“Sarkari Kharcha” Sucking up large chunks of budget

In fiscal year 2077/78, the federal budget comprised fundings from Tax revenue that accounts for 63 percent of total allocation followed by Foreign Loan(19 percent), Domestic Loans(14 percent) and Foreign Aid(4 percent). This shows that a large proportion of public money is being collected by means of taxation and domestic loans. The problem arises when those funds are spent in allowance for federal administration rather than in development projects. 

In the current fiscal year, the government had allocated 70 percent of total revenue in the heading “sarkari kharcha” while only around 22 percent in capital expenditure. However, such high recurrent expenditure was not always the case. A short glimpse of government spending structure in the 1990s, fiscal year 2045/46, shows an optimistic picture. Back then, 70 percent of total revenue was spent on development projects and only 30 percent in the heading “sarkari kharcha”. In just 32 years, the spending framework has overturned which implies that the rate of allocations for the recurrent expenditures throughout the years has increased. The allowance for civil service officers altogether has 29 sub-headings that cover every amenities an individual can imagine and then there is remuneration in a separate heading. Further, 50 different government bodies are divided under eight subheadings that receive similar wide coverage for administrative expenditures.

Laudau(1983) studied the effect of government (consumption) expenditure on economic growth for a sample of 96 nations. The findings from the study shows that there is a negative effect of such government expenditures on growth of real output. Similarly, studies globally have shown that expenditure on investment and productive activities is expected to contribute positively to economic growth, whereas recurrent expenditure is expected to be growth retarding. Further, the (negative) impact of recurrent expenditure seemed stronger or more significant than that of capital expenditure.

As a potential solution in a growing economy such as Nepal, government spending can be curtailed, the government sector can revert to a lower level of spending and personnel can be redirected to the business sector. However, while ongoing budgetary expansion is easy, cut-backs are very difficult. The government once committed to concessions and welfare cannot just easily retract. Since recurrent expenditures do not impact positively on economic growth, it begs the question of the need to encourage private sector investment. The efficiency of the private sector particularly compared to the government sector cannot be over emphasized. Privatizing waste management in India has been a successful example of cost saving and efficiently eliminating public monopoly with increased innovation from competition. 

A public organization can continue its activity even if the services it provides are no longer required. Its directors and the relevant minister tend to resist relinquishing their power and the funds at their disposal. The result is superfluous services, wasting personnel and capital, which could be directed to production that provides well-being and benefit to individuals in the economy. 

Conclusively, the current government spending structure of Nepal poses a threat of large and inefficient government. Thereby, it needs widespread attention from researchers to pressurize policy reforms which would change the current spending framework. Working towards fulfilling the need of more innovative development projects and creative plans of actions are vital rather than futile administrative expenses if our collective goal is a sound and healthy economy in the future.

Sadichchha Sanjel

Sadichchha is a research intern at Samriddhi Foundation and currently pursuing Bachelor's in Economics.

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