Expenditure of states is usually categorised into revenue and capital. Revenue expenditure is recurring in nature, and includes expenditure on administrative expenses, payment of salaries and pensions. Interest payments on loans taken by states also form a part of the revenue expenditure. Capital expenditure includes expenditure on capital outlay for various social and economic services. Such capital outlay leads to the creation of infrastructure such as schools, water supply and sanitation networks, and hospitals.
On an average, 44 per cent of the revenue expenditure is spent on committed liabilities. Committed liabilities of a state, typically, include expenditure on payment of salaries, pensions, and interest payments. A larger proportion of state budget allocated for committed expenditure crowds out other developmental expenditure. Between 2016 and 2018 (November end), 24 states, on an average, have spent 39 per cent of their budget on committed expenditure — made up of components such as salaries, pensions, and interest payments. Punjab spends the most on committed liabilities, followed by Uttarakhand, Kerala, and Himachal Pradesh.
Between 2011 and 2018, states spent 68 per cent of their budget on development expenditure, and 30 per cent of their budget on non-development expenditure. The remaining two per cent was apportioned as grants-in-aid and contributions, including those given to local bodies and panchayati raj institutions.
“An analysis of spending by all states on 11 key sectors between 2011 and 2019 indicates that, on an average, states spend 61 per cent of their budget on human and economic development, infrastructure creation, administration and security of their citizens,” the study said.
Of the remaining 39 per cent, states spend 10 per cent each on payment of interest and pensions, respectively,” the PRS study observed.