Answer:
The two significance of public expenditure are as follows: (i) Increases Economic Growth Public expenditure accelerates the process of economic growth. This is of unique importance particularly, in the context of developing countries like India. Public expenditure help in establishing new industries. It ensures development of public overhead cost like the instruction of roads, dams, bridges, etc. (ii) Increases Economic Welfare Public expenditure increases economic welfare. This happen particularly when public expenditure is directed towards poverty eradication, as well as, health and education for the poorer sections of the society. Such expenditures reduce economic divide between ?have' and 'have-nots' and thereby promotes social welfare. Or Following are the implications of large fiscal deficit: (i) National Debt Fiscal deficit leads to national debt as government resorts to borrowings to combat the National debt is a burden on future generations. Therefore, future generations inherit a economy which is under high pressure of mounting borrowings. (ii) Low GDP Growth In case of large fiscal deficit, a significant percentage of national income is used up to pay the past debts and very less is spent on infrastructural expansion, therefore, GDP growth of the economy remains low. (iii) Crowding-out Effect High fiscal deficit increases borrowings by the government from the money market which reduces availability of funds for private entrepreneurs. Shortage of funds leads to high rate of which lowers the level of investment in the economy. Thus, economy slips into state of economic slowdown. This is known as crowding-out effect. (iv) Erosion of Government Credibility High fiscal deficit erodes credibility of the government in domestic as well as international market, 'credit rating' of the government is lowered and global investors start with drawing their investment from domestic economy.
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