India’s social sector under the Modi government has had a disappointing run. In the run-up to the 2014 elections, the public debate between economists Amartya Sen and Jagdish Bhagwati set the tone for what was at stake. While Sen believed that the Centre needed to invest more in social infrastructure to boost productivity and consequently raise growth, Bhagwati believed that only a focus on growth could yield the resources needed for investing in social sector schemes.
In 2018, it is clear that with widespread rural and agrarian distress, a significant increase in social sector allocations and their proper utilisation is absolutely necessary to bring much-needed relief to the country’s more vulnerable sections. Another reason for hoping that the upcoming union budget will significantly increase social sector spending is that over the last three years, overall allocation for the social sector has not been satisfactory.
After the Modi government came to power in mid-2014, it, by and large, maintained the allocations provided in the interim budget of the outgoing UPA-II government. However, later in the year important cuts were made in some important social sector areas, which had an adverse impact on vulnerable sections. For instance, in late 2014, to meet fiscal deficit targets, the Modi government slashed expenditure on education and health under its revised estimates plan,while the departments of panchayati raj, rural development and sanitation faced cuts of nearly 25% each. This, media reports at the time indicated, was in line with the Modi government’s priority on infrastructure spending.
In the next budget (2015-2016), even bigger cuts were made in some social sector allocations. The reason given however was that more resources were being transferred to states on the basis of the recommendations of the 14th finance commission. However this cut-back was not adequately prepared for and there were at least short-term problems and funds-crunch for some important components and schemes of social sector.
The important question whether over a period of time state governments were able to adequately adjust and made up for some critical cut-backs has not been adequately answered yet and we do not know whether on the whole the funds availability for social sector have stabilised, increased or decreased since the implementation of the recommendations of the 14th Finance Commission as this will require detailed estimates of social sector allocations for all states, not just budget estimates but also actuals.
However we do have a few signals that indicate the situation has not been a satisfactory one.
Firstly we know that the per capita spending for social sector in the case of some important and big states has been very low. Estimates, made on the basis of budget documents for Uttar Pradesh and Bihar, reveal that (in terms of budget estimate) the per capita spending for social sectors, rural development, agriculture and allied sectors was just Rs 6,287 crore in Uttar Pradesh and Rs 6,436 crore in Bihar in 2016-17.
Secondly, it does not appear that there has been a substantial increase in the overall resource transfers to states. The 14th Finance Commission recommended that the share of central taxes to be shared with states should increase from 32% to 42% and on this basis the share of states in central taxes has actually increased. But at the same time there have been other changes as well relating to other transfers and the increased share of cesses in union government’s revenues. The net proceeds from cess collection are meant only for the union government. At the same time transfers other than taxes and duties from the Centre to the states as a percentage of GDP declined from 2.8% in 2014-15 (actual) to 2.4% (budget estimate) in 2017-18.
Hence the overall increase in total union government resources transferred to states as percentage of GDP has been very modest in the period from 2014-15 to 2017-18. In fact, there was even a slight decline regarding this from 2016-17 (Revised estimate) to 2017-18 (budget estimate).
It is in this context that we need to ask whether the cut-backs in some critical areas of social sector spending by the union government made rather hurriedly were really made up by the state governments and whether the state governments really got adequate resources to be able to do so.
The limited increases in social sector spending in some areas appear less impressive when seen in the context of inflationary impact, shifting of resources from one area or one scheme to another area or another scheme, highlighting the increase while ignoring the cut. Also we need to keep in mind the fact that after the cuts in union government allocations soon after the 14th finance commission recommendations, comparisons in subsequent years were made with these cut-back estimates to indicate an increase.
While it is true that some schemes got significant increases in last year’s budget, this should be seen in a wider context. For example in the area of sanitation, rural sanitation got a higher budget but urban sanitation did not. In the wider context of drinking water and sanitation, sanitation got a higher budget but drinking water did not.
When one looks at revised estimates and actuals then the situation appears even more dismal as in some important areas the revised estimates are found to be much lower than the original estimates. The Ministry of Housing and Urban Poverty Alleviation had a budget allocation of Rs 5,635 crore in 2015-16 but in fact only Rs 1,761 crore were spent while millions of poor and homeless people in our cities waited for badly needed help. Even cesses meant for very specific social priority tasks were not utilised properly.
This year, with increasing uncertainty about actual revenue receipts at the time of the presentation of the budget, we need to be even more cautious about downward revisions later.business-standard