Abstract

This report explores the critical role of public expenditure in social sectors as a catalyst for economic growth and human development, particularly in Karnataka, India. It highlights the tension between fiscal management and social investment, emphasising how prevailing views categorise social expenditures as mere consumption rather than essential investments. The historical backdrop of fiscal consolidation, driven by global economic trends and influenced by institutions like the IMF, has led to reduced allocations for social programs, adversely affecting both growth and equality in developing economies.

Utilising methodologies such as the input-output table (IOTT) and the social accounting matrix (SAM), this study estimates the multiplier effect of public spending on social sectors in Karnataka. It marks a pioneering effort at the subnational level with unique datasets. The findings underscore the importance of viewing expenditures on health, education, and early childhood care as investments that generate significant economic returns.

In light of the Covid-19 crisis and its impact on the economy, this report argues for enhanced public spending in social sectors to stimulate demand and support recovery. It advocates for integrating social and economic policies to foster sustainable growth while addressing disparities in resource allocation at state levels. The report concludes with policy implications that call for greater transparency in data sharing and informed decision-making to optimise public expenditure for long-term socio-economic benefits.

Yareseeme, A. S., Apurva, K. H., Jha, J., Purohit, A. (2021) Estimating Multiplier Effect of Social Sector Expenditure in Karnataka An exploration through the Input – Output table and Social Accounting Matrix. Centre for Budget and Policy Studies.