Gross Domestic Product etc - 7

Government final consumption expenditure 


1.15 The concept of government consumption expenditure has been
debated by economists for a long time. The role of the government in the
economy is essentially different from that of enterprises and households. To
cite a few examples, the government offers services both to entrepreneurs
and consumers and in most cases it receives no payment for that or even if it
does receive payment, the same is likely to bear little or no relation to the
value of the services to the user. In the course of organising collective
services such as defence, justice, health and education, government
purchases the services of its officials and also many non-durable goods and
other services from other suppliers. Since these services are rendered free,
these do not appear in the household consumer expenditure. These services
are not only of economic value, but also create real final consumption value to
the people. It is, therefore, necessary to reckon them in the national
expenditure. Once it is agreed to include government services as part of
national expenditure, it would be necessary to find methods for valuing the
services. Since these collective services are not sold, they can be valued in
money terms only by adding up the money spent by the government in buying
these services of teachers, doctors, public administrative employees, the
armed forces etc., together with the goods and other materials purchased.
This total is the consumption expenditure of the government and it consists of
purchase of non-durable goods and services by the government. By
convention, expenditure on durable goods which are used for defence is also
treated as part of consumption expenditure of the government.[From CSO Publication]