Growth and Structure of Public Expenditure in Tamil Nadu, India

Abstract

Government expenditure is an important fiscal policy instrument for supporting production, income generation, and economic development. This study examines the growth, composition, and relationship of public expenditure with Net State Domestic Product (NSDP) in Tamil Nadu from 1990–91 to 2020–21. Public expenditure is analysed through total expenditure, development expenditure, non-development expenditure, and grants-in-aid. Annual growth rates, percentage distributions, compound growth rates, and a log-linear regression model are used to assess expenditure patterns and estimate the elasticity of NSDP with respect to public expenditure. The results show that total public expenditure increased throughout the study period, although its annual and compound growth rates fluctuated across expenditure categories and decades. Development expenditure generally accounted for a larger share of total expenditure than non-development expenditure, with social and economic services forming its principal components. Public expenditure as a percentage of NSDP reached its highest level in 1991–92 and remained at approximately 14–15 per cent in recent years. The estimated elasticity of NSDP with respect to public expenditure was positive in all three sub-periods but declined from 1.194 to 0.819 and then to 0.523. These findings indicate that public expenditure remained positively associated with economic activity, while the relative strength of this association diminished over time. The study highlights the continuing importance of balanced and efficiently managed development expenditure in Tamil Nadu.