In national income accounting, the category government purchases of goods and services includes spending by which levels of government?

Introduction / Context:
This question relates to how government spending is classified in national income accounts. When we write the expenditure identity GDP = C + I + G + (X − M), the term G stands for government purchases of goods and services. It is important to understand that in a federal country like India, government spending is not confined to the Union or central government alone. State governments and local governments also spend on goods and services, and national income accounting must reflect all of these.

Given Data / Assumptions:

• The variable of interest is government purchases of goods and services.
• We are asked which levels of government are included in this category.
• Options list central, state, and local units individually and collectively.
• Government owned enterprises are separate institutional units that may also be producers.

Concept / Approach:
Government purchases of goods and services include expenditure by all levels of general government on items such as defence, education, health, administration, police, infrastructure, and so on. This includes the Union or central government, state governments, and local bodies such as municipalities, municipal corporations, and panchayats. The purpose is to capture total final demand by the public sector for current goods and services that contribute directly to GDP. Transfer payments like pensions and subsidies are not counted in G because they are not payments for current output. Expenditure by public sector enterprises may be included under investment or intermediate consumption, but the G term in the basic identity is about general government units across all levels.

Step-by-Step Solution:
Step 1: Recall that the government sector in national accounts consists of general government units at the central, state, and local levels.Step 2: Government purchases of goods and services record final expenditure on current output by these units.Step 3: Since all these levels use tax revenue and other receipts to buy goods and services, all must be included in G.Step 4: Excluding some levels would understate total public sector demand in the economy.Step 5: Therefore, the correct answer is the option that explicitly mentions all levels of government, central, state, and local.

Verification / Alternative check:
Imagine a simplified example. The central government pays salaries to defence personnel and buys equipment. State governments pay for teachers and health workers, and local governments pay for street lighting and sanitation. All of these involve current purchases of goods and services. National income statistics aim to capture the total impact of government on aggregate demand, so all such spending is grouped under government final consumption expenditure. Only by summing across central, state, and local units can we obtain an accurate measure of G in the expenditure identity.

Why Other Options Are Wrong:
Options A, B, and C each focus on a single level of government and ignore the others, which would give a partial picture of public sector spending and misrepresent actual aggregate demand. Option E refers to government owned enterprises, which in many accounting systems are treated as separate institutional units classified as public corporations; their capital expenditure often appears under investment, not under general government purchases. Therefore, none of these alternatives correctly describe what is included in government purchases of goods and services.

Common Pitfalls:
Some students associate the term government only with the central or union government and forget the role of state and local governments in providing public services and infrastructure. Others confuse government purchases with transfer payments and believe that pensions and subsidies are also part of G, which they are not because they do not directly correspond to current production. Keeping clear the distinction between different levels of government and between purchases and transfers will help you answer many related questions in national income accounting and fiscal policy.

Final Answer:
In national income accounting, government purchases include spending by all levels of government including central, state, and local authorities.