Social welfare spending by states to touch 10-year high this year: CRISIL

CRISIL added that the rise in allocation towards social welfare has coincided with a moderation in the growth of revenue receipts, resulting in continuing revenue deficits for the states

The spending on social welfare schemes by the top 11 Indian states, which account for 75-80 per cent of aggregate gross state domestic product (GSDP), is expected to touch a 10-year high of 1.7 per cent or Rs 4 trillion in 2022-23, rating agency CRISIL said in a statement on Wednesday.

In FY23, the share of these schemes in GSDP was 1.6 per cent. It was below 1.3 per cent before FY18.

These 11 states are Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh and Kerala.

The revenue expenditure for social welfare refers to disbursements that take place in the form of direct transfers, cash incentives and distribution of personal or household goods. These do not include spending on education, agriculture, public health and other key sectors, which are budgeted separately.

 

The spending on these schemes is also expected to log the fastest growth in the last ten years at 13 per cent in FY23. Moreover, its share in total revenue expenditure by the state government is likely to rise to 13 per cent from 10 per cent in FY18.

"Expenditure on social welfare schemes is estimated to clock a 16 per cent growth rate between FY18 and FY24, much faster than 11 per cent growth in overall revenue expenditure," said Anuj Sethi, senior director, CRISIL Ratings.

"The higher growth on social welfare schemes is due to states prioritising financial assistance to certain target demographics in the form of direct transfers, pensions and cash incentives, and, in some instances, to honour election commitments."

According to CRISIL, this rise in the allocation has coincided with a moderation in the growth of revenue receipts at 10-11 per cent between FY18 and FY24. This has resulted in continuing revenue deficits for the states.

"While allocation towards social welfare schemes is seen essential considering India's demography, a steady increase in the same without a commensurate increase in revenues may have an impact on the credit profiles of the states in the longer run," it said.

The revenue expenditure is broadly classified into two categories: committed and non-committed. Committed expenditure has to be done, and states need more flexibility in managing it. This includes salaries, pensions and interest payments.

Currently, they account for 45-47 per cent of the total revenue expenditure. Between FY18 and FY24, these expenses are likely to grow at 9 per cent annually.

The rest of the expenditure goes towards non-committed expenses, which include outlays on education, agriculture and public health, apart from the social welfare scheme.

"The higher allocation towards welfare schemes has come during a period when capital expenditure (capex) is estimated to grow at 11 per cent, keeping it range-bound at 2 per cent of GSDP. Higher allocation for capex or towards education and health has a relatively higher impact on uplifting revenue and productivity for states in the near to medium term," added Aditya Jhaver, director, CRISIL Ratings.