'Radical change needed in Centre, states' duties towards social sector'

Economic Survey recommends re-imposition of conditions on transfer of funds from Centre to states

The Economic Survey provides a two-step intellectual argument for tectonic shift in the centre and states’ responsibility towards social and regional development. Positing as an explorative exercise, the chief economic advisor (CEA) and his team leans towards a universal basic income that gradually replaces existing social schemes and subsidies. Alongside this step, the survey also suggests re-imposition of conditions on the funds transferred by the centre to the state. The survey recommends conditions linked to improvement in state’s tax efforts and the governance.

The country has witnessed one set of structural impacts under the NDA government on the social sector after the 14th Finance Commission. The states got a much greater share of unconditional money from the tax pool but a much lower support from the Union government in form of centrally sponsored schemes.The impact of this has been partially assessed but a complete picture would only be available once states put out their numbers on actual spending instead of the budgeted figures. 

The Survey suggests a radically different route to regional and social development. 

The UBI scheme, the Survey contemplates in chapter 13, could obviate the inefficiency of existing social schemes in reaching the poor. The chapter conclusion reads, “One possibility would be to redirect a certain portion of Redistributive Resource Transfer (RRT) and channel the resources directly to households as part of a (UBI) scheme."

In his chapter on the UBI, the CEA suggests doing away with existing social security programmes and subsidies to create the fiscal space for providing universal basic income as one option for gradual introduction of the income transfer scheme. The Survey notes, “Rather than provide a UBI in addition to current schemes, it may be useful to start off by offering UBI as a choice to beneficiaries of existing programs. In other words, beneficiaries are allowed to choose the UBI in place of existing entitlements.” 

The Survey speaks of eventually the Centre and the states sharing the burden of the UBI scheme equally. 

The idea of UBI coupled with conditions the survey suggest for transfer of rest of funds to states stand to radically alter how the centre and states spend on social sector. The fourteenth finance commission had altered the landscape earlier by providing greater unconditional resources to states and the centre consequently reducing its expenditure on centrally sponsored social schemes substantially. The survey suggests a move back to the 13th Finance Commission (FC) model. In fact a step further in that direction. 

The survey reads, “Perhaps future Finance Commissions could revert to the practice of the 13th FC of conditioning transfers on the tax effort of states; in fact the weightage could be even greater than suggested by the 13th FC.” It adds, “To encourage better governance and sound institutional practices, the fund transfer mechanism could explicitly include a few monitorable institutional indicators as criteria for receiving transfers.”

The survey bases these arguments after looking at two set of analysis. One part looks at how the per capita Redistributive Resource Transfer impacts state development. The survey defines RRT to a state is defined as gross devolution3 to the state adjusted for the respective state’s share in aggregate gross domestic product. It excludes the impact such transfers have on expenditures undertaken by state governments and the consequences of Centre’s direct spending in states such as that through MNREGA. The survey concludes that RRT inflows seem to have no positive impact on per capita GSDP growth, and may negatively impact manufacturing share, fiscal effort and governance.

The other analysis gauges if Indian states rich with natural resources face a ‘resource curse’. The survey assesses that states do not. It concludes, “There seems to be no concrete evidence either in favour or against a "resource curse" in the context of Indian states. The results are, however, relatively strong for levels of per capita GSDP and consumption.” Based on this, the survey recommends looking at using revenue from natural sales to be shared through a UBI scheme mechanism with people. 

Decoding the survey

Recommends dramatic shift in Centre and states’ responsibility for regional and social development

Recommends re-imposition of conditions on transfer of funds from Centre to states  

Conditions should be linked to performance on tax collection and governance

Part of Centre’s transfer to be in the form of UBI

UBI could come at the cost of existing social schemes and not as an add-on  

States and Centre to equally share burden of UBI