As argued in the text, in the presence of general inflation expenditure series at current prices exaggerate the changes in the volume of resources being absorbed by the government as its inputs–and in the volume of government outputs also, if these are assumed to be directly correlated with inputs.

Theoretically, inflation can involve a further complication, when it is accompanied by a change in the relative price of a key input, such as labour. Government activities, in India as elsewhere, have an above average labour content. Faster rising labour productivity in the private sector may lead to an increase in the relative price of labour. In such circumstances, even a constant price expenditure series will understate spending growth in terms of actual cost. This complication has been ignored for three main reasons. First, reliable estimates of governmental labour productivity do not exist. Second, in the small Indian modern manufacturing sector, the real earnings of workers seem to have been static in the 1960s. Finally, in developed economies, such as the U.K., the required adjustment for the relative price effect is small, only 0.6 per cent per annum. For India, therefore, it would be a work of supererogation to attempt any refinement on a normal constant price series.