Purpose -The purpose of this paper is to examine the impact of public expenditure on economic growth and poverty alleviation in developing countries like India. If poverty and inequality are high, the government may resort to distributive policies at the cost of long-term growth. The distributive policies and poverty alleviation measures fail to achieve success due to lack of good governance, lack of proper targeting and problems in the implementation of such schemes. On the other hand, if the nature of public expenditure is such that it enhances per capita income, it will help reduce poverty. Design/methodology/approach -After analytical digression and construction of hypotheses panel regression has been done using state-level data in the Indian context to empirically verify the above propositions. Both Fixed effects and Random effects models have been used for this purpose. Findings -The results show that in states where ratio of public expenditure on the development of infrastructure such as road, irrigation, power, transport and communication is higher, per capita income is also higher and incidence of poverty is lower indicating that economic growth is important for poverty alleviation and development of infrastructure is necessary for growth. Originality/value -This study demonstrates how public policy and public finance can be used as instruments for removal of poverty.

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This article has examined the impact of public expenditure on economic growth and viability of fiscal policy when the deficit in budget is financed by public borrowing. A number of alternative criteria have been used as indicators of solvency in fiscal balance. The study is based on the theoretical framework and supported by the results of time series analysis in the Indian context. It is found that the share of revenue expenditure (RE) of the government has significantly increased over time and many of the components of RE are non-developmental in nature. The article argues that if growth suffers, it will put adverse impact on fiscal balance. The ratio of gross fiscal deficit (GFD) to net national product (NNP) and growth of NNP are co-integrated, and the ratio is found to increase with increase in NNP indicating deterioration in fiscal balance. The increase in total expenditure of the government has caused rise of the ratio of revenue deficit to total spending. Interest payment on public debt has led to the increase of the ratio of GFD to income. These results are indicators of non-viability of fiscal policy in India at least in the short run.

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The motivation of this article is to develop a theoretical mechanism on the interaction between formal and informal sectors and rising informal wage, in the process of service sector growth. Based on empirical support for service sector growth, structural change, higher employment of labour in unorganised sector and rising informal wage in the Indian context, this article develops a theoretical model on the formal–informal interaction in labour employment using a trade-theoretic general equilibrium framework. The results show that with the expansion of capital-intensive, organised service sector, following capital investment in the country, the informal, non-traded intermediate sector, which supplies inputs to the formal service sector, expands with greater employment. The labour-intensive domestic sector of consumer services declines, with the result that the price of consumer services rises, leading to rise in informal wage rate.