Health, education spending by states trails economy's nominal growth rates

State governments have consistently underspent on health and education, trailing the economy's nominal growth. Despite rising demands, priorities remain unchanged, as data reveals concerning trends

Spending on health and education infrastructure by all state governments has trailed the nominal growth of the Indian economy for a long time. While political parties trade charges over consistent underspending on these two key sectors, the trend observed over nearly 15 years shows that none have been keen to change priorities.

 

At many forums, state government leaders complain they are unable to meet the rising demand for education and health services within their limited budgets. However, the reality is far more nuanced.

 

Data from a smorgasbord of seven large states in northern and southern India shows a flat trend in expenditure on building resources to deliver health and education services. National health accounts indicate states spend 64.3 per cent of the total health expenditure in the country, but disaggregated data suggests much of this spending is allocated as cash subsidies rather than for building infrastructure. The same holds true for the education sector. Since the period under analysis spans many years, fluctuations caused by election cycles have been evened out.   

Health and education infra
	Punjab	Tamil Nadu	UP	Karnataka	Rajasthan	Maha	Kerala
Education FY23	1403753.9	4456042.1	6681238.7	3126303.87	4444976.7	8121096.19	2203814.6
Education FY22	1233926.9	3818464.46	5814278.78	2914026.6	4039287.66	6855388.08	2477032.9
Education FY17	902309.9	2603354.5	5221990.8	2008405.3	2449820.5	4535817.9	1706109.3
Education FY11	394161.6	1346576.9	2095432.7	1079031.9	853811.6	2694346.6	684776.9
Health FY23	385356.2	1301851.06	1335881.9	1036710.18	1014484.3	1733972.01	927089.6
Health FY22	385356.2	1260972.68	1232316.2	1185617.65	1042636.9	1826640.03	1091065.8
Health FY17	253395.3	616090.6	789823.1	613922.25	545367.4	943638.7	521909.7
Health FY11	107080.02	339558.35	407426.55	204504.9	177868	398417.08	174883.8
(All fig in Rs lakh)
Education CAGR	10.26	9.64	9.33	8.53	13.53	8.86	9.41
Health CAGR	10.35	10.89	9.56	13.3	14.33	11.98	13.7

 

  To ensure uniformity, data on spending in these two sectors—excluding cash subsidies—has been drawn from a common source: audited figures of actual expenditure by these states, as recorded in their respective finance accounts prepared by the Comptroller and Auditor General of India.

 

The numbers reveal that all states have significantly underprovided for education and health infrastructure development during this period. This is particularly concerning because the capital expenditure component for these sectors is already minimal. Over 90 per cent of expenditure by states in these sectors is through revenue expenditure. Any noticeable growth in spending would need to come through this channel in the immediate future. However, even additional revenue spending to maintain existing infrastructure and support services has not grown.

 

The compound annual growth rate (CAGR) of actual expenditure has lagged behind the nominal growth rate of the economy in all states, indicating that spending in these sectors has often not kept pace with inflation, let alone increased in real terms. This trend spans different political regimes, underscoring that underspending cuts across party lines.

 

In education, a detailed examination of fund allocation reveals that more than 50 per cent of revenue expenditure is used to pay teachers' salaries. Spending on textbooks or other teaching aids is often negligible. This trend is consistent across all seven states. For example, in Tamil Nadu, less than 1 per cent of the state’s own funds is spent on teacher training and textbooks in the secondary education sector. Similar patterns emerge in other states.

 

CAG data also highlights significant underspending compared to budget estimates, a problem that has worsened in recent years. While the CAG reports do not detail the reasons, a distinct trend is evident: spending in these sectors in recent audited years has often fallen below levels of the previous year. The introduction of the Public Financial Management System (PFMS), an accounting tool by the central government, has made it difficult to park money under "minor heads" for extended periods. As a result, states are drawing less money than initially budgeted, leading to shrinking budgets in these sectors.

 

The cumulative impact of this chronic underfunding is significant. In recent years, states have begun to improve their finances—for instance, GST receipts ensured a 14 per cent growth in state revenues until FY23. Yet, as the data shows, states have not directed this additional revenue toward the health and education sectors. By holding spending flat in these areas, states appear to prioritise cash subsidies, including those for health. However, the same benefits to voters could potentially be delivered more effectively by increasing spending on health and education infrastructure.