Modi 2.0 expenditure: Govt spend on education, health remains low

Interest payments, subsidies account for big chunk of outlays

The Narendra Modi government 2.0 allocated only a small portion of its expenditure to education and health. Spending on categories such as interest payments and major subsidies accounted for one-third of the total expenditure pie, while an additional 12 per cent was allocated to secure borders and maintain law and order.

Spending on health declined to below 2 per cent of the total expenditure during the past two financial years — 2022-23, or FY23 (Revised Estimates, or RE) and 2023-24, or FY24 (Budget Estimates, or BE) — compared to around 2.4 per cent in the first year of its second term (2019-20, or FY20).

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Similarly, allocation to education amounted to just 2.4-2.5 per cent of the total expenditure in the ongoing and last financial year, down from 3.3 per cent during FY20. If one adds a safety net in the form of pension, the total expenditure on three items (education, health, and pensions) declined to 9.7-10 per cent during FY23 and FY24, against 12 per cent in FY20. However, it should be noted that spending on pensions primarily benefits central government employees, although there are pension schemes for vulnerable sections such as the unorganised sector.

A research note on the social state, penned by Emmanuel Saez in a magazine of the International Monetary Fund, found that the bulk of government spending in Europe was devoted to so-called regalian public goods such as law and order, and national defence, among others until the early 20th century. In contrast, the growth of government over the 20th century in advanced economies was almost entirely due to growth in the social state, which provides education, childcare support for the young, health care for the sick, retirement benefits for the old, as well as an array of other income supports, says Saez.

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It is challenging to directly apply the main trends given by Saez to Indian conditions.

For instance, while spending on education and health care by the Centre remained low, food subsidies swelled during the Covid-hit 2020-21, which can also be taken as an indication of the social state. However, it is currently being rationalised compared to the 15.42 per cent of the total expenditure that the food subsidy accounted for in the Covid-struck year.

The food subsidy accounted for 7.62 per cent in 2021-22, being brought down to 6.85 the next year (RE), and 4.38 per cent in the current financial year (BE). The subsidy projected for FY24 as a proportion to total expenditure is almost the same as 4.04 per cent in the pre-pandemic year of FY20. However, it is likely to further rise in RE as the government extended free food grains to 800 million people for the next five years, including the last quarter of FY24. Similarly, there are government-run schemes for farmers such as Pradhan Mantri Kisan Samman Nidhi, for poor women such as Ujjwala, housing schemes for the low and moderate-income class, etc.