(a) Reasons for the growth of public expenditure in India:
1. Development Programmes: Most of the underdeveloped countries have initiated various programmes of economic development i.e. provision of infrastructure of the economy such as transport, communication power etc. This has led to growth of public expenditure.
2. Growing trend of Urbanisation: With the spread of urbanization, public expenditure has increased in modem times. Urbanization has led to increase in Government expenditures on civil administration, education, public health, water supply, parks etc.
3. Rise in Price-level: As a result of the rise in the price-level, the public expenditure has gone up everywhere. The reason is that like the private individuals the Government also has to buy goods and services from the market at higher prices.
4. Increase in Population: As a result, the Government has to incur great expenditure to meet the requirements of increasing population. In fact, the public expenditure increases in the same ratio in which the population increases.
5. Welfare State: The modem state is a welfare state. It has to spend increasing amounts on such items as social insurance, unemployment relief, free medical aid, free education etc. to improve the socio-economic welfare of the country.
(b) Three merits of indirect taxes:
1. Convenient: They are mostly levied on commodities and are paid by consumers when they buy them in the market; The amount of tax is included in the price of the commodity and the consumer pays the tax without experiencing its pinch.
2. Equitable: Indirect taxes are equitable in the sense that they are paid by all the sections of the community at the time of making purchases of goods in the market, in the form of sales tax or custom duty.
3. No possibility of evasion: No person can evade the indirect taxes, because they are collected in the form of higher prices of goods sold to the consumers.
Two demerits of indirect taxes:
1. Absence of Civic Consciousness: Since the tax payer do not feel that they are paying a tax at the time of purchasing a commodity, these taxes do not promote civic consciousness among the citizens.
2. Uneconomical: The cost of collection is quiet heavy. Every source of production has to be guarded. Large administrative staff is required to administer such taxes. This turns out to be a costly affair.
