.
  • The rural roads scheme is seen as important towards aiding the quicker development of rural areas.
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