Home Insights The Hidden Toll Of Fiscal Consolidation: Social Sectors Shoulder The Burden –...

The Hidden Toll Of Fiscal Consolidation: Social Sectors Shoulder The Burden – IMPRI Impact And Policy Research Institute

The Hidden Toll of Fiscal Consolidation: Social Sectors Shoulder the Burden

India wants to be among the top 3 world economies by 2047, which is dependent on greater spending on education, health and social welfare schemes. But the Interim Budget harks back to lower allocation trends.

Finance Minister Nirmala Sitharaman began her Interim Budget speech with an emphasis on inclusive development by reiterating the “Sabka Saath, Sabka Vikas” slogan. But the allocations for education, health and social welfare schemes and their actual utilisation paint a different picture.

The interim budget, however, has fiscal consolidation as the overarching consideration. It is worth examining if putting back the deficit numbers on track ended up curtailing the requisite social sector allocations.

The Secretariat digs deeper into the budget allocations and actual spending on education, health and social welfare in the larger context of India’s development ambitions.

Inclusive development is the key pillar for the Sabka Vikas part of the slogan and is best achieved by providing maximum possible access to education, health and social welfare schemes to the aspiring millions.

A healthy population and an agile skilled workforce are intrinsic parts of an economy that aspires to be among the top three economies of the world in the near future. The ambition can only be fulfilled if there is a long-term strategy and commensurate spending on social welfare and human capital development.

Relevant data has been collected from the table on Expenditure of Major Items provided in the Budget at a Glance documents since 2017-18. Before 2017-18, expenditures were reported in a different format. However, after the dissolution of Planning Commission and plan expenditures in 2014-15 and further restructuring, a new format titled Expenditure of Major Items was introduced in 2017-18. For the purpose of this article, therefore, we have looked at data from 2016-17 only, available in the new format.

Spending On Education Not Enough

Absolute budget allocation figures in education generally increased, except for pandemic year 2021-22 when it dropped. Yearly growth in actual spending also slumped during the pandemic years. In 2020-21, it contracted 5.8 per cent and in 2021-22, it further shrunk by 4.6 per cent.

However, actual spending on education has always fallen short of budget allocations and that is a matter of serious concern for a country that wants to accelerate the skill-building process of its workforce.

image 1

Health Allocation: Back To The Lows

The Covid-19 pandemic amply highlighted the lack of health infrastructure that affected populations across different sections of society. The reason is quite clear. The trend in relatively less health spending is evident in both budget allocation and actual spending in healthcare during the pre-pandemic phase.

During the pandemic, actual spending exceeded budget allocation for obvious reasons. But once it got over, it was back to the usual long-term trend of not utilising the entire allocation. This is unfortunate.

If we look at the yearly growth rates in actual healthcare spending, then it is clearly a downward trend. Strengthening health infrastructure is a prerequisite for an economy with an agile labour force, but budget allocations indicate in the opposite direction.

image 3image 3

Social Welfare Spending Under Squeeze

No economic growth is sustainable in the longer run unless it enables the underprivileged sections of society to be upwardly mobile, both socially and economically. That is why social welfare allocations under different schemes are so important. However, the yearly growth trend in actual health spending shows stagnation at a relatively lower level.

Even in social welfare, there is always a gap between allocation and spending. The gaps in allocation and spending are starker in the post-pandemic phase in all three—health, education and social welfare. The onus of utilising health allocation primarily lies with the state, but the responsibility of gainfully spending education and social welfare budget allocations lies equally with the state and central governments.

image 4image 4

This requires a closer look at the gap between actual spending and budget allocation in all these three.

Gaps In Budget Utilisation

Except for 2017-18, actual spending always fell short of budget allocation in education. In 2017-18, the surplus spending was marginally higher than allocation at 0.7 per cent of Budget Estimate (BE). The shortfall was at its highest in recent years during the pandemic, 15.2 per cent of BE in 2020-21 and 13.8 per cent of BE in 2021-22.

Similarly, actual health spending marginally exceeded budget allocations for two consecutive years in the pre-pandemic phase, starting in 2016-17. Then it fell short of allocation in the next two years, and the actual spending was way more than allocation during two years of the pandemic for obvious reasons. But surprisingly the post-pandemic phase saw the return of actual spending hugely lagging behind budget estimates.

This does not bode well for health infrastructure. If another pandemic arrives, then the country may be back to square one.

Long term trends in social welfare allocations are stagnating at a relatively lower level. Even those allocations are not spent fully, as we can see from the diagram. The shortfall reached its highest during the pandemic in 2020-21 at 30.3 per cent of BE, followed by 16.2 per cent of BE next year.

Normally, one would expect the utilisation to be better in the post-pandemic period. However, it has fallen down further at 21.8 per cent of BE in 2022-23 and 15.1 per cent of BE in 2023-24.

image 5image 5

India is striving to transform itself into a developed country by 2047. The interim period till that point has been demarcated by the government as Amrit Kaal. The interim budget further flagged this Amrit Kaal as Kartavya Kaal.

No country in the economic history of the world has attained developed status with a low level of human capital development. A human capital rich economy requires sustained high social sector allocations and their effective utilisation. India has a legitimate ambition to catapult itself into the developed category in the next 30-odd years. But the trends in social sector budget allocations and actual utilisation of those till now clearly show that the outcome falls short of the intent.

Abhijit Mukhopadhyay is Senior Fellow with ORF’s Economy and Growth Programme

The article was first published in The Secretariat as ‘Fiscal Consolidation Comes With A Cost, Much Of It Borne By Social Sectors‘ on February 23, 2024.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

Read more at IMPRI: Population, Health, and Interim Union Budget 2024-25

Posted by Mansi Garg , a researcher at IMPRI.

Previous articleAnnual Series Of Thematic Deliberations On Union Interim Budget 2024-25 – IMPRI Impact And Policy Research Institute
Next articleRegression Discontinuity Design
IMPRI, a startup research think tank, is a platform for pro-active, independent, non-partisan and policy-based research. It contributes to debates and deliberations for action-based solutions to a host of strategic issues. IMPRI is committed to democracy, mobilization and community building.


Please enter your comment!
Please enter your name here