Contextualising income growth against the backdrop of public expenditure aggregates: A case study of Assam for the period 1980–2014.

In recent times there has been a tremendous increase in government expenditure in the states of Assam. Yet, we find that in relative terms, the state sector has shrunk in comparison to the gross state domestic product. The period has also witnessed much change in the economic and functional composition of public expenditure. There has been a marked shift from developmental to non-developmental expenditure and within the former a shift away from expenditure on economic services to that of expenditure on social services. The moot point is whether such developments have had any visible impact on the development outcome in the state. In order to study the dynamics of the casual relationship between public expenditure and economic growth in the state, our study applies the Unit root test and Johansen Co-integration Test followed by Error correction Mechanism on time series data to estimate the short-run and long-run relationships between government expenditure and economic growth. The results show the nonexistence of a causal relationship between aggregate government expenditure and economic growth. Further, aggregate government expenditure and its main components have very weak adjustment tendency towards long run equilibrium in economic growth. We determine that, at the aggregate level, capital and revenue expenditures have a positive and significant relationship with GSDP. Again, expenditure on social services and economic services has positive and significant impact on economic growth whereas expenditure on general services has a positive but insignificant impact on.