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BW Businessworld

When Social Goes Federal

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There has been a perception, real or exaggerated, that the government was predisposed to focusing only on productive sectors, thus ignoring the social sectors. The speech in the Union Budget does, however, focus a lot on social alleviation and covers areas like agriculture, health, education, rural infrastructure, micro enterprises and employment (NREGA), which belies this perception.

Evaluating the focus in numeric terms is difficult considering the 14th Finance Commission has recommended higher devolutions to states which, in turn, would be in a position to utilise these resources for social development programmes. Therefore, when analysing the expense numbers under various ministry heads, it can be surmised that where allocations have fallen sharply, the onus would be on the states to deliver.

What do the numbers reveal? Sectors such as health, SMEs, rural development, tribal affairs, social justice and skill development show higher allocations, albeit marginal ones. Rural development, which includes the NREGA, housing, roads and bridges and social security, has a relatively higher increase of Rs 3,500 crore. Allocations for Panchayati Raj are down by around Rs 2,500 crore though one is not sure if the states would fill the gap, and the allocation for agriculture has declined too. For all these sectors taken together, there has been a marginal dip from Rs 1.4 lakh crore last year to Rs 1.35 lakh crore in FY16.

At the aggregate level, this may be viewed as a neutral stance on social sectors with states filling in through their higher devolutions (up from Rs 3.37 lakh crore to Rs 5.24 lakh crore). The decision taken by the Finance Commission is quite pragmatic as states get more involved with social schemes as they are implemented at state level.  Even under the earlier dispensation, while the schemes were sponsored by the centre, the funds used to flow to the states from above. Under the new formula, states could fund schemes where they find lacunae. So, if a state is well placed in education, but not health, additional funds could be used for the latter as education schemes may not be pertinent. Hence, getting out of the one-size-fits-all approach does look positive.

But the important takeaway is that the central government is presently positioned to support the existing schemes through funding but would gradually move away leaving it to the states. Also, as long as the fiscal space is limited, there would be a proclivity to conservatism in terms of enhanced allocation. Given that the government has displayed parsimony in all allocations, the social sector on the whole has fared well.

The other area of interest which concerns social spending relates to the subsidy bill — food in particular. There was some speculation on whether the coverage of the Food Security Bill would be reduced from two-thirds to something close to 40 per cent. Here the government has chosen to retain the existing coverage and has in fact, increased the allocation from Rs 1.22 lakh crore to Rs 1.24 lakh crore. The budget has mentioned that it would concentrate on better allocation and targeting of the same by using the direct benefit transfer route through the Jan Dhan account. While the scheme is going to be implemented, it would be useful to work out the feasibility of the same given that rice and wheat distributed under the public distribution system have varying prices across the country and change at different rates every year which can make fixing the benefit level a challenge. Also, the impact on market prices should be gauged in specific pilots where it is implemented before being scaled up.

The Budget also talks of creation of a national market for agriculture, which was mooted by the Economic Survey. The creation of such a  market would be arduous given that today the farmer’s only access to a sale is the mandi and selling anywhere in the nation may not be feasible unless the logistic support is created. Therefore, while the idea is stimulating, getting it to work would require the government along with the states to actually allocate funds to make it happen. Hopefully, this will be taken up in future budgets.

For the self-employed or micro units, the Budget does reach out and will be creating a MUDRA (Micro Units Development Refinance Agency) Bank with a corpus of
Rs 20,000 crore. The idea is ostensibly to provide refinance to microfinance institutions which would be useful considering that this class does require support in the area of finance. This needs to crystallise with funds flowing in through the budgetary allocations over time.

Hence, on the whole the Union Budget has been fairly neutral to the social sectors, and tended to have preserved the status quo at the sectoral level and given discretion to states to prioritise their own expenditures by providing them with additional funding. This is probably the best that could have been done under these circumstances.

The author is Chief economist, CARE Ratings

(This story was published in BW | Businessworld Issue Dated 23-03-2015)

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