What are the results of such spending? Bangladesh, for instance, has government expenditure that is barely half India’s, at 14.5 per cent of GDP, but it has better life expectancy and more years of schooling. It has also more or less caught up with India on per capita income. Southeast Asian economies like Malaysia, Thailand and Vietnam also do better on health and education despite their governments spending a smaller component of GDP. These and several other countries also have lower fiscal deficits and mostly have lower public debt; Bangladesh’s is half India’s 83.2 per cent, and Vietnam’s is even lower. Nor can it be said that India’s greater spending has delivered better infrastructure. How does one explain this?
One answer is that percentages can mislead. A higher percentage of a lower GDP per head could translate into less absolute spending per head than a lower percentage of a much greater GDP, again per capita. So India could have a bigger government relative to its GDP, yet spend less per head than the higher-income countries of Southeast Asia — and therefore deliver inferior outcomes on health and education. Bangladesh is the obvious exception for spending less per head and still delivering better outcomes.
But it is also true that where governments in India have provided services of various kinds (schooling, medical care, etc), they have invariably been sub-standard. So it is worth examining the prime minister’s comments on making government programmes more people-centric rather than government-centric (translation: Better delivery with less leakage). More recently, in the context of the G20 summit, Narendra Modi also argued for a shift from a GDP-centric view to a human-centric view.
To his credit, Mr Modi has been doing what he now advises in terms of delivering people-related basics: Universalising the supply of electricity and tap water, giving clean cooking fuel to housewives at a subsidised price, accelerating government-subsidised house construction, providing lavatories, making available free grain and free medical insurance, and dishing out cash to farmers. Remarkably, while doing this, he has also increased government investment, most notably in the transport infrastructure. For the future, he has launched on an expansive incentive programme to encourage investment in chosen manufacturing sectors.
It is too early to reach conclusions about the social and economic outcomes from this approach, in part because of the government statistical system (no census, no consumption numbers, etc) but also because the more recent initiatives are still to play out. However, one problem is already visible: General government (Centre and states) revenue as a share of GDP has seen a slight drop over the last several years, while expenditure in relation to GDP has gone up by about a percentage point compared to a decade ago. Consequently, the deficit has grown, as has public debt — some of it doubtless on account of Covid.
If both deficit and debt are to be brought down to the levels in comparable economies without squeezing spending, the painless way is through rapid economic growth that delivers more GDP per head. And however people-centric governments want to be, more money for social investment and welfare packages will become available only by re-focusing expenditure, or (again) through economic growth. South-East Asian economies benefited because they did both and are better placed today. Growth matters. Governments should be more human-centric, but also GDP-centric.
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