Less For The Poor


  • 26 March, 2010
  • Praveen Jha

WITH clear indications of the economy reviving fast, the Union government should have taken an expansionary fiscal stance not only to accelerate growth but also to finance adequately the interventions that promote social sector development. However, it has chosen to revert to the path of fiscal conservatism, albeit gradually, with Budget 2010-11.

A “calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10”, which the 13th Finance Commission has recommended strongly, seems to have been given shape to as the government’s total expenditure is projected to fall from 16.6 per cent of GDP (gross domestic product) in 2009-10 (Revised Estimates) to 16 per cent of GDP in 2010-11 (Budget Estimates). In tandem with the compression of public expenditure, the fiscal deficit is projected to fall from 6.7 per cent of GDP in 2009-10 (R.E.) to 5.5 per cent of GDP in 2010-11 (B.E.), and the revenue deficit is estimated at 4.0 per cent of GDP in 2010-11 (B.E.), significantly lower than the 5.3 per cent figure for 2009-10 (R.E.).

As regards the policy direction suggested by the 13th Finance Commission, both the Report of the Commission (tabled in Parliament on February 25) and Budget 2010-11 indicate clearly that the next five years will witness growing efforts by the government towards elimination/reduction of deficits through compression of public expenditure. Consequently, any significant boost to public expenditure in the social sectors in the last two years of the 11th Five-Year Plan (2010-11 and 2011-12) seems unlikely.

The Congress-led United Progressive Alliance (UPA) government seems to have grown complacent about its budgetary policies for the social sectors. While Budget 2010-11 does pay some attention to a few of the important sectors/issues such as women and child development, development of minorities, rural housing and technical education, its overall allocations and proposals for the social sectors (which include education, health and family welfare and water and sanitation) seem to fall far short of expectations.

As shown in Table 1, the allocation for social services (which in the jargon of budgets in our country refers to social sectors such as education, health and family welfare, water and sanitation, nutrition, welfare of Scheduled Castes, Scheduled Tribes and Other Backward Classes, and social security and welfare, among others) in the total expenditure in the Union Budget has been stepped up from 8.9 per cent in 2007-08 to 10.4 per cent in 2008-09. However, it remains at 10.4 per cent in the B.E. for 2010-11. As a proportion of GDP, the government’s total expenditure on social services showed a somewhat noticeable increase from 1.3 per cent in 2007-08 to 1.6 per cent in 2008-09; but it has been stagnant in the last two Budgets.

State governments continue to bear a significant share of the country’s total public expenditure on social sectors – as per the Reserve Bank of India’s document ‘State Finances: A Study of Budgets 2009-10’, the total expenditure from Budgets of all States on social services and rural development stood at 5.4 per cent of GDP in 2007-08, which increased to 5.8 per cent in 2008-09 (R.E.) and 6 per cent in 2009-10 (B.E.). If we deduct the expenditure on rural development from these figures and also exclude the double counting of the Centre’s grants-in-aid to States in social services (which appear both in the Union Budget and in the Budgets of States), the total public expenditure in our country on social services could well be around 6 per cent of GDP even in 2009-10.

Thus, despite the somewhat noticeable increases in the Union government’s expenditure on social services, mainly during the UPA-1 regime, the country’s overall public expenditure on social services continues to be very low. Before one jumps to the conclusion that State governments are primarily responsible for this, one has to keep in mind that over the past two decades the federal fiscal architecture has been altered consistently in favour of the Union government.

The analysis of Budget 2010-11 by the Centre for Budget and Governance Accountability (CBGA), New Delhi, shows that despite the increase in the States’ share in Central taxes and duties to 32 per cent (from 30.5 per cent) and a number of specific-purpose grants recommended by the 13th Finance Commission, the Gross Devolutions and Transfers (GDT) from the Centre to the States would be 5.4 per cent of GDP in 2010-11, which is almost the same as that in 2007-08 and 2008-09. This is unlikely to reverse the disturbing trend of a decline in the share of GDT in aggregate expenditure in State budgets. Hence, the primary responsibility for the persistence of low public spending on social sectors lies with the Union government.

The Union Finance Minister has claimed that his government has adopted a number of budgetary policies to create entitlements for the poor (over the past six years). However, it may be argued that the National Rural Employment Guarantee Scheme (NREGS) is the only Plan scheme of the Union government rooted in an entitlements-based approach. In contrast, most of the social sector Plan schemes of the Union government continue to follow a welfarist approach and provide low-cost, ad hoc interventions. An entitlements-based approach towards public provisioning in the social sectors would require a significant strengthening of the regular and sustained government interventions in these sectors, which does not yet seem to be on the government’s policy agenda.