In modern times, the concept of quantum of public expenditure has become passé and smart public spending is the buzzword in economies across the world. Vitor Gaspar, director of the IMF’s fiscal affairs department, quoted in Wall Street Next, said discretionary spending could boost economic growth even without raising overall spending limits.

Smart spending means allocating existing spending in a better way to improve the “technical efficiency of spending" which is the maximum output that can be achieved at a given level of public spending. Today countries are moving the goalposts as their emphasis is on the quality of expenditure rather than the quantity of public spending.

A recent study by the IMF, which examined 174 economies, shows that governments can get, on average, a third more value from their spending by adopting smart spending best practices.

The report said smart spending and better allocation of existing resources would boost output by up to 11 per cent in emerging markets and developing economies and up to 4 per cent in advanced economies over the long term. It is believed that smart spending can achieve faster growth, less fiscal pressure and greater social equality without increasing the fiscal burden.

The IMF’s October 2025 Smart Spending report emphasises that redirecting public spending to infrastructure, education, health, and research and development can achieve output gains without increasing overall spending. Apart from this, increasing innovation and research funding from the current inadequate level of 0.7 per cent of GDP to 1.5-2 per cent could boost advances in AI, semiconductors, and green technology.

Investments in education, skills development and healthcare can enhance human capital, boosting long-term productivity and innovation. According to the IMF Fiscal Monitor (April 2024), reallocating just 1 per cent of GDP from government consumption to productive investment can boost long-term output by 1.5-3.5 per cent, and when combined with efficiency gains, the overall growth impact is even larger.

The Case for Spending Smarter

In the Indian context, public expenditure is comparable to peer economies. According to the IMF’s World Economic Outlook, cited in The Print, Indian government spending at the all-India level is about 28 per cent of GDP. This is higher than many economies in Southeast Asia and sub-Saharan Africa. Its expenditure relative to GDP is much higher than that of South Asian neighbours such as Sri Lanka and Bangladesh.

Understanding the importance of smart spending, India’s next goal should be to maximise the impact of every rupee spent by spending smartly. India could benefit significantly from shifting 1 per cent........

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