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Advances in Social Sciences Research Journal – Vol. 10, No. 7
Publication Date: July 25, 2023
DOI:10.14738/assrj.107.15267
Naveen, & Verma, N. M. P. (2023). A Post-reform Empirical Analysis of Public Social Expenditure of Centre and States in India.
Advances in Social Sciences Research Journal, 10(7). 476-494.
Services for Science and Education – United Kingdom
A Post-reform Empirical Analysis of Public Social Expenditure of
Centre and States in India
Naveen
Department of Economics,
Babasaheb Bhimrao Ambedkar University, Lucknow, India
N. M. P. Verma
Department of Economics,
Babasaheb Bhimrao Ambedkar University, Lucknow, India
ABSTRACT
The need to increase public social expenditure was felt and prescribed by many
policy experts even during the decades preceding the reforms. Given the historical
opportunity to build a robust national pool of productive human capital, the
advocacy for increasing public social expenditure was both inevitable and
strategic. This paper attempts to enquire the trends and patterns of public social
expenditure in India during the post reform period, the phase characterized with
greater potential of realizing demographic dividend in the country’s history. The
empirical analysis concerning budgetary allocations towards the social sector
incurred by both, the central and state governments under the broad head of
expenditure termed as ‘Social Services’ covers within it various sub-components.
The analysis of data includes annual budgetary allocations of public financial
resources against various components of social services as a percentage of total
central expenditure, all state’s total expenditure and GDP. CAGR for all
components of social services is calculated for the thirty-year period separately
for the centre and states. The evidence suggests that public social expenditure has
almost been stagnant during the period as a proportion of GDP which is reflected
through qualitative deficiency and quantitative inadequacy particularly in the case
of key components of social services such as health and education. Such stagnation
of public social expenditure contradicts the policy stance very often advocated and
extended by the academia, civil society, bureaucracy and the political class.
Keywords: Gross Domestic Product, Budget, Public Social Expenditure, Central
Expenditure, State’s Expenditure, Post-reform Period, JEL Classification; H5, H50,
H51, H52, H53
INTRODUCTION
The paper focuses on the fact that public social expenditure which includes essential social
services such as health and educational services has not received due attention of the public
exchequer after 1991 reforms, given the developmental phase of Indian Economy during the
period. The three-decade period after economic reforms are characterized by a period of high
rate of output growth, expansion of physical infrastructure, improved human capital and
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Naveen, & Verma, N. M. P. (2023). A Post-reform Empirical Analysis of Public Social Expenditure of Centre and States in India. Advances in Social
Sciences Research Journal, 10(7). 476-494.
URL: http://dx.doi.org/10.14738/assrj.107.15267
substantial decline in abject poverty. Despite these improvements during the same period the
issue of public social spending occupied a central position in policy discussions and debates.
We see that public social expenditure has remained almost stagnant during the concerned
period for the economy as a whole; however, there has been some marginal shift in the
structural composition between centre and states of such expenditure when we observe it
from a federal standpoint. It is argued that in addition to public social expenditure, private
expenditure towards social services particularly in health and education sectors continued to
flow, however it is also observed that private spending towards these sectors is both
inadequate and skewed towards the sections of society and geographical areas within the
country endowed with the possibility of higher returns on investment. Given the situation that
private spending in key social sectors is skewed towards catering to the needs of the
economically affluent sections of society, the government’s commitment for inclusive social
development is compromised and the only hope for provisioning of these services for the
lower income groups and other deprived sections of society rests on the efforts made through
public spending.
The development process across the world has shown that the government expenditure on
essential public goods increases over time. Such expenditure on various services collectively
called the expenditure on social services or the social sector that receives an increasing share
of total public expenditure as well as of GDP for the reason that an economy moving towards a
mature stage is often done away with building critical physical infrastructure and gradually
shifts to creating and maintaining human resources. The study uses conventional statistical
tools for analysing the empirical flows of budgetary expenditure incurred by the central and
the state governments towards the social sector in India during the post reform period1
beginning from fiscal year 1990-91 to 2019-20.
The Approach paper for the 8th Five Year Plan (1991-92 to 1996-97) envisaged human
development as the ultimate goal of the Plan. Keeping this broad goal in view, the planners in
8th Plan identified employment, population control, literacy & education, health, provision for
safe drinking water, food and basic infrastructure as the focus areas. It was targeted that
health facilities should reach the entire population by the end of the 8th Plan. The Plan also
provisioned for greater emphasis on high-risk vulnerable groups such as mother and child
along with special provisions for the underprivileged sections within the vulnerable groups
(pp-10-11).
Indian economy experienced relatively high rate of growth of Gross Domestic Product with an
average annual growth rate of 6.1% at 2011-12 prices during the post reform period. Experts
have identified the period 1950-80 in India as the period of population explosion which even
extended during much of the 1980s, this explosion in population for many experts had an
inherent potential termed as ‘Demographic Dividend’ if utilized strategically. The well-known
strategy to tap this dividend is to transform the seemingly burdensome population into
human capital. To cater to the growing needs of developing this vast potential, large
investments were required towards human resources specifically in the form of expenditure
on health and educational services. Given the inadequacy of willingness due to a long
gestation period and uncertain return on investments, private investment could barely be
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 10, Issue 7, July-2023
Services for Science and Education – United Kingdom
mobilized particularly during the 1990s; thus, the only way to provide for such need was to
increase public expenditure.
Such argumentative advocacy is not peculiar to Indian economy rather a large number of
economies show empirical evidences over the long run for an increasing trend of public
expenditure along an increase in the size of the economy. Such trends are characterized by a
growing economy, rising per capita income and increased tax revenue of the governments,
both federal and local. For instance, average government expenditure for 22 advanced
economies during the 1950s was 19.4 % of GDP which rose to 36.5 % during 1970s and 44 %
during 1980s and thereafter maintained its share at around 45 % mark. Similarly, for major
12 developing economies including India, the average public expenditure during the 1950s
stood at 12.6 %, in 1970s at 17.7 %, in 1980s 19.1 % and finally during 2010s it averaged 27.5
% of GDP. General global experience suggests that such rise in public expenditure across the
economies was primarily directed towards social sector mainly for health, education
(generally in all economies) and transfer payments (mostly in Advanced Industrial Economies
where the average age of the workforce is much higher and the proportion of elderly
population in total is high). For instance, public health spending in OECD countries stood at
5.5 % of GDP in the year 2000, 7.22 % in 2010 and finally rose to 7.73 % in 2019. Global
average public expenditure on health stood at 4.96 % of GDP in year 2000, 5.71 % in 2010 and
5.89 % in 2019. World Bank estimates of public health spending for India stood at 0.83 % in
the year 2000, 0.86 & in 2010 and slightly increased to 0.99 % in 2019. It is appropriate to
mention here that the levels of public health expenditure of the countries that are most
comparable in terms of the historical phase of the economy and society are much higher in
comparison to India. The experience of Emerging Market Economies (EME) is most relatable
in this case. Among the Emerging Market Economies, public health spending in China was
reported to be 2.2 % of GDP in 2010 which increased to 3.0 in 2019 whereas for Brazil it was
3.6 % of GDP in 2010 and 3.9 % in 2019 and for South Africa in 2010 the figures were
estimated to be 4.0 % of GDP in 2010 and 4.4 % in 2019. As a prominent economy among the
emerging markets, India shows a dismal record of public health spending.
Another aspect of health spending that can be mentioned here is the proportion of general
government health spending to the total health spending wherein India fares much below the
global average. Public health spending as a fraction of total health spending in India was
estimated to be 20.7 % in the year 2000 which increased to 33.4 in 2019 (a normal year) and
36.6 % in 2020 (an exceptional year due to Covid-19 Pandemic). Although there appears
increase in the proportion of public health spending in the total for India in recent decades
however it remains significantly below when observed against the global average which was
recorded at 57.4 % of total health spending in 2000, 60.1 in 2019 and 63.4 in 2020 ( World
Bank, 2023).
It would also be appropriate to mention here, for the rationality of the context to the present
study to briefly observe as to how certain key health indicators fared during the post reform
period vis-a-vis public expenditure on health during the corresponding period. There has
been considerable increase in life-expectancy at birth in India from 59 years in 1991 to 70
years in 2020. The Infant Mortality Rate (IMR) stood at 89.8 (out of every 1000 live births) in
1990 which decreased to 26.6 in 2020. Similarly, Maternal Mortality Rate was reported to be
556 (out of every 100 thousand live births) in 1990 and declined to 97 in —2018-20. Such