Social welfare spending is improving quality of lives across states

Devolved funds and tailored welfare schemes empower grassroots development, lifting poor families and driving rural equality

State governments are an integral part of the country’s federal structure and closer to the ground level than the centre, as they are fully aware of how their regions are faring. The specific problems citizens face as well as investment opportunities, come directly under their purview. This positions them better to address the requirements for bringing about development. For this reason, the Finance Commission increased allocations to the states to 42 per cent, giving them flexibility in fund use. Furthermore, several centrally-sponsored programmes delivered by states can account for a third of total expenditure.

   

States have tended to allocate a little over 60 per cent of total expenditure under development expenditure, which has been maintained over the years. Within this heading around 58-60 per cent is on social expenditure and 40 per cent on economic services. Clearly, the tilt is more to social welfare.

   

Within social services, the focus is on five major areas. The first is education, which is the focal point as it forms the foundation for growth and is largely reflected in overall development of states. Primary and secondary education are the forte of states, which have been working to increase enrolment and ensure lower dropout rates. Second is social security and health, which is important for building a strong demography. Third is water supply and sanitation, which the Centre has also emphasised to enable even development across states. Fourth is housing which deals with enabling citizens to have their own homes and hence create capital. Fifth is welfare of scheduled castes and tribes — an objective laid down in the Constitution.

   

An interesting facet of allocations is how states have prioritised them within these headings depending on their compulsions. In education for example, the advanced southern states have a lower allocation compared with those who need to scale up. Hence, based on the budgeted numbers for FY26 and against a national average of 13.1 per cent for the proportion spent on education, Bihar, Rajasthan, Assam, Chhattisgarh and Himachal Pradesh had ratios above 15 per cent. Quite clearly states are showing urgency in identifying segments that need a bigger push and accordingly channelling their funds.

   

It is against this background that one can also view schemes states keep announcing to reach the ground level. In fact, a lot of good has often been derived from schemes announced for women that are referred to as “freebies”. Cash transfer schemes, especially for women in lower income groups, have substantially improved living conditions of poor families as women tend to spend money more judiciously. It has also led to women empowerment, especially in rural areas. Further, free transport schemes provided by several states to girls and women have had positive outcomes in gender empowerment. First, they are able to travel for work which is a positive for society. Second, girls are able to attend school which has improved enrolment rates. Traditional families in rural areas are not very keen on spending money on girls’ education. With such schemes, it has led to better education for them.

   

Hence, ironically, what are often derided as populist schemes floated by various parties and governments at the time of elections have actually improved the lot of women. At a different level, schemes funded by state budgets, such as the distribution of bicycles, sewing machines and laptops, have benefited the recipients considerably while providing strong backward linkages for the industries concerned. Hence, there have been several collateral benefits.

   

The other area where states have spent considerably is for various economic services. Here, the three major areas that have been the domain of states are agriculture, rural development and irrigation. All three are interrelated, and states have worked relentlessly to make agriculture sustainable and ensure that farmers' interests are protected. This includes supporting farmers when the monsoon fails. The other two major headings have been energy and transport and communication. Power supply is essential not just for irrigation but also for ensuring better living.

   

The impact of these expenditures on citizens over the last five years or so has been quite significant. First, the agricultural sector has become relatively more resilient, especially in states that focused on the production of specific crops.

   

Second, poverty levels have come down due to schemes pursued by states. Alongside their own schemes, states also implement the central government’s employment programme. The Centre’s free food programme has enabled higher consumption as income released is channelled for other goods and services.

   

Third, the level of equality has improved as the rural population is empowered with better education and opportunity. This is important because it is a necessary condition to slow down the process of urban migration which leads to other challenges in terms of unemployment, housing and crime.

   

Fourth, development has improved as can be seen by the improving levels of per capita income in most states. This is evidently a slow process but has been progressing well across states.

   

Going back to the principles of public economics which define the role of the state as one of redistribution, Indian states have over the years worked well in terms of improving social welfare. This is more so given that the trickle-down effects of growth have been slower than expected, thus calling for direct action. Admittedly, spending more on social welfare does put pressure on fiscal numbers and this is a call that the states must take. The Fiscal Responsibility and Budget Management, which acts as the fiscal conscience keeper, ensures that the norms are not violated. 

The writer is Chief Economist, Bank of Baroda. Views are personal