The Indian government has been growing rapidly, it would appear.

On May 14, 2012, in Economics, India, by Sanjeev Sabhlok

Thanks to PD for further research which has led to the following situation.

Data from the Planning Commission seems to indicate that India's government spending as a share of GDP is around 20 per cent or less. [see my blog post here]

But IMF data shows the following:

Country	Funds	1988	1998	2008	2012
Australia	Revenue	33.253	34.395	33.778	34.851
Australia	Expenditure	32.245	34.054	34.29	35.466
India	Revenue	13.453	16.115	19.896	18.781
India	Expenditure	19.527	23.925	27.714	26.058
United States	Revenue	n/a	n/a	32.564	32.308
United States	Expenditure	n/a	n/a	39.042	39.843

I'm only interested in TOTAL government expenditure as share of GDP, hence PD's comment about OMB's data is irrelevant. The data re: US and Australia is now looking fine, and matches with what I've known in the past, just that the US government has grown 10 per cent larger since I last thought about it.

Clarifications needed

The key difference between the data I dug up yesterday and this one is that according to IMF India raises 18 per cent of GDP as revenues (vs. Planning Commission data – relating to the central government – which indicates that the centre raises around 9 per cent of GDP as revenues; state revenues extra).

The idea that the states of India manage to generate 9 per cent of GDP as revenues sounds implausible. I've estimated (yesterday) that states generate around 1 per cent of GDP, with a max of 3 per cent, but that's a pure guess. I've not had time to study this issue.

Given that IMF have had time and energy to study this issue carefully, I should defer to them tentatively. One can't dispute facts.

In order to be fully convinced, though, I would prefer if PD or someone could cite an Indian source that has conducted such analysis, and show me how the states of India are able to raise around 9.5 per cent of GDP as revenues.

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5 Responses to “The Indian government has been growing rapidly, it would appear.”

All Indian Blogs says:

May 13, 2012 at 10:19 pm

The Indian government has been growing rapidly, it would appear. http://t.co/mZnLSOvv
Sanjeev Sabhlok says:

May 14, 2012 at 11:28 am

The Indian government has been growing rapidly, it would appear. http://t.co/LMKsS1xZ #economics #india
Polevaulter Donkeyman says:

May 14, 2012 at 12:44 pm

@Sanjeev:

Take a look at the Thirteenth Finance Commission report available here. The relevant sections are chapter 7 and Annex 7.

Figure 7.2 in Chapter 7 and Annex 7.3 in Annex 7 are specially relevant as they directly indicate the Revenue (Tax) to Gross State Domestic Product ratio. As you can see the mean Tax-GSDP ratio lies somewhere between 8.5% to 9% (including future projections)

I guess both you and I were wrong in assuming that the states do not raise as much revenue as they actually do.
Polevaulter Donkeyman says:

May 14, 2012 at 1:24 pm

@Sanjeev:

OMB data is relevant since this discussion of Revenue:GDP ratio was raised since we were comparing how various electoral systems stack up against each other (the article you linked to criticising AV/STV/IRV electoral systems vs FPTP systems). Your criticism was based on your preference of a strong parliamentar which is more easily facilitated via FPTP rather than AV/STV/IRV. I raised the issue that weak divided governments may be better giving the example of the US which has a pretty strong separation of powers doctrine, pitting the three branches against each other (especially when the Presidency and Congress are controlled by different factions) following which I brought up the Revenue:GDP ratio as a measure of good government (or atleast limited)

Given that the OMB data is relevant since the measure at issue is Tax:GDP of the US Federal Govt only (since the states are governed by their own constitutions which have different separation of powers doctrine).

Thus the US has a Tax:GDP ratio of 25% while Aus which is more Westminster (but has AV?) has a ratio of 35% (I don’t know how significant the tax-and-spend powers of the various Aussie states are). Can this difference be explained by the difference in the separation of powers in the two systems?

Now India has a Tax:GDP ratio of 18% (for the Centre only) despite being a Westminster FPTP. Does that mean that India’s Westminster FPTP is superior to Aus Westminster AV or US? Is it fair to compare governmental expenditure for developing countries with that of developed countries which typically have much stronger social safety nets than the developing nations (and the cost of which borne by the government expenditures)? Probably not.

Maybe you are right that There’s no explanatory power of type of government on its size. That is the null hypothesis. There have been studies done on how electoral systems influence the type of government spending (if not the actual quantum). One example is Electoral Systems and Public Spending by Miles-Ferretti et al. They state

that proportional systems are more geared to spending on transfers, while majoritarian systems are more prone to public good spending

where transfer spending is basically social safety nets such as unemployment benefits, old age pensions etc and public spending is purchase of good and services which typically targeted along geographical lines. In other words

proportional systems allow representation of a greater variety of interests while majoritarian systems are more grounded in local interests
Mithun Dutta says:

May 28, 2012 at 1:49 pm

The Indian government has been growing rapidly, it would appear. http://t.co/LMKsS1xZ #economics #india

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