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How the Budget short-changed states' social security schemes

States will now have to spend from their pockets to keep their social-sector schemes going

Nitin Sethi & Ishan Bakshi  |  New Delhi 

Rupee image via

The 2015-16 Budget seems to have broken the contract between the Centre and the states on sharing the economic burden for delivering social security.

The Centre's assistance to the states for social sector schemes has come down from a budgeted Rs 3.56 lakh crore in FY15 to Rs 2.20 lakh crore in FY16. Effectively, while the National Democratic Alliance (NDA) government gave Rs 1.42 lakh crore additionally to the states from the divisible tax pool, it cut back Rs 1.16 lakh under central government schemes. This is presuming the schemes' funding in 2015-16 would have been maintained at least at this year's budgeted levels.

The states will now have to use their funds to keep their social sector schemes going the way it is. While states will have additional funds at their disposal out of the tax pool share the centre will have no say in how the states spend it. The poorest and more populated states would be at the greatest disadvantage unless they ramp up their spending on the social sector considerably.

The government stopped funding for eight schemes, including setting up 6,000 model schools, the National Mission on Food Processing and the Backward Regions Grant Fund. These schemes entailed a budgetary support of nearly Rs 10,000 crore this year.

The Centre has also asked the states to bear a larger share of spending in 24 schemes, including the government's flagship Swachh Bharat Abhiyan. The funding for the scheme to expand coverage of sewage systems in rural and urban areas has been cut from Rs 4,135 crore, budgeted for 2014-15, to Rs 3,500 crore.

Real cuts

One cut that runs counter to NDA government's own social sector agenda is that of the National Health Mission. The government had in a recent draft National Health Policy recommended increasing public expenditure on health from 1.2 per cent of gross domestic product (GDP) to 2.5 per cent. However, it has now cut health ministry-related transfers to states from Rs 24,203 crore to Rs 18,000 crore.

The Centre for Budget and Governance Accountability notes that the net increase in spending capacity of the states in 2015-16 is projected to be a small 0.33 per cent of GDP. States now spend 40.5 per cent of their funds on the social sector, said a Reserve Bank of India (RBI) report. If they were to divide the additional bounty of 0.33 per cent of GDP in the same proportion in their state budgets collectively, the social security schemes would now get only 0.12 per cent of GDP as incremental spending. However, the social sector ministry's allocations (excluding agriculture and food subsidy) have been cut by 0.24 per cent of GDP. In other words, not only has Finance Minister Arun Jaitley cut the spending on social sector allocated to the states but also the funds available with the Centre for several related schemes.

The states will have the opportunity to dip in to a greater pool of resources at their disposal but data shows that the state governments have anyway been increasing their expenditure in the social sector while the centre's contribution has been decreasing over time.

Half-built houses

Dipa Sinha, co-convenor of the Right To Food Campaign, points out that the allocations must be seen in light of how some of these schemes were projected to expand.

Take the case of maturity benefits under the National Food Security Act.

For providing maternity benefits, the Indira Gandhi Matritva Sahyog Yojana (IGMSY) scheme was launched as a pilot in 2011 in 53 districts with budgetary support of Rs 396 crore this year. The Centre has now told states it will be expanded in a phased manner over three years "if funds are available". Only Rs 36 crore of additional funds have been made available for 2015-16. The programme would cost Rs 15,000 crore.

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA) also faces an uncertain future. The Centre approved a labour budget at the beginning of this financial year at Rs 60,000 crore - a projection of demand for the jobs by the poor. It, however, allocated only Rs 33,364 core in the Budget. Attempts were made to limit the universal scheme to 200 districts. But delay in releasing funds led to belated wage payments, leading to demand drying off. Prime Minister Narendra Modi called it an icon of the United Progressive Alliance (UPA)'s failure. However, the finance minister allocated it an additional Rs 347 crore of the budgeted amount for 2014-15. He promised to release Rs 5,000 crore more, if available. But, the government is obligated by law to give the required funds to meet the demand.

Schemes and focus unhinged

As the funds with the states are now unhinged from central schemes and norms, new questions have arisen. "This is a monumental shift. It required greater thinking. If we were going to devolve funds and de-link them from central schemes, why keep the schemes half-empty and half-implemented?" asked a joint secretary overseeing a social sector scheme that has been cut substantially. "The government should have had a transition plan for these schemes and sectors. Now you are stuck. Should we expect the states to invest their money in these central schemes again with the same conditions? Or should we do away with the norms? Or, yet again, should we run on low funds and let states launch parallel schemes? What does that mean for achieving our social targets?" The officer had several questions but no answers.

Several officials Business Standard spoke to in social sector ministries confirmed that the Budget cuts came before the future of these schemes were configured.

Some experts within the government raised concerns about the ability of the Centre to keep a macro-level focus on spending when it was set to make new commitments under the sustainable development goals (replacement of the millennium development goals).

"Your ability to turn the knob at even a macro-level on thematic or community specific spending - such as gender, Scheduled Tribes and Scheduled Castes, or children - has been curtailed," said a senior government official. Many officials warned the flux could take a toll on the implementation of the schemes.

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First Published: Wed, March 11 2015. 23:37 IST