Social Sector Spending in 2015-16

-Economic and Political Weekly

The states now have an opportunity to set their own priorities in the social sector.

In the constitutional scheme of things, it is the states rather than the centre which bear the larger responsibility for social sector spending. Indeed, the states already account for as much as 80% of total outlays in the area. But central government intervention in the form of establishment of and funding for certain flagship programmes has meant that in recent years, it is the centre which has been the driving force behind new initiatives. This is set for a change with the Fourteenth Finance Commission (FFC) having awarded the states a significant increase in their share in the divisible pool of tax revenue. Going by the Union Budget for 2015–16, in the first year of the FFC’s award, additional “untied funds” of as much as Rs 1,86,000 crore will flow from the centre to the states. The expectation is that the states will use these funds to set their priorities in the social sector and other areas. The FFC’s idea of enhancing tax devolution is to give fiscal autonomy to the states in deciding allocations at their level in the social sector and other areas, to restore a balance in the freedom to set spending priorities which had heavily shifted in favour of the centre.

The replacement of the flow of a good part of conditional grants or tied funds (for central schemes of various kinds) by the flow of untied funds means that the centre has been compelled to correspondingly reduce its allocation of grants to the states. It has been estimated that the decline in such allocation of grants will be close to Rs 88,000 crore this year. Not all of this reduction will be of central government allocation to social sector programmes, but a good part will be. In the Union Budget for 2015–16 the centre announced a new grouping of central government schemes, including centrally-sponsored schemes (CSS), around three kinds of funding. One group would see no change in funding patterns from the past, in the second the states are to meet a greater share of financing and, in the third, the centre will withdraw completely. A large number of important social sector schemes fall in the second category. These include the National Food Security Commission, Integrated Child Development Services (ICDS), Sarva Shiksha Abhiyan (SSA), and drinking water and sanitation programmes (subsumed under the Swachh Bharat Abhiyaan). In all these schemes, central government funding in 2015–16 has seen huge cuts, with the expectation that the states will step in. The union budget claims that while the funding pattern will be modified, total funding “will not change”; though how the centre can be certain that the states will cover each and every gap, we do not know.

The overall central restructuring of funding of schemes appears arbitrary without a rationale for exclusion or inclusion in each of the three categories. Thus among the CSS, the Mahatma Gandhi National Rural Employment Guarantee Scheme will continue to be fully funded by the centre, but the centre’s share in other important social sector schemes is to see a large cut. Central assistance for state plans for the SSA has been reduced from Rs 12,891 crore (2014–15 revised estimates) to as much as Rs 3,225 crore (2015–16 budget estimates). Likewise there has been a sharp decline in allocation to the ICDS from Rs 16,316 crore to Rs 8,000 crore.

Are such declines in central government allocation justified on the ground that post the FFC award there has been a significant increase in tax devolution to the states? Would the larger fiscal space available with the states be effectively utilised by individual states to ensure that social sector spending in the aggregate does not suffer? Since the central government’s fiscal space has narrowed, how does one ensure a minimum level of spending on certain services in the social sector which are nationally important for externality reasons and that do require the centre’s initiative and support?

The social sector is where individual state’s priorities rather than the one-size-fits-all central government approach that has been followed all these decades is more appropriate for better service delivery outcomes. This is not to argue that central schemes like the SSA or the National Health Mission do not have any value. These schemes did have specific objectives in mind in order to attain certain definite outcomes and various surveys have shown that they have indeed worked on the ground to varying degrees across states. The question that remains relevant is whether with enhanced tax devolution, states would attach the same priorities to the social sector as the specific conditional grants of the centre earlier did.

One needs to examine how states will indeed use their new and enhanced fiscal space when it comes to the social sector vis-à-vis other sectors. There can be no a priori conclusion nor can we pass judgment on the states’ actions in advance, as has been done in recent months. An analysis of how far the states have filled the gap following the central withdrawal will be possible only when all the state budget numbers are available for 2015–16 and thereafter their actual spending for the year. One, therefore, needs to take a comprehensive view on social sector spending rather than focusing on the allocation of the central government alone. Yet, the centre’s own spending on the social sector was woefully low earlier and a legitimate concern is that the new pattern of tax shares between the centre and the states will be used by the former to effect arbitrary and large cuts in allocations. Signs of this are already there in the Union Budget for 2015–16. It therefore becomes doubly the states’ responsibility to maintain spending in priority areas.

Economic and Political Weekly, Vol-L, No. 16, April 18, 2015, http://www.epw.in/editorials/social-sector-spending-2015-16.html

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