<b>Alok Kumar:</b> The myth of falling social sector spend

The funds flow has not decreased; rather the pattern of its devolution has been modified for greater autonomy to the states. Hopefully, this will result in greater efficiency in spending and better ou

The perception that the government of India has reduced allocations on the social sector in the 2015-16 Budget has gained currency. Even informed commentators have fallen prey to this notion. Fears have been expressed that these cuts in the social sector spending would adversely affect the aam aadmi. A part of this confusion stems from the 2015-16 Budget coinciding with the implementation of the recommendations of the Fourteenth Finance Commission (FFC). The FFC proposed a significant enhancement in the devolution of central taxes to states from 32 per cent to 42 per cent. With the total kitty of resources remaining fixed, the acceptance of FFC recommendations necessitated a major realignment of the Union Budget.

We believe that it is an incorrect appreciation of this budgetary re-alignment that has led to the confusion. Let us subject the Budget number relating to the health and allied sectors to a closer scrutiny. The picture chart presents the Budget figures of central allocations under various budgetary heads for the various determinants of health, including health care.


The table totals - including supplementary commitment and cess for the Swachh Bharat Abhiyan - indicate that allocations for 2015-16 were at the same level as the revised estimates of 2014-15. Therefore, even on the basis of central allocations alone, it would be incorrect to say that the Budget outlays have been reduced.

According to the constitutional scheme, most of the subjects delineated are in the state list, thereby the prime responsibility for their delivery rests with the state governments. Consequently, the related Centrally Sponsored Schemes (CSS) are run on a sharing basis between the central and the state governments. In view of the fact that the contribution of the states under the CSS has been revised upwards from 25 per cent to 40 per cent or 50 per cent (depending on the nature of the scheme), one rupee of central investment would now garner a matching contribution of 67 paisa (at 40 per cent share) or Rs 1 (at 50% share) from the state government instead of 33 paisa (25 per cent share) in the earlier scenario. Clearly, a similar level of central investment with higher matching contribution from the states implies an overall higher allocation for the sector in question.

Moreover, the states taken as a whole have been devolved an additional Rs 1.78 lakh crore in monetary terms as a result of the acceptance of the recommendations of the FFC. This means additional untied resources available with the states to be committed to the sectors to reflect their individual priorities - a luxury that was not available to the states in the pre-FFC regime. Even if 10 per cent of this untied resource is allocated to health and its determinants, a back-of-the-envelope calculation would show that an alarmist position decrying a reduction in resources is unfounded.

A word of caveat is in order here. It needs to be underscored that the comparison is between Revised Estimates (RE) for 2014-15 with Budget Estimates (BE) of 2015-16 in view of the fact that RE figures for 2015-16 is not yet available. If the release of funds under the scheme is less than what is budgeted, this analysis does not hold. Secondly, we have not taken into account the eight northeastern states and the three Himalayan states for the purpose of this analysis, as they always have had a special arrangement for sharing of CSS funds ever since the Gadgil-Mukherjee formula was evolved in 1969.

What is imperative, therefore, is the need for measures to encourage states to prioritise spending from the untied funds on health and allied sectors, as per local priorities. So, the action now lies with the states, as it should be. The funds flow, therefore, has not decreased; rather the pattern of its devolution has been modified for greater autonomy to the states. Hopefully, this will result in greater efficiency in spending and better outcomes. NITI Aayog intends to persuade the state governments to assign a greater share of resources to health, nutrition and water and sanitation not only because it is ethically and morally imperative, but also due to the fact that the economic return on such investments is potentially very high.

The author is advisor wih the health and nutrition division of NITI Aayog