Public Expenditure and Economic Development of Indian States: A Panel Data Analysis

Public expenditure plays a crucial role in the process of economic development of a vast country like India. It also leads to the growth of progress, efficiency, equity and stability. It plays a vital role in the allocation of resources by providing various public goods and merit goods. Developing countries like India are known for sharp inequalities and backwardness due to illiteracy, poverty and poor health care. The objective of the paper is to examine the impact of public expenditure on economic development of selected significant states in India during 19902010. The article is based on calculating the association between federal spending and economic growth and the relative significance of the revenue and capital expenditure, for which panel data regression model has been used. The panel data set consist of time acute data over the twenty years. The paper concludes that capital expenditure influences the growth rate of middle income and lowincome states, but the co-efficient is comparatively lesser than that of revenue expenditure.