CHANGING ROLE OF THE STATE: AN ANALYSIS OF ECONOMIC INTERVENTION OF THE GOVERNMENT IN INDIA AFTER LIBERALIZATION

Abstract

Economic liberalisation policies are mostly aimed to reduce the role of government in economic activities. It is argued that as a country moves on its growth path it should slowly reduce the role of government in economic activities and allow the more efficient private sector to take up the growth momentum. This study investigates into the changing role of government in India by looking into the nature, trends and pattern of revenue and expenditures of Central and State governments after the economic liberalization policies of 1991.The study shows that there is no much paradigm shift in the government’s expenditure pattern after the 1991 economic reforms. Though we expected an increased trend in developmental expenditure of the governments because of its facilitator role, the study indicates declining trend in the share of developmental expenditure while the share of non-developmental expenditure showed a slightly increasing trend during the liberalization regime. Unlike the case of government expenditure, there were considerable differences in the pattern of government receipts, especially in tax receipts. While the share of indirect taxes in the total revenue receipts showed a steady fall, there was a corresponding increase in the share of direct tax revenue. The increase in direct taxes and income taxes was propelled by the significant growth in corporation taxes and income taxes mainly due to the privatisation measures adopted during the economic liberalization period.We conclude that the economic liberalization measures have not much changed the role of government in terms of its expenditures but helped in restructuring the pattern of government receipts.

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