Worrying failure

In the face of raised expectations post demonetisation, the Budget metes out miserly treatment to most areas of crucial social spending such as education, health care and social security.

Students preparing for examinations on the pavement under street lights in Mumbai in February 2016. The outlay for education has come down and is just 0.21 per cent of the GDP.

THE Narendra Modi government has not been noted over the past three years for its generosity towards the social sector or spending to meet the goals of improving human development. Indeed, if the past were any guide, there would be little reason to expect much increase in social sector budgetary outlays. However, this year, for various reasons, analysts were led to expect that there would be at least some change from the fiscal disdain the government had shown in the past to this area.

After all, the failed demonetisation initiative has severely dented the living standards of a very significant proportion of the population who would be justified in expecting some compensation in terms of government spending that would benefit them materially. The inability of the government, midway through its term, to achieve anything like the promised improvements in farmers’ incomes, employment creation and access to health for all would have created pressure on the government to do something to indicate its seriousness about these goals. And of course, the ongoing Assembly elections would obviously have affected the calculations of the government in terms of the likely popularity of its measures.

In the event, however, all these expectations have been belied. Notwithstanding a minor increase in the Central government’s health spending, all other forms of crucial social spending continue to receive miserly treatment from the Finance Ministry, with likely adverse consequences not just this year but in the medium term for the country.

Consider education, one of the most obvious claimants for higher public spending in the context of the country’s demographic bulge and the huge waste involved in denying education to the young. We all know that increasing resources for schooling is not sufficient to ensure quality education for the young since many other reforms in schooling, teacher training, and motivation are also required. But, on the other hand, we also know that sufficient resources are absolutely necessary and little can be achieved in their absence. The attempt to provide education for all “on the cheap”, without investing adequately in the basic physical infrastructure and required personnel, has been one of the reasons why government school education continues to be such a disappointment in terms of both lack of universal coverage and uneven, if not poor, quality.

But the Modi government has reversed the (admittedly weak) attempt by the previous United Progressive Alliance (UPA) government to significantly raise Central government spending on education. The allocations for the main elements of school education (the Sarva Shiksha Abhiyan, the Rashtriya Madhyamik Shiksha Abhiyan, the Teacher Training and Sakshar Bharat initiatives, and the Kendriya and Navodaya Vidyalayas taken together) have fallen. Not only as share of the gross domestic product (GDP), from 0.27 per cent of the GDP to 0.21 per cent, but also in real terms, counting for inflation.

The total outlay for the Ministry of Human Resource Development for 2017-18 has been stagnant in terms of total Central government spending over the tenure of this government, at only around 3.7 per cent. The next year’s outlay has been increased by a paltry Rs.6,087 crore over the projections of this year’s spending, which has been estimated at Rs.73,599 crore. More than half of this is directed to higher education. But even the total amount actually represents a 5 per cent decline in real terms from the Ministry’s spending in 2013-14, the last year of the UPA government. So there has been a reversal in the past three years of the UPA’s attempt to provide more public resources for education.

Meanwhile, health care has been particularly badly affected by the paucity of public funds. In its first three years, the Modi government completely reneged on its electoral promise to provide the public basis for universal access to good quality health services. Its cutbacks in critical areas actually threw the National Health Mission (especially its rural segment) and other schemes into disarray in several States, with reduced and delayed funds transfer adversely affecting the distribution of salaries to health workers and the functioning of health centres. It has also forced the National Health Mission to continue to rely on the underpaid labour of accredited social health activists (ASHAs), who are not paid even the minimum wages despite the many duties that are piled on to them.

On the face of it, Budget 2017-18 seeks to improve on this situation, with a 24 per cent increase in the allocation to health care relative to this year’s Revised Estimates. (Mind you, this is still a far cry from the doubling or tripling of health care spending that the government’s own NITI Aayog had apparently suggested.) But even this increase leaves the Central government’s health care spending at only 0.3 per cent of the GDP, out of a total of 1.3 per cent of the GDP spent by the States and the Centre together. And it does not even begin to approach the 3 per cent of the GDP that is widely accepted to be the minimum level required to achieve reasonable universal health care coverage.

ICDS neglected

Meanwhile, some of the crucial spending that critically affects the health of mothers and young children remains hugely inadequate. The Integrated Child Development Services (ICDS) Scheme is a remarkable indication of the government’s indifference to the rule of law, as it has been openly flouting (as was the UPA government before it) the strictures and judgments of the Supreme Court in terms of universalising this programme and making sure it reaches all habitations. The outlay for this scheme has actually been cut by the Central government over the last two years. The proposed outlay for 2017-18 represents an increase of 13 per cent over this year’s revised spending, which was already well below what is required. More to the point, it incorporates absolutely no increase in cost norms and implies that the government is making no provision for any increase in the remuneration (or “honorarium”) given to anganwadi workers and helpers, who also work for much less than minimum wages.

The same lack of concern for rising costs is evident in the allocation for the midday meals programme—a major and apparently successful nutrition intervention that has benefits for both nutrition security of the young and school enrolment. The allocation for the coming year, at Rs.10,000 crore, is only marginally higher than the estimate for spending in the current year of Rs.9,700 crore. And it is actually lower than what the UPA government spent on this in 2013-14, which was Rs.10,918 crore. Indeed, in real (constant price) terms, the coming year’s outlay actually involves a 27 per cent cut compared with that year.

The other area in which some increase in spending could have been expected is in social security measures. After all, the informal economy and informal workers, including migrant workers, were especially badly hit by demonetisation and tardy and insufficient remonetisation. There have been major job losses and decline in incomes from self-employment among people who have absolutely no social protection to help them tide over such times. And, of course, these are also people who generally have nothing like accident or disability insurance, health cover, or old-age pensions. So, a substantial increase in the provisions for social security could at least have provided some succour to those devastated by this ill-judged policy. But there has been no such increase. The allocation for the National Social Assistance Programme remains absolutely the same in nominal terms, at only Rs.9,500 crore—not even a pitiful drop of water in the ocean of need in India. The outlay for other schemes has declined even in nominal terms: a 33 per cent cut (by Rs.500 crore) in the National Health Protection Scheme; a 22 per cent cut (by Rs.100 crore) in Aam Aadmi Bima Yojana (perhaps they felt they had mistitled it?); and a similar proportionate cut (by Rs.45 crore) in the Atal Pension Yojana. Remarkably, the total budgetary outlay for social security has declined even over the previous year. And this is the same government that has produced an economic survey that sings paeans to the idea of a Universal Basic Income.

How can the government justify so many cuts and such low allocations to social sectors? One common refrain is that since these are concurrent subjects in the Constitution, State governments can and should be spending on these as well. And it is claimed that ever since the Twelfth Finance Commission award increased the share of tax revenues going to the States, they have more funds and are, therefore, able to spend more on these areas.

Unfortunately, this was only partly true even in the year after that award, and is no longer true, since the Central government has sought to grab back what the Finance Commission gave the States through the simple expedient of relying much more on cesses and surcharges to gain revenues that do not need to be shared with the States. The total amount collected through cesses and surcharges has nearly doubled, from Rs.83,997 crore in 2015-16 to an estimated Rs 157,412 crore in 2016-17, and is slated to increase to Rs.169,662 crore in the coming year. This means that cesses and surcharges have increased from 5.2 per cent of the total revenue in 2015-16 to 9.2 per cent in 2016-17. By the coming year, they would deprive the States of as much as Rs.71,258 crore of much-needed revenue. A more cynical approach to Centre-State financial relations is hard to imagine and it is reason enough for many States to be particularly sceptical of the government’s intentions and likely actions once the Goods and Services Tax is finally rolled out.

The controlling and constraining role of the Central government has been particularly evident in the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the employment programme that was first panned by the Prime Minister and only recently sought to be appropriated. In his Budget speech, the Finance Minister made much of the fact that he was providing the highest ever outlay for this programme (at Rs.48,000 crore), a claim that was accompanied by much table-thumping by his party MPs. But this concealed some very important facts. First, the MGNREGA is a demand-driven programme, and the government is statutorily bound to provide funds to provide work as long as there is demand for work—so this is not a “gift” of the Central government but a legal requirement. Second, despite this, the government has actually sought to reduce the flow of MGNREGA funds to the States by delaying payments, declaring a funds freeze for several months, and generally denying the States the required resources even after they have spent the money on the programme.

MGNREGA cut

Because of the drought in 2016, there was a predictable rise in the demand for work under the MGNREGA. The Centre felt that this was leading to too much money being spent, but legally it could do nothing to stop it. So, in a move that was completely against the spirit of the law, in August 2016, the Centre actually used WhatsApp messages (in a chat group named ENCORE, or “Enabling Communication on Rural Employment”, of the Ministry of Rural Development) to tell State governments that too much had already been spent on the programme and no more money would be forthcoming so that they would have to rationalise and use the available money carefully (https://thewire.in/75537/

government-uses-whatsapp-to-ask -states-from-stop-creating-work-under-mgnrega/). This caused work under the programme to collapse in August and September despite real rural distress and increased demand for such work. This has had the effect of dampening the State governments’ ability to run the programme effectively, and thereby even reduced the demand for such funds relative to the potential demand as driven by workers. All this has meant that during the tenure of this government, MGNREGA expenditure has actually come down both in real (constant price) terms and as a share of the GDP, compared with the UPA government’s second term.

Overall, then, this Budget has underperformed greatly with respect to social sectors, which is in keeping with its past practice. Still, it is not just a huge disappointment, but a sign of a worrying failure to invest in India’s future.