Why we need norms on government spending

Source: The post is based on the article “Why we need norms on government spending” published in “Indian express” on 20th October 2023.

Syllabus: GS3- Economy- Government Budgeting.

News: The article discusses the challenges democracies face in deciding where to spend public money. Governments often prioritize “freebies” for citizens to gain votes, even though these might not always be economically efficient. The balance between fulfilling promises and making sound economic decisions is tough. Suggestions include setting spending limits and revisiting expenditure allocations.

What challenges do democracies face in deciding where to spend public money?

Public’s Voice: While people vote political parties into office, there’s no referendum on specific expenditure allocations, causing potential disconnect.

Economic vs. Social Impact: The ideal is to maximize the economic multiplier effect, but much is spent on “non-development expenditure” that can still empower people.

Public Preferences: For instance, a regular train from Mumbai to Nashik costs Rs 380, but the Vande Bharat charges Rs 720. The majority prefers more affordable options.

Land and Employment Concerns: Projects might require land acquisition, affecting landowners and landless laborers alike, leading to contentious compensation issues.

Popularity of “Freebies”: Schemes like the Amma meal in Tamil Nadu and free electricity in Delhi cater to the majority at the lower end of the income distribution, sidelining the views of the richer class.

What should be done?

Public Participation: Engage citizens in decisions about expenditure allocations, even if indirectly, to ensure their needs are met.

Evaluate Economic Value: While capital expenditure often has a broader economic benefit, the impact of non-development expenditure, which can empower recipients, should also be considered.

Affordable Services: Recognize the needs of the common man, such as the preference for regular trains like Panchvati Express over pricier options like Vande Bharat.

Address Land Acquisition Issues: Ensure that compensation for land acquisition is fair and that landless laborers are not left unemployed.

Examine “Freebies” Critically: While schemes like the Amma meal in Tamil Nadu are popular, their overall economic and social impact should be reviewed.

Set Guidelines on Expenditure: The Finance Commission could consider drawing up norms for expenditure allocations to ensure balanced spending