Table Of ContentCAMBRIDGE SOUTH ASIAN STUDIES
PUBLIC EXPENDITURE
AND INDIAN DEVELOPMENT POLICY
1960-1970
CAMBRIDGE SOUTH ASIAN STUDIES
These monographs are published by the Syndics of Cambridge University Press
in association with the Cambridge University Centre for South Asian Studies.
The following books have been published in this series:
1 S. Gopal: British Policy in India, 1858—1905
2 J. A. B. Palmer: The Mutiny Outbreak at Meerut in 1857
3 A. Das Gupta: Malabar in Asian Trade, 1740-1800
4 G. Obeyesekere: Land Tenure in Village Ceylon
5 H. L. Erdman: The Swatantra Party and Indian Conservatism
6 S. N. Mukherjee: Sir William Jones: A Study in Eighteenth-Century British
Attitudes to India
7 Abdul Majed Khan: The Transition in Bengal, 1756—1775: A Study of
Sayid Muhammad Reza Khan
8 Radhe Shyam Rungta: The Rise of Business Corporations in India, 1851—
1900
9 Pamela Nightingale: Trade and Empire in Western India, 1784—1806
I o Amiya Kumar Bagchi: Private Investment in India, 1900 -1939
I1 Judith M. Brown: Gandhi's Rise to Power: Indian Politics, 1915 —1922
12 Mary C. Carras: The Dynamics of Indian Political Factions
13 P. Hardy: The Muslims of British India
14 Gordon Johnson: Provincial Politics and Indian Nationalism
15 Marguerite S. Robinson: Political Structure in a Changing Sinhalese Village
16 Francis Robinson: Separatism among Indian Muslims: The Politics of the
United Provinces' Muslims, i860-1923
17 Christopher John Baker: The Politics of South India, 1920—1936
18 David Washbrook: The Emergence of Provincial Politics: The Madras Presi-
dency, 1870—1920
19 Deepak Nayyar: India's Exports and Export Policies in the 1960s
20 Mark Holmstrdm: South Indian Factory Workers: Their Life and Their World
21 S. Ambirajan: Classical Political Economy and British Policy in India
22 M. M. Islam: Bengal Agriculture 1920—1946: A Quantitative Study
23 Eric Stokes: The Peasant and the Raj: Studies in Agrarian Society and Peasant
Rebellion in Colonial India
24 Michael Roberts: Caste Conflict and Elite Formation: The Rise of a Karava
Elite in Sri Lanka, 1500-1931
25 John Toye: Public Expenditure and Indian Development Policy i960—1970
http://avaxho.me/blogs/ChrisRedfield
PUBLIC EXPENDITURE
AND INDIAN
DEVELOPMENT POLICY
1960-1970
JOHN TOYE
Fellow of Wolfson College
and an Assistant Director of Development Studies
University of Cambridge
CAMBRIDGE UNIVERSITY PRESS
CAMBRIDGE
LONDON NEW YORK NEW ROCHELLE
MELBOURNE SYDNEY
CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo
Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK
Published in the United States of America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridge.org/9780521230810
© Cambridge University Press 1981
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 1981
This digitally printed version 2008
A catalogue record for this publication is available from the British Library
ISBN 978-0-521-23081-0 hardback
ISBN 978-0-521-05002-9 paperback
CONTENTS
List of Tables vii
Preface xi
List of Abbreviations xiii
Introduction xv
PART ONE: GENERAL
1 Public expenditure and state accumulation in
theory 3
Comments on economic approaches to public spending 3
Development and state accumulation 9
The rationale of state accumulation 13
2 Indian nationalism and the state accumulation
policy 2 I
Mimetic nationalism 2 I
Pre -history of Indian state accumulation policy 2 7
Background to post-independence development policy 3 8
3 The interpretation of Indian public expenditure
statistics 49
Primary documents and secondary reclassifications 49
Schemes ofreclassification: a critique 5 3
Indian versions of the national accounts reclassification 7 3
PART TWO: EMPIRICAL EVIDENCE
4 The fiscal performance of the public sector 85
Growth of public authorities' expenditure 8 7
Changing composition of public expenditure 91
Decline of public sector capital formation and saving 100
vi Contents
Stagnation of public enterprise surpluses 113
5 Public expenditure and the industrial recession 119
Post-1965 recession and capital goods 119
Public expenditure and the demand for capital goods 124
6 The degree of public expenditure centralization 137
Changes in public expenditure centralization 137
Possible explanations considered 148
7 The growth of state governments' spending 158
Inter-state differences in public expenditure growth 158
Factors related to public spending growth in the states 165
8 Public investment, public saving and the state
governments 176
Public investment centralization 176
Public saving centralization 180
Inter-state differences in the growth of public capital
formation 194
Statewise comparison of public capital formation and
public saving 209
PART THREE: CONCLUSIONS
9 The Indian state accumulation policy in retros-
pect 215
Mimetic nationalism and state accumulation 215
State accumulation and public expenditure 223
Public expenditure control and the states 230
1 o Summary of conclusions 234
APPENDICES
A Checklist of state-produced economic reclassifi-
cations 245
B The calculation of expenditure centralization
ratios from data on a national accounts basis 249
C Problems arising in the preparation of statewise
constant price expenditure series 253
List of works cited 257
Index 269
LIST OF TABLES
2.1 Growth of net national product at 1960/61
prices, 1950/51 to 1973/74- 4°
2.2 Indicators of price level changes, 1950/51 to
1973/74- 4i
2.3 'Aid' inflows and foreign exchange reserves,
195O/51 to i97°/71- 42
4.1 Public expenditure growth in relation to the
growth of output, prices and population,
1960/61 to 1968/69. 86
4.2 The share of the government sector in the
economy: 3 measures, 1960/62 to 1968/70. 88
4.3 Changes in real public expenditure per head,
1960/61 to 1968/69. 89
4.4 Budgetary transactions of central and state
governments expressed as percentages of total
outlay, 1960/61 to 1969/70. 92
4.5 Public authorities' expenditure by economic
category expressed as percentages of the total,
1960/61 to 1969/70. 98
4.6 Public authorities' gross fixed capital formation
in relation to G.N.P. and total gross fixed
capital formation, 1960/61 to 1969/70. 102
4.7 Public sector gross fixed capital formation in
relation to G.N.P. and total gross fixed capital
formation, 1960/61 to 1969/70. 103
4.8 Public authorities' saving in relation to G.N.P.,
total saving, current receipts and own invest-
ment, 1960/61 to 1969/70. 105
vii
viii List of tables
4.9 Public enterprises' net trading profits and
dividends contributed to the exchequer, 1962/63
to 1969/70. 106
4.10 Percentage of public sector capital formation
financed by public sector saving, 1960/61 to
1969/70. 107
4.11 Government current receipts in relation to
national income, 1960/61 to 1968/69. 109
4.12 The structure of government current receipts,
1960/61 to 1968/69. 110
5.1 Index numbers of agricultural output, 1960/61
to 1969/70. 120
5.2 Index numbers of industrial production, 1961
to 1970. 121
5.3 Growth rates of industrial production, i960 to
1970. 122
5.4 Index numbers of industrial output by linkage
categories, 1962-70. 123
5.5 Changes in public sector product, 1961/62 to
1968/69. 126
5.6 Capital finance account of public authorities at
current prices, 1960/61 to 1968/69. 131
5.7 Index numbers of wholesale prices in India
(new series), 1961/62 to 1970. 132
6.1 Percentage of government spending by states
(Reddy), 1938-68. 141
6.2 All states' expenditure as a percentage of total
public authorities'expenditure, 1960-70. 142
6.3 Central and state government expenditure by
programmes, 1960/61 to 1969/70. 144
6.4 Centre and states' expenditure by economic
category, 1960/61 to 1969/70. 149
7.1 Three all-India price indices, 1960/61, 1961/62
and 1969/70. 160
List of tables ix
7.2 Annual compound growth rates of government
expenditure at 1960/61 prices by states, 1960-
70. 161
7.3 Statewise growth rates of population and real
government expenditure per head, 1960-70. 163
7.4 Government spending per head by state at
1960/61 prices. 164
7.5 Growth of real government spending per head,
and of urban population in the more urban
states, 1960-70. 169
7.6 Growth of real government spending per head,
and of average real income in the less urban
states, 1960—70. 170
8.1 Public sector gross capital formation by spend-
ing authority, 1960/61 to 1969/70. 178
8.2 Public authorities' saving (post-devolution con-
cept) at current prices, 1960/61 to 1969/70. 184
8.3 Percentage contributions to public authorities
saving (post-devolution concept), 1960/61 to
1969/70. 185
8.4 Net saving of public sector ('new breakdown )
at current prices, 1960/61 to 1969/70. 186
8.5 Percentage contributions to net public sector
saving ('new breakdown'), 1960/61 to 1969/70. 187
8.6 Shares of gross capital formation financed by
own saving (Variant A), 1960/61 to 1969/70. 190
8.7 Shares of gross capital formation financed by
own saving (Variant B), 1960/61 to 1969/70. 191
8.8 Share of agriculture in state domestic product,
by state, 1964/65. 197
8.9 Deflated growth rates of gross fixed capital
formation by state, 1960/61 to 1969/70. 198
8.10 Statewise share of public capital formation in
domestic product and total public expenditure,
1960/61. 201
x List of tables
8.11 Rank correlation coefficients for variables in
Table 8.10. 202
8.12 Indicators of income growth and changes in
G.F.C.F./S.D.P. and G.F.C.F./public expendit-
ure ratios by state, 1960-70. 203
8.13 Rank correlation coefficients for variables in
Table 8.12. 203
8.14 Indicators of government activity and the share
of capital formation in government spending
by state, 1960/61 and 1969/70. 206
8.15 Rank correlation coefficients for variables in
Table 8.14. 207
8.16 Growth rates of deflated 'post-devolution' sav-
ing by state governments, 1960/61 to 1969/70. 211
9.1 Price indices implicit in national income esti-
mates, 1960/61 to 1969/70. 218
9.2 Employment in the public and private organ-
ized sectors, 1961-71. 226
B.i States' spending 'gap' as a percentage of their
total spending, 1960/61 to 1969/70. 251
C. 1 Comparison of price indices in four states,
1960/61 and 1969/70. 255
