Fiscal tales: How money moved over 50 years

Annual government spending has shot up. Fiscal deficit concerns remain. Between the Centre and states, sometimes one has scored over the other. An overview of government finances since 1975

- AK BHATTACHARYA

In 1975, the size of India's annual government spending, incurred by the Centre, 22 states and eight Union Territories, was about ₹15,690 crore. This was equivalent to about 20 per cent of India's gross domestic product (GDP) that year. In the last 50 years, by 2023-24, not only has the number of states grown to 28, but the size of their annual spending along with that of the eight Union Territories and the Centre has also shot up to nearly ₹90 trillion that is over 30 per cent of India's GDP.

That India's government system has seen such a huge rise in its spending over the last half a century is obvious. But how large is this increase? A comparison with the US Federal government provides a clue. The US Federal government's total outlay in 1975 was about 18 per cent of the country's GDP. It has gone up in the last 50 years, but not as fast as India's. In 2024, the US Federal government's total outlay was estimated at $6.5 trillion, accounting for about 23 per cent of its GDP.

But comparisons tell you only a partial story. Let us dig a little deeper into these numbers for a more comprehensive understanding of the way India's government finances have fared in the past 50 years.

For almost 40 years after 1975, the combined spending power of the states stayed well below the Centre's. In 1975, for instance, the states' outlay as a per cent of GDP was almost half of the Centre's. But as the number of states rose and their governments grew in strength, their spending increased over the years, and by 2016-17, it exceeded that of the Union government. The share of that spending in GDP kept rising until Covid brought it to a halt.

Indeed, the first year of Covid, 202021, saw a trend reversal, with the Centre's annual expenditure going up to 17 per cent of GDP, while that of states stayed at about 14 per cent. A year earlier, the Centre's spending was about 13 per cent of GDP, while states accounted for a little more at 13.6 per cent.