Government revenue and expenditure in an agrarian economy: North Arcot District in South India

This paper uses disaggregated data to assess the recent history and geography of revenue mobilization and expenditure allocation in a district where rice production increased by 50 per cent during the decade 1973–83 and where gross urban output (to judge from research in one market town) increased in real terms by a factor of 8. At the district level, land revenue is a small and unstable component of revenue despite the dynamism of the rice economy. Furthermore rice is exempt from commercial taxes, which are eight times more important than land revenue, just under half of which derives from traded agricultural goods. Despite the region's commercial dynamism, real revenue has increased by only 76 per cent over the decade, suggesting substantial evasion. The district appears to be a net donor to the state fisc. Direct expenditure shows urban bias (being 60 per cent more per caput than rural expenditure), though the gap has been narrowing. Despite this trend the rice-producing sector appears to be a net beneficiary from direct revenue and expenditure. A rural micro-level case study shows that the village panchayat is a net donor and the urban panchayat union a net recipient of an unstable quantum of revenue. A case study of an urban municipality shows real revenue declining over the decade, forcing an increasing dependence upon discretionary grants from the state government, which cannot prevent a deterioration in urban infrastructure. Indirect revenue and expenditure shows a recent trend towards the rural population. Public sector employment is numerically significant, urban, and has average incomes equal to the top decile of rural cultivators.