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Alok Kumar, Ajay Nema, Jagat Hazarika, Himani Sachdeva
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Social Sector Expenditure of States
Pre & Post Fourteenth Finance Commission
(2014-15 & 2015-16)
Alok Kumar, Adviser, NITI Aayog
Ajay Nema, Director, NITI Aayog
Jagat Hazarika, Senior Research Officer, NITI Aayog
Himani Sachdeva, Young Professional, NITI Aayog
(Views expressed in this paper are personal and do not necessarily reflect the views of
NITI Aayog)
1. Introduction
The fiscal year 2015-16 saw a disruptive change in the Centre-State financial
relationship with the Government accepting the Fourteenth Finance
Commission’s (FFCs) recommendation of a substantially higher devolution to
States. The States’ share in central taxes was increased by a whopping 10
percentage points from a level of 32% (as recommended by the Thirteenth
Finance Commission) to 42%. The level of disruption can be gauged from the
fact that the Thirteenth and the Twelfth Finance Commission recommended an
increase in States’ share in the divisible pool of central taxes by 1.5% and 1%
respectively. As a natural corollary to the increase in untied devolution grants,
there was a corresponding decrease in the tied grants in the form of Central
Assistance to State Plans (CASP)
1
.
Two concerns were expressed. First that the States were worse off in the
bargain. As one of the States noted “FFC has done more harm than good to the
state. As per the recommendations there is a reduction in the resources of the State
and thus it is imperative that additional resources are devolved to maintain the
previous level of funding under CSS” (Sub Group of Chief Ministers Report on
rationalization of CSS : NITI Aayog, 2015). Second and perhaps a bigger
apprehension was, that even if the States are overall better off in terms of
resources post the FFC would they use the extra leeway of resources to spend on
physical infrastructure (bijli, sarak and pani, if you will) to the detriment of
social sector spending (health, education and other schemes catering to social
protection of disempowered sections)?.
This paper seeks to analyze the change in total central transfers to the States and
its impact on expenditure on Social Sector in 2015-16 (post FFC period) in
comparison with 2014-15(pre-FFC period)based on information available in the
Union and the State Budget Documents, Financial Statements/ data provided by
1
This includes all assistance to States by the Union including under Centrally Sponsored Schemes and other
forms of discretionary assistance by the erstwhile Planning Commission in the form of Normal Central Assistance
(NCA), Special Central Assistance (SCA) and Special Plan Assistance (SPA). The discretionary grants have been
discontinued post FFC recommendation and the transition to NITI Aayog.
Perspective
Whether States
prioritize to
spend the untied
fund more on
Bijli, Paani,
Sadak etc. at the
cost of Social
Sector (Health,
education)?
KEY WORDS
Social Sector
expenditure
Fiscal Transfer
Devolution
2
the States to NITI Aayog. Data has been compiled for last two financial years i.e. FY2014-
15(Actuals) & FY 2015-16 (Revises Estimate, RE) in respect of (i) all States for total
central transfers; and (ii) all States for Social sector expenditure. The data sources
referred include the Union Budget 2016-17, Plan Finance-I, Ministry of Finance website,
Public Financial Management System (PFMS) website, State Budgets 2016-17/ Annual
Financial Statements.
Section 2 reviews the total fiscal transfers to the States for this period. Section 3 analyzes
the quantum of Social Sector Expenditure across countries, within the country and across
States’ for this particular period scaled by their Gross State Domestic Product (GSDP) and
total expenditure. Further, the paper also discusses the State-wise expenditure on health
and education. Section 4 maps the change in total transfers to change in social sector
expenditure of States for this period and Section 5 sums up with way forward.
2. Central Transfers to States
Funds are transferred to States from the Centre via Devolution of Central taxes, Grants-in-
in - Aid recommended by the Finance Commission (meant for the third tier of Local
Governments), CASP, revenue deficit grants and Grants to address natural calamities and
disasters. The major part of the CASP flow as assistance to States under the Centrally
Sponsored Schemes (CSS) - which reflect the national development priorities. As shown
in Table1 below, at an aggregate level, 21.19% more resources were available to the
States during FY 2015-16 by the way of Central transfers as compared to FY 2014-15.
Barring Sikkim, Tripura and Uttarakhand, all other States are better off in terms of
financial allocations in respect to FY 2014-15.
Table1: Total transfers in FY 2015-16 & FY 2014-15
Sl.
No.
States Amount
(Rs. crore)
% Change in
Transfers
2014-15 2015-16
I. North East & Himalayan States (NE&HS)
1 Arunachal Pradesh 6,356.32 9,085.15 42.93
2 Assam 26,349.99 29,267.21 11.07
3 Himachal Pradesh 9,994.71 14,903.24 49.11
4 Jammu and Kashmir 20,162.92 23,943.60 18.75
5 Manipur 7,203.42 7,424.94 3.08
6 Meghalaya 5,276.84 5,719.34 8.39
7 Mizoram 4,865.26 5,865.15 20.55
8 Nagaland 6,797.81 7,170.27 5.48
9 Sikkim 3,257.76 2,729.71 -16.21
10 Tripura 7,764.40 7,692.53 -0.93
11 Uttarakhand 10,892.37 10,093.48 -7.33
Sub-Total: NE&HS 108,921.80 123,894.62
13.75
II. Other States (OS)
12 Andhra Pradesh 35,933.79 42,059.04 17.05
13 Bihar 58,137.55 68,939.43 18.58 3
14 Chhattisgarh 17,343.89 23,004.17 32.64
15 Goa 1,610.72 2,218.15 37.71
16 Gujarat 21,346.90 24,768.79 16.03
17 Haryana 8,160.40 8,978.76 10.03
18 Jharkhand 17,169.90 22,953.67 33.69
19 Karnataka 30,392.55 36,906.13 21.43
20 Kerala 16,067.28 22,106.41 37.59
21 Madhya Pradesh 43,540.74 57,547.95 32.17
22 Maharashtra 38,706.58 45,468.69 17.47
23 Odisha 29,868.28 37,225.59 24.63
24 Punjab 11,111.91 11,973.92 7.76
25 Rajasthan 40,142.56 46,828.84 16.66
26 Tamil Nadu 35,071.45 38,637.73 10.17
27 Telangana 17,047.22 21,351.30 25.25
28 Uttar Pradesh 101,272.43 123,460.53 21.91
29 West Bengal 46,862.59 64,236.25 37.07
Sub-Total: OS 569,786.74 698,665.35 22.62
Grand Total 678,708.54 822,559.97 21.19
Source: 2014-15- (i) Share in Central Taxes- Annex 10B Union Receipt Budget 2016-17; (ii) Non Plan grants- Actual
Releases from the website of Ministry of Finance; (iii) CASP- Releases as per PFMS. 2015-16- (I) Share in Central Taxes-
Annex 10A Union Receipt Budget 2016-17; (ii) Non Plan Grants- Actual Releases from the website of Ministry of Finance;
(iii) CASP- Releases as per PFMS
North Eastern & Himalayan States: % Change in Total Transfers in
FY 2015-16 over FY 2014-15
42.93
11.07
49.11
18.75
3.08
8.39
20.55
5.48
-16.21-0.93-7.33
-20
-10
0
10
20
30
40
50
60
Arunachal
Pradesh
Assam
Himachal Pradesh
Jammu and
Kashmir
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Uttarakhand
Other States: % Change in Total Transfers in FY 2015-16 over FY 2014-15
17.05
18.58
32.64
37.71
16.03
10.03
33.69
21.43
37.59
32.17
17.47
24.63
7.76
16.66
10.17
25.25
21.91
37.07
0
5
10
15
20
25
30
35
40
Andhra Pradesh
Bihar
Chhattisgarh
Goa
Gujarat
Haryana
JharkhandKarnataka
Kerala
Madhya Pradesh
Maharashtra
Odisha Punjab
Rajasthan
Tamil NaduTelangana
Uttar Pradesh
West Bengal
4
Now, whether this increase in transfer to States led to a proportional increase in Social
Sector expenditure of the States or not, is examined in the following section of this paper.
3. Quantum of Social Sector Expenditure
Spending on social sector is critical since it tends to benefit the poor relatively more than
the rich and because, it arguably enhances the human capital of the economy, which can
produce direct growth effects and indirect spill over benefits for the rest of the economy.
2
In the case of India- as with many other developing economies- the Government’s
expenditure on social sector assumes importance on three accounts. The first being
magnitude of deprivation in the country being too large to be left to the market forces
alone to tackle. Secondly, the proportion of poor households utilizing Government
services is higher as compared to the richer households and thirdly, to ensure clearly
articulated outcomes in social sectors such as the Sustainable Development Goals (SDGs).
(i) Cross Country Social Sector Expenditure
As per the latest World Bank data India spends 3.8 % of GDP on education and 1.4% of
GDP on health which is below the world average of 4.4 % and 6%, respectively. Also, as
per the Human Development Report – 2015, UNDP, India’s Human Development Rank is
130 and the following table shows the cross country public expenditure on education &
health.
Table: Public Expenditure as % of GDP
Country Education (%)
(latest available
period 2011-12)
Health (%)
(2014)
HDI
Ranking
India 3.8 1.4 130
Singapore 3.1 2.1 11
Sri Lanka 1.5 2.0 73
China NA 3.1 90
Brazil 5.9 3.8 75
United States 5.2 8.3 8
Japan 3.8 8.6 20
Sweden 7.7 10.0 14
Canada 5.3 7.4 9
World 4.4 6.0 --
Source: World Bank data, Human Development Report, UNDP (2015)
Public Expenditure on Social Sector of India including health & education is a major
concern to improve the Human Development Index rank of the country. Though Union
Government assists the States by providing funds through different Centrally
Sponsored Schemes (CSS) & Central Sector Schemes, it is also the responsibility of the
States to prioritize as well as make best allocation of their resources available.
(ii) Trend of India’s Social Sector Expenditure
2
IMF Working Paper. Social Sector Spending in Panel of Countries, 2002 5
Social Sector includes expenditure on General Education, Technical Education, Sports
and Youth Services, Arts and Culture, Medical and Public Health, Family Welfare,
Water Supply and Sanitation, Housing, Urban Development, Information & Publicity,
Broadcasting, Welfare of SC, ST and OBC, Labour and Employment, Social Security &
Welfare, Nutrition, Natural Calamities, Other Social Services, Secretariat Social
Services & North Eastern Areas.
3
States altogether spend about 6 to 7% of GDP on
Social Sector whereas Centre spends about 1 to 2%. The following table shows the
trend of States and Centres expenditure on Social Sector. The available data indicates
that States expenditure on social sector has steadily increased over the years and that
they have been acting responsibly towards Social Sector.
Table: Past trend in Social Sector Expenditure
Year States Centre
Amount
(Rs. Crore)
% GDP Amount
(Rs. Crore)
% GDP
1990-91 28,199 4.81 6,629 1.13
2000-01 1,01,551 4.68 25,542 1.18
2006-07 1,89,443 4.41 56,286 1.31
2007-08 2,12,712 4.27 78,768 1.58
2008-09 2,67,592 4.75 1,07,058 1.90
2009-10 3,38,921 5.23 1,22,104 1.88
2010-11 3,99,537 5.13 1,47,494 1.89
2011-12 4,60,502 5.27 1,40,932 1.61
2012-13 5,33,537 5.78 1,57,353 1.58
2013-14 6,74,148 5.98 1,74,855 1.55
2014-15@ 6,99,173 5.62 2,01,983 1.62
2015-16 RE@ 8,99,157 6.58 2,28,846 1.67
Source: Table 2.1 (A) for Centre; Table 3.1 (A) for State of Indian Public
Finance Statistics upto year 2012-13 Centre & 2013-14 States. For rest
Budget Documents of State & Union Government
@Centre- CSS (like SSA, NHM, NRHM, MDM etc.) have been restructured and
included in CASP with effect from FY 2014-15. The amount under these
schemes for FY 2014-15 & FY 2015-16 RE have been added to the Centres’
social sector expenditure to make it comparable with earlier years.
(iii) Social Sector Expenditure of States
Social Sector expenditure in FY 2015-16 has increased in absolute terms across all the
States with respect to previous financial year. The percentage increase varies from 4% in
Tamil Nadu to 62% in Assam (ignoring J&K and Telangana)
4
.
There has been an increase in Social Sector expenditure as a percentage of GSDP for all
the States, except Manipur, Andhra Pradesh and Tamil Nadu. This increase, however,
3
The social sector classification is as per the Comptroller and Auditor General of India.
4
J&K percentage change is abnormally high at 135%, some error in reporting of data in their budget document is
explained in later sections. Telangana being the newly formed State may not be compared with other States for
this period. 6
varies from 0.09% for Sikkim to 4.45% for Jammu &Kashmir across the North Eastern &
Himalayan States and from 0.06% in West Bengal to 2.49% in Chhattisgarh & Telangana .
Also, it is noticeable that in respect of as many as 21 States, social sector expenditure has
increased at higher pace than the increase in their total expenditure.
Table: Social Sector Expenditure
Sl.
No
States SSE/GSDP SSE/TE
2014-
15
2015-
16 RE
%
difference
2014-
15
2015-
16 RE
%
difference
I. North East &
Himalayan States
(NE&HS)
1 Arunachal Pradesh 20.60 21.60 1.00 39.20 35.87 -3.33
2 Assam 9.56 14.01 4.45 39.85 41.76 1.91
3 Himachal Pradesh 7.89 9.26 1.37 25.73 34.83 9.10
4 Jammu & Kashmir 6.51 14.02 7.50 33.72 32.08 -1.64
5 Manipur 14.69 14.55 -0.15 29.95 29.23 -0.72
6 Meghalaya 10.84 11.31 0.47 35.77 31.73 -4.04
7 Mizoram 21.60 22.00 0.40 31.85 34.83 2.98
8 Nagaland 12.45 15.82 3.38 28.34 31.61 3.27
9 Sikkim 11.18 11.27 0.09 32.89 33.50 0.61
10 Tripura 13.40 13.77 0.37 5.21 5.30 0.09
11 Uttarakhand 6.17 6.99 0.82 37.41 38.73 1.32
Sub-Total: NE&HS 8.97 11.87 2.90 25.26 28.00 2.74
II. Other States (GS)
12 Andhra Pradesh 8.40 7.51 -0.89 38.90 31.06 -7.85
13 Bihar 8.13 9.99 1.86 34.35 37.58 3.23
14 Chhattisgarh 7.60 10.09 2.49 39.40 40.96 1.56
15 Goa 6.79 8.65 1.86 37.18 35.42 -1.76
16 Gujarat 4.90 5.13 0.22 19.47 20.61 1.14
17 Haryana 4.73 5.26 0.53 30.08 32.43 2.35
18 Jharkhand 5.81 7.82 2.01 37.63 39.31 1.68
19 Karnataka 4.80 4.96 0.16 35.34 37.42 2.08
20 Kerala 4.73 4.90 0.17 30.48 36.46 5.98
21 Madhya Pradesh 7.56 10.03 2.46 35.41 42.71 7.30
22 Maharashtra 4.53 4.97 0.44 37.29 40.36 3.07
23 Odisha 7.51 8.57 1.06 35.26 36.58 1.32
24 Punjab 3.95 4.41 0.47 32.05 32.26 0.21
25 Rajasthan 7.12 7.75 0.63 34.87 33.61 -1.26
26 Tamil Nadu 5.21 4.72 -0.49 29.20 31.45 2.24
27 Telangana 3.77 6.26 2.49 33.29 38.36 5.06
28 Uttar Pradesh 7.07 9.06 1.99 34.22 35.27 1.06
29 West Bengal 5.54 5.60 0.06 39.09 38.10 -0.99
Sub-Total: OS 5.68 6.36 0.68 32.91 34.59 1.68
Grand Total 5.87 6.68 0.81 32.04 33.78 1.73 7
Source: (i) Social Sector Expenditure (SSE) & Total Expenditure (TE) from Budget Documents of
respective State or information provided by the States to NITI, where information relevant
information not available from budget document (ii) Gross State Domestic Product (GSDP) from
Central Statistical Office (CSO) and Estimation of Ministry of Finance in respect of States for
which information is not available in CSO.
(iv) Health & Education
Expenditure data of health includes the major heads Medical and Public Health (2210 –
Revenue & 4210- Capital) and Family Welfare (2211- Revenue & 4211- Capital).
Similarly, expenditure data of education includes General Education, (2202- Revenue),
Technical Education (2203- Revenue), Sports & Youth Services (2204- Revenue), Art and
Culture (2205- Revenue) and 4202 Capital Expenditure on Education.
For North Eastern & Himalayan States (NE&HS), the average expenditure on health &
education as percentage of GSDP has increased by about 0.40 & 1.00 percentage point
respectively. Maximum increase is witnessed in Mizoram for health and in J&K for
education.
Table: Expenditure on Health and Education as percentage of GSDP
Sl.
No.
States Health Education
% to GSDP
2014-
15
Actual
2015-
16 RE
%
difference
2014-
15
Actual
2015-
16 RE
%
difference
I. North Eastern & Himalayan States (NE&HS)
1 Arunachal Pradesh 3.08 2.99 -0.09 6.27 6.81 0.55
2 Assam 0.88 1.88 1.00 5.72 6.92 1.20
3 Himachal Pradesh 1.05 1.22 0.17 4.23 4.93 0.70
4 Jammu and Kashmir 1.40 2.56 1.17 2.85 6.16 3.32
5 Manipur 3.17 2.71 -0.46 7.08 7.10 0.02
6 Meghalaya 2.13 2.11 -0.02 5.17 5.39 0.22
7 Mizoram 2.69 3.84 1.15 10.16 9.83 -0.33
8 Nagaland 2.34 2.90 0.55 6.27 8.11 1.84
9 Sikkim 1.87 1.91 0.03 5.49 5.57 0.09
10 Tripura 2.15 2.56 0.40 5.46 5.82 0.35
11 Uttarakhand
0.85 0.92 0.08 3.10 3.28 0.18
Sub-Total: NE&HS 1.27 1.80 0.40 4.56 5.61 1.05
II. Other States (GS)
12 Andhra Pradesh 1.04 0.80 -0.24 3.16 2.77 -0.39
13 Bihar 0.88 1.02 0.14 4.02 5.17 1.14
14 Chhattisgarh 0.97 1.29 0.32 4.27 5.05 0.78
15 Goa 1.09 1.52 0.43 2.99 3.81 0.82
16 Gujarat 0.64 0.64 0.01 1.95 2.02 0.07
17 Haryana 0.51 0.57 0.06 2.23 2.36 0.14
18 Jharkhand 0.60 1.15 0.55 2.64 3.41 0.76 8
19 Karnataka 0.58 0.59 0.01 1.99 1.89 -0.10
20 Kerala 0.74 0.80 0.07 2.52 2.43 -0.09
21 Madhya Pradesh 0.96 1.02 0.06 3.67 4.00 0.33
22 Maharashtra 0.46 0.56 0.10 0.15 0.23 0.08
23 Odisha 1.03 1.16 0.14 3.29 3.59 0.30
24 Punjab 0.59 0.71 0.12 2.07 2.27 0.20
25 Rajasthan 1.05 1.20 0.15 3.17 3.27 0.10
26 Tamil Nadu 0.70 0.62 -0.07 2.22 2.05 -0.17
27 Telangana 0.49 0.75 0.26 1.34 1.78 0.44
28 Uttar Pradesh 1.15 1.33 0.19 3.39 4.05 0.66
29 West Bengal 0.80 0.77 -0.02 2.64 2.33 -0.31
Sub-Total: OS 0.74 0.81 0.07 2.59 2.73 0.14
Grand Total 0.77 0.87 0.10 2.71 2.90 0.19
For the major States, average expenditure on health & education as percentage of GSDP
has increased by about 0.07 & 0.14 percentage point respectively. Maximum increase is
witnessed in Jharkhand for health and in Bihar for education.
4. Mapping change in Total Transfer with change in Social Sector expenditure
All NE & Himalayan States, except
Arunachal Pradesh, Himachal
Pradesh, Meghalaya & Mizoram
have witnessed a greater
proportion of increase in their
social sector expenditure as
percentage of GSDP as compared
to the change in their total central
transfers as percentage of GSDP.
Sikkim, Tripura as well as
Uttarakhand, despite reduction in
their total central transfers have
managed to register a positive
change in the social sector
expenditure. 9
Among the major States, all others except Andhra Pradesh, Kerala, Odisha, Tamil Nadu &
West Bengal have witnessed a greater proportion of increase in social sector expenditure
as percentage of GSDP as compared to the change in their total central transfers as
percentage of GSDP.
5. Summing up
The above analysis has clarified the doubts hovering in the last financial year that the
States might curtail their social sector expenditure in response to increased untied
transfers from Union Government. Contrary to this, the actual & revised estimates (RE) of
financial years 2014-15 and 2015-16 respectively reveal that all States have registered a
positive change in their absolute social sector expenditure. However, there are 3 States,
namely Manipur, Andhra Pradesh & Tamil Nadu which have experienced negative growth
in social sector expenditure as % of GSDP. It is reasonable to expect this in the case of
Andhra Pradesh as the State was re-organized with the bifurcation becoming effective
from June, 2014 and thereby, the social sector expenditure of Telangana for April-June,
2014 is reflected in the expenditure of Andhra Pradesh. For similar reason, the growth of
Telangana’s social sector expenditure appears inflated. In case of Tamil Nadu, their
increase in total central transfer has been only around 10% which can be sighted as a
probable reason for their decline in allocation to social sector as percentage of GSDP.
However, in absolute terms, social sector expenditure of the State has increased by about
3.5%. In case of Manipur, the States’ expenditure in the infrastructure sector is observed
to have grown by as much as about 36%, which may be a probable reason for the decline
in social sector expenditure as % of GSDP. Again, in absolute terms, there has been about
11.7% increase in the social sector expenditure of the State. Another State, amongst the
outliers is J&K, which has shown an abnormal 7.5% increase in its social sector
expenditure as % of GSDP. One of the reasons found in this regard is that the State Budget
2016-17, does not reflect any expenditure under the Capital Head of social sector
expenditure of FY 2014-15 or to say, that the social sector expenditure of the State for
that particular year seems underreported causing significant jump in percentage change
of expenditure in the next FY.
Change in Total Transfer (TT) & Social Sector Expenditure (SSE) in
2015-16 RE (as % of GSDP)
General States
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
TT - change as % to GSDP SSE - change as % to GSDP 10
States’ prioritization of expenditure on social sector at any point depends also on the
status of its social indicators like literacy rate, enrolment ratio etc. for expenditure in
education and infant mortality rate, child sex ratio, availability of health infrastructure
etc. for expenditure in health.
It may also be a concern of the stakeholders that in future State may allocate their untied
resources to other sector(s) despite their relatively poor social indicator(s). Such a
scenario is unlikely to occur believing that States Governments being the elected
representatives, are equally responsible to take care of this. Also, a performance incentive
driven allocation mechanism of the centrally sponsored schemes can be another step
which will ensure self correction path being adopted by the states for sectors specially
like health, education etc. In such case, this would require an appropriate intervention to
through an amendment in the fund allocation principles.
Special thanks to the interns engaged for this purpose at NITI Aayog, namely, Mr. Kartikey
Bhargav, Ms. Mahima Jain & Ms. Mahima Singh for their contribution in compilation of
data and analysis.
Pre & Post Fourteenth Finance Commission
(2014-15 & 2015-16)
Alok Kumar, Adviser, NITI Aayog
Ajay Nema, Director, NITI Aayog
Jagat Hazarika, Senior Research Officer, NITI Aayog
Himani Sachdeva, Young Professional, NITI Aayog
(Views expressed in this paper are personal and do not necessarily reflect the views of
NITI Aayog)
1. Introduction
The fiscal year 2015-16 saw a disruptive change in the Centre-State financial
relationship with the Government accepting the Fourteenth Finance
Commission’s (FFCs) recommendation of a substantially higher devolution to
States. The States’ share in central taxes was increased by a whopping 10
percentage points from a level of 32% (as recommended by the Thirteenth
Finance Commission) to 42%. The level of disruption can be gauged from the
fact that the Thirteenth and the Twelfth Finance Commission recommended an
increase in States’ share in the divisible pool of central taxes by 1.5% and 1%
respectively. As a natural corollary to the increase in untied devolution grants,
there was a corresponding decrease in the tied grants in the form of Central
Assistance to State Plans (CASP)
1
.
Two concerns were expressed. First that the States were worse off in the
bargain. As one of the States noted “FFC has done more harm than good to the
state. As per the recommendations there is a reduction in the resources of the State
and thus it is imperative that additional resources are devolved to maintain the
previous level of funding under CSS” (Sub Group of Chief Ministers Report on
rationalization of CSS : NITI Aayog, 2015). Second and perhaps a bigger
apprehension was, that even if the States are overall better off in terms of
resources post the FFC would they use the extra leeway of resources to spend on
physical infrastructure (bijli, sarak and pani, if you will) to the detriment of
social sector spending (health, education and other schemes catering to social
protection of disempowered sections)?.
This paper seeks to analyze the change in total central transfers to the States and
its impact on expenditure on Social Sector in 2015-16 (post FFC period) in
comparison with 2014-15(pre-FFC period)based on information available in the
Union and the State Budget Documents, Financial Statements/ data provided by
1
This includes all assistance to States by the Union including under Centrally Sponsored Schemes and other
forms of discretionary assistance by the erstwhile Planning Commission in the form of Normal Central Assistance
(NCA), Special Central Assistance (SCA) and Special Plan Assistance (SPA). The discretionary grants have been
discontinued post FFC recommendation and the transition to NITI Aayog.
Perspective
Whether States
prioritize to
spend the untied
fund more on
Bijli, Paani,
Sadak etc. at the
cost of Social
Sector (Health,
education)?
KEY WORDS
Social Sector
expenditure
Fiscal Transfer
Devolution
2
the States to NITI Aayog. Data has been compiled for last two financial years i.e. FY2014-
15(Actuals) & FY 2015-16 (Revises Estimate, RE) in respect of (i) all States for total
central transfers; and (ii) all States for Social sector expenditure. The data sources
referred include the Union Budget 2016-17, Plan Finance-I, Ministry of Finance website,
Public Financial Management System (PFMS) website, State Budgets 2016-17/ Annual
Financial Statements.
Section 2 reviews the total fiscal transfers to the States for this period. Section 3 analyzes
the quantum of Social Sector Expenditure across countries, within the country and across
States’ for this particular period scaled by their Gross State Domestic Product (GSDP) and
total expenditure. Further, the paper also discusses the State-wise expenditure on health
and education. Section 4 maps the change in total transfers to change in social sector
expenditure of States for this period and Section 5 sums up with way forward.
2. Central Transfers to States
Funds are transferred to States from the Centre via Devolution of Central taxes, Grants-in-
in - Aid recommended by the Finance Commission (meant for the third tier of Local
Governments), CASP, revenue deficit grants and Grants to address natural calamities and
disasters. The major part of the CASP flow as assistance to States under the Centrally
Sponsored Schemes (CSS) - which reflect the national development priorities. As shown
in Table1 below, at an aggregate level, 21.19% more resources were available to the
States during FY 2015-16 by the way of Central transfers as compared to FY 2014-15.
Barring Sikkim, Tripura and Uttarakhand, all other States are better off in terms of
financial allocations in respect to FY 2014-15.
Table1: Total transfers in FY 2015-16 & FY 2014-15
Sl.
No.
States Amount
(Rs. crore)
% Change in
Transfers
2014-15 2015-16
I. North East & Himalayan States (NE&HS)
1 Arunachal Pradesh 6,356.32 9,085.15 42.93
2 Assam 26,349.99 29,267.21 11.07
3 Himachal Pradesh 9,994.71 14,903.24 49.11
4 Jammu and Kashmir 20,162.92 23,943.60 18.75
5 Manipur 7,203.42 7,424.94 3.08
6 Meghalaya 5,276.84 5,719.34 8.39
7 Mizoram 4,865.26 5,865.15 20.55
8 Nagaland 6,797.81 7,170.27 5.48
9 Sikkim 3,257.76 2,729.71 -16.21
10 Tripura 7,764.40 7,692.53 -0.93
11 Uttarakhand 10,892.37 10,093.48 -7.33
Sub-Total: NE&HS 108,921.80 123,894.62
13.75
II. Other States (OS)
12 Andhra Pradesh 35,933.79 42,059.04 17.05
13 Bihar 58,137.55 68,939.43 18.58 3
14 Chhattisgarh 17,343.89 23,004.17 32.64
15 Goa 1,610.72 2,218.15 37.71
16 Gujarat 21,346.90 24,768.79 16.03
17 Haryana 8,160.40 8,978.76 10.03
18 Jharkhand 17,169.90 22,953.67 33.69
19 Karnataka 30,392.55 36,906.13 21.43
20 Kerala 16,067.28 22,106.41 37.59
21 Madhya Pradesh 43,540.74 57,547.95 32.17
22 Maharashtra 38,706.58 45,468.69 17.47
23 Odisha 29,868.28 37,225.59 24.63
24 Punjab 11,111.91 11,973.92 7.76
25 Rajasthan 40,142.56 46,828.84 16.66
26 Tamil Nadu 35,071.45 38,637.73 10.17
27 Telangana 17,047.22 21,351.30 25.25
28 Uttar Pradesh 101,272.43 123,460.53 21.91
29 West Bengal 46,862.59 64,236.25 37.07
Sub-Total: OS 569,786.74 698,665.35 22.62
Grand Total 678,708.54 822,559.97 21.19
Source: 2014-15- (i) Share in Central Taxes- Annex 10B Union Receipt Budget 2016-17; (ii) Non Plan grants- Actual
Releases from the website of Ministry of Finance; (iii) CASP- Releases as per PFMS. 2015-16- (I) Share in Central Taxes-
Annex 10A Union Receipt Budget 2016-17; (ii) Non Plan Grants- Actual Releases from the website of Ministry of Finance;
(iii) CASP- Releases as per PFMS
North Eastern & Himalayan States: % Change in Total Transfers in
FY 2015-16 over FY 2014-15
42.93
11.07
49.11
18.75
3.08
8.39
20.55
5.48
-16.21-0.93-7.33
-20
-10
0
10
20
30
40
50
60
Arunachal
Pradesh
Assam
Himachal Pradesh
Jammu and
Kashmir
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Uttarakhand
Other States: % Change in Total Transfers in FY 2015-16 over FY 2014-15
17.05
18.58
32.64
37.71
16.03
10.03
33.69
21.43
37.59
32.17
17.47
24.63
7.76
16.66
10.17
25.25
21.91
37.07
0
5
10
15
20
25
30
35
40
Andhra Pradesh
Bihar
Chhattisgarh
Goa
Gujarat
Haryana
JharkhandKarnataka
Kerala
Madhya Pradesh
Maharashtra
Odisha Punjab
Rajasthan
Tamil NaduTelangana
Uttar Pradesh
West Bengal
4
Now, whether this increase in transfer to States led to a proportional increase in Social
Sector expenditure of the States or not, is examined in the following section of this paper.
3. Quantum of Social Sector Expenditure
Spending on social sector is critical since it tends to benefit the poor relatively more than
the rich and because, it arguably enhances the human capital of the economy, which can
produce direct growth effects and indirect spill over benefits for the rest of the economy.
2
In the case of India- as with many other developing economies- the Government’s
expenditure on social sector assumes importance on three accounts. The first being
magnitude of deprivation in the country being too large to be left to the market forces
alone to tackle. Secondly, the proportion of poor households utilizing Government
services is higher as compared to the richer households and thirdly, to ensure clearly
articulated outcomes in social sectors such as the Sustainable Development Goals (SDGs).
(i) Cross Country Social Sector Expenditure
As per the latest World Bank data India spends 3.8 % of GDP on education and 1.4% of
GDP on health which is below the world average of 4.4 % and 6%, respectively. Also, as
per the Human Development Report – 2015, UNDP, India’s Human Development Rank is
130 and the following table shows the cross country public expenditure on education &
health.
Table: Public Expenditure as % of GDP
Country Education (%)
(latest available
period 2011-12)
Health (%)
(2014)
HDI
Ranking
India 3.8 1.4 130
Singapore 3.1 2.1 11
Sri Lanka 1.5 2.0 73
China NA 3.1 90
Brazil 5.9 3.8 75
United States 5.2 8.3 8
Japan 3.8 8.6 20
Sweden 7.7 10.0 14
Canada 5.3 7.4 9
World 4.4 6.0 --
Source: World Bank data, Human Development Report, UNDP (2015)
Public Expenditure on Social Sector of India including health & education is a major
concern to improve the Human Development Index rank of the country. Though Union
Government assists the States by providing funds through different Centrally
Sponsored Schemes (CSS) & Central Sector Schemes, it is also the responsibility of the
States to prioritize as well as make best allocation of their resources available.
(ii) Trend of India’s Social Sector Expenditure
2
IMF Working Paper. Social Sector Spending in Panel of Countries, 2002 5
Social Sector includes expenditure on General Education, Technical Education, Sports
and Youth Services, Arts and Culture, Medical and Public Health, Family Welfare,
Water Supply and Sanitation, Housing, Urban Development, Information & Publicity,
Broadcasting, Welfare of SC, ST and OBC, Labour and Employment, Social Security &
Welfare, Nutrition, Natural Calamities, Other Social Services, Secretariat Social
Services & North Eastern Areas.
3
States altogether spend about 6 to 7% of GDP on
Social Sector whereas Centre spends about 1 to 2%. The following table shows the
trend of States and Centres expenditure on Social Sector. The available data indicates
that States expenditure on social sector has steadily increased over the years and that
they have been acting responsibly towards Social Sector.
Table: Past trend in Social Sector Expenditure
Year States Centre
Amount
(Rs. Crore)
% GDP Amount
(Rs. Crore)
% GDP
1990-91 28,199 4.81 6,629 1.13
2000-01 1,01,551 4.68 25,542 1.18
2006-07 1,89,443 4.41 56,286 1.31
2007-08 2,12,712 4.27 78,768 1.58
2008-09 2,67,592 4.75 1,07,058 1.90
2009-10 3,38,921 5.23 1,22,104 1.88
2010-11 3,99,537 5.13 1,47,494 1.89
2011-12 4,60,502 5.27 1,40,932 1.61
2012-13 5,33,537 5.78 1,57,353 1.58
2013-14 6,74,148 5.98 1,74,855 1.55
2014-15@ 6,99,173 5.62 2,01,983 1.62
2015-16 RE@ 8,99,157 6.58 2,28,846 1.67
Source: Table 2.1 (A) for Centre; Table 3.1 (A) for State of Indian Public
Finance Statistics upto year 2012-13 Centre & 2013-14 States. For rest
Budget Documents of State & Union Government
@Centre- CSS (like SSA, NHM, NRHM, MDM etc.) have been restructured and
included in CASP with effect from FY 2014-15. The amount under these
schemes for FY 2014-15 & FY 2015-16 RE have been added to the Centres’
social sector expenditure to make it comparable with earlier years.
(iii) Social Sector Expenditure of States
Social Sector expenditure in FY 2015-16 has increased in absolute terms across all the
States with respect to previous financial year. The percentage increase varies from 4% in
Tamil Nadu to 62% in Assam (ignoring J&K and Telangana)
4
.
There has been an increase in Social Sector expenditure as a percentage of GSDP for all
the States, except Manipur, Andhra Pradesh and Tamil Nadu. This increase, however,
3
The social sector classification is as per the Comptroller and Auditor General of India.
4
J&K percentage change is abnormally high at 135%, some error in reporting of data in their budget document is
explained in later sections. Telangana being the newly formed State may not be compared with other States for
this period. 6
varies from 0.09% for Sikkim to 4.45% for Jammu &Kashmir across the North Eastern &
Himalayan States and from 0.06% in West Bengal to 2.49% in Chhattisgarh & Telangana .
Also, it is noticeable that in respect of as many as 21 States, social sector expenditure has
increased at higher pace than the increase in their total expenditure.
Table: Social Sector Expenditure
Sl.
No
States SSE/GSDP SSE/TE
2014-
15
2015-
16 RE
%
difference
2014-
15
2015-
16 RE
%
difference
I. North East &
Himalayan States
(NE&HS)
1 Arunachal Pradesh 20.60 21.60 1.00 39.20 35.87 -3.33
2 Assam 9.56 14.01 4.45 39.85 41.76 1.91
3 Himachal Pradesh 7.89 9.26 1.37 25.73 34.83 9.10
4 Jammu & Kashmir 6.51 14.02 7.50 33.72 32.08 -1.64
5 Manipur 14.69 14.55 -0.15 29.95 29.23 -0.72
6 Meghalaya 10.84 11.31 0.47 35.77 31.73 -4.04
7 Mizoram 21.60 22.00 0.40 31.85 34.83 2.98
8 Nagaland 12.45 15.82 3.38 28.34 31.61 3.27
9 Sikkim 11.18 11.27 0.09 32.89 33.50 0.61
10 Tripura 13.40 13.77 0.37 5.21 5.30 0.09
11 Uttarakhand 6.17 6.99 0.82 37.41 38.73 1.32
Sub-Total: NE&HS 8.97 11.87 2.90 25.26 28.00 2.74
II. Other States (GS)
12 Andhra Pradesh 8.40 7.51 -0.89 38.90 31.06 -7.85
13 Bihar 8.13 9.99 1.86 34.35 37.58 3.23
14 Chhattisgarh 7.60 10.09 2.49 39.40 40.96 1.56
15 Goa 6.79 8.65 1.86 37.18 35.42 -1.76
16 Gujarat 4.90 5.13 0.22 19.47 20.61 1.14
17 Haryana 4.73 5.26 0.53 30.08 32.43 2.35
18 Jharkhand 5.81 7.82 2.01 37.63 39.31 1.68
19 Karnataka 4.80 4.96 0.16 35.34 37.42 2.08
20 Kerala 4.73 4.90 0.17 30.48 36.46 5.98
21 Madhya Pradesh 7.56 10.03 2.46 35.41 42.71 7.30
22 Maharashtra 4.53 4.97 0.44 37.29 40.36 3.07
23 Odisha 7.51 8.57 1.06 35.26 36.58 1.32
24 Punjab 3.95 4.41 0.47 32.05 32.26 0.21
25 Rajasthan 7.12 7.75 0.63 34.87 33.61 -1.26
26 Tamil Nadu 5.21 4.72 -0.49 29.20 31.45 2.24
27 Telangana 3.77 6.26 2.49 33.29 38.36 5.06
28 Uttar Pradesh 7.07 9.06 1.99 34.22 35.27 1.06
29 West Bengal 5.54 5.60 0.06 39.09 38.10 -0.99
Sub-Total: OS 5.68 6.36 0.68 32.91 34.59 1.68
Grand Total 5.87 6.68 0.81 32.04 33.78 1.73 7
Source: (i) Social Sector Expenditure (SSE) & Total Expenditure (TE) from Budget Documents of
respective State or information provided by the States to NITI, where information relevant
information not available from budget document (ii) Gross State Domestic Product (GSDP) from
Central Statistical Office (CSO) and Estimation of Ministry of Finance in respect of States for
which information is not available in CSO.
(iv) Health & Education
Expenditure data of health includes the major heads Medical and Public Health (2210 –
Revenue & 4210- Capital) and Family Welfare (2211- Revenue & 4211- Capital).
Similarly, expenditure data of education includes General Education, (2202- Revenue),
Technical Education (2203- Revenue), Sports & Youth Services (2204- Revenue), Art and
Culture (2205- Revenue) and 4202 Capital Expenditure on Education.
For North Eastern & Himalayan States (NE&HS), the average expenditure on health &
education as percentage of GSDP has increased by about 0.40 & 1.00 percentage point
respectively. Maximum increase is witnessed in Mizoram for health and in J&K for
education.
Table: Expenditure on Health and Education as percentage of GSDP
Sl.
No.
States Health Education
% to GSDP
2014-
15
Actual
2015-
16 RE
%
difference
2014-
15
Actual
2015-
16 RE
%
difference
I. North Eastern & Himalayan States (NE&HS)
1 Arunachal Pradesh 3.08 2.99 -0.09 6.27 6.81 0.55
2 Assam 0.88 1.88 1.00 5.72 6.92 1.20
3 Himachal Pradesh 1.05 1.22 0.17 4.23 4.93 0.70
4 Jammu and Kashmir 1.40 2.56 1.17 2.85 6.16 3.32
5 Manipur 3.17 2.71 -0.46 7.08 7.10 0.02
6 Meghalaya 2.13 2.11 -0.02 5.17 5.39 0.22
7 Mizoram 2.69 3.84 1.15 10.16 9.83 -0.33
8 Nagaland 2.34 2.90 0.55 6.27 8.11 1.84
9 Sikkim 1.87 1.91 0.03 5.49 5.57 0.09
10 Tripura 2.15 2.56 0.40 5.46 5.82 0.35
11 Uttarakhand
0.85 0.92 0.08 3.10 3.28 0.18
Sub-Total: NE&HS 1.27 1.80 0.40 4.56 5.61 1.05
II. Other States (GS)
12 Andhra Pradesh 1.04 0.80 -0.24 3.16 2.77 -0.39
13 Bihar 0.88 1.02 0.14 4.02 5.17 1.14
14 Chhattisgarh 0.97 1.29 0.32 4.27 5.05 0.78
15 Goa 1.09 1.52 0.43 2.99 3.81 0.82
16 Gujarat 0.64 0.64 0.01 1.95 2.02 0.07
17 Haryana 0.51 0.57 0.06 2.23 2.36 0.14
18 Jharkhand 0.60 1.15 0.55 2.64 3.41 0.76 8
19 Karnataka 0.58 0.59 0.01 1.99 1.89 -0.10
20 Kerala 0.74 0.80 0.07 2.52 2.43 -0.09
21 Madhya Pradesh 0.96 1.02 0.06 3.67 4.00 0.33
22 Maharashtra 0.46 0.56 0.10 0.15 0.23 0.08
23 Odisha 1.03 1.16 0.14 3.29 3.59 0.30
24 Punjab 0.59 0.71 0.12 2.07 2.27 0.20
25 Rajasthan 1.05 1.20 0.15 3.17 3.27 0.10
26 Tamil Nadu 0.70 0.62 -0.07 2.22 2.05 -0.17
27 Telangana 0.49 0.75 0.26 1.34 1.78 0.44
28 Uttar Pradesh 1.15 1.33 0.19 3.39 4.05 0.66
29 West Bengal 0.80 0.77 -0.02 2.64 2.33 -0.31
Sub-Total: OS 0.74 0.81 0.07 2.59 2.73 0.14
Grand Total 0.77 0.87 0.10 2.71 2.90 0.19
For the major States, average expenditure on health & education as percentage of GSDP
has increased by about 0.07 & 0.14 percentage point respectively. Maximum increase is
witnessed in Jharkhand for health and in Bihar for education.
4. Mapping change in Total Transfer with change in Social Sector expenditure
All NE & Himalayan States, except
Arunachal Pradesh, Himachal
Pradesh, Meghalaya & Mizoram
have witnessed a greater
proportion of increase in their
social sector expenditure as
percentage of GSDP as compared
to the change in their total central
transfers as percentage of GSDP.
Sikkim, Tripura as well as
Uttarakhand, despite reduction in
their total central transfers have
managed to register a positive
change in the social sector
expenditure. 9
Among the major States, all others except Andhra Pradesh, Kerala, Odisha, Tamil Nadu &
West Bengal have witnessed a greater proportion of increase in social sector expenditure
as percentage of GSDP as compared to the change in their total central transfers as
percentage of GSDP.
5. Summing up
The above analysis has clarified the doubts hovering in the last financial year that the
States might curtail their social sector expenditure in response to increased untied
transfers from Union Government. Contrary to this, the actual & revised estimates (RE) of
financial years 2014-15 and 2015-16 respectively reveal that all States have registered a
positive change in their absolute social sector expenditure. However, there are 3 States,
namely Manipur, Andhra Pradesh & Tamil Nadu which have experienced negative growth
in social sector expenditure as % of GSDP. It is reasonable to expect this in the case of
Andhra Pradesh as the State was re-organized with the bifurcation becoming effective
from June, 2014 and thereby, the social sector expenditure of Telangana for April-June,
2014 is reflected in the expenditure of Andhra Pradesh. For similar reason, the growth of
Telangana’s social sector expenditure appears inflated. In case of Tamil Nadu, their
increase in total central transfer has been only around 10% which can be sighted as a
probable reason for their decline in allocation to social sector as percentage of GSDP.
However, in absolute terms, social sector expenditure of the State has increased by about
3.5%. In case of Manipur, the States’ expenditure in the infrastructure sector is observed
to have grown by as much as about 36%, which may be a probable reason for the decline
in social sector expenditure as % of GSDP. Again, in absolute terms, there has been about
11.7% increase in the social sector expenditure of the State. Another State, amongst the
outliers is J&K, which has shown an abnormal 7.5% increase in its social sector
expenditure as % of GSDP. One of the reasons found in this regard is that the State Budget
2016-17, does not reflect any expenditure under the Capital Head of social sector
expenditure of FY 2014-15 or to say, that the social sector expenditure of the State for
that particular year seems underreported causing significant jump in percentage change
of expenditure in the next FY.
Change in Total Transfer (TT) & Social Sector Expenditure (SSE) in
2015-16 RE (as % of GSDP)
General States
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
TT - change as % to GSDP SSE - change as % to GSDP 10
States’ prioritization of expenditure on social sector at any point depends also on the
status of its social indicators like literacy rate, enrolment ratio etc. for expenditure in
education and infant mortality rate, child sex ratio, availability of health infrastructure
etc. for expenditure in health.
It may also be a concern of the stakeholders that in future State may allocate their untied
resources to other sector(s) despite their relatively poor social indicator(s). Such a
scenario is unlikely to occur believing that States Governments being the elected
representatives, are equally responsible to take care of this. Also, a performance incentive
driven allocation mechanism of the centrally sponsored schemes can be another step
which will ensure self correction path being adopted by the states for sectors specially
like health, education etc. In such case, this would require an appropriate intervention to
through an amendment in the fund allocation principles.
Special thanks to the interns engaged for this purpose at NITI Aayog, namely, Mr. Kartikey
Bhargav, Ms. Mahima Jain & Ms. Mahima Singh for their contribution in compilation of
data and analysis.