The government’s inadequate spending on health and welfare schemes is a cause for concern
On the eve of the 2022-2023 Budget presentation, officials from the ministry of finance informed the nation that buoyant revenues had ensured that there was enough fiscal space to support our economy as it struggled to emerge from the Covid-19-induced shocks. I was thus hoping for an expansive Budget, one that would accommodate increased government expenditure whilst setting itself on the path towards fiscal consolidation. After all, the economy is still under stress and the demand for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) continues to be higher than pre-pandemic levels.
But the fine print of Budget 2023 suggests the opposite. Buoyant revenues — net tax revenues are higher than budgeted — have been deployed toward fiscal consolidation rather than broad-based support to a struggling economy. Revised estimates for the current financial year (2021-22) highlight that total expenditure reduced by approximately 1.5% of the Gross Domestic Product (GDP) from 2020-21 to 2021-22 and will continue on this path to reduce by a further 0.95% of the GDP from 16.24% in 2021-22 to 15.29% in 2022-23. The fiscal deficit, on the other hand, reduced by 2.5% of the GDP. The fiscal space created by improved revenues this FY has been used toward reduction in the fiscal deficit and not to support expanded public expenditure.
The critical area of contraction is revenue expenditure, specifically welfare spend. Capital expenditure, as was evident in the finance minister (FM)’s Budget speech, has increased, pointing to a clear shift in policy priorities. Perhaps the government has convinced itself that the economy has recovered from the worst of the pandemic. But this is far from the lived reality for most of India.
Our economic recovery is K-shaped and the pandemic has disproportionately impacted the poorest. Household incomes have stagnated at about 80% of their prepandemic levels and demand for MGNREGS remains elevated. In December 2021, 9.1 million households that demanded work under MGNREGS were yet to receive work under the programme. Clearly, the government bet that increased capital expenditure will provide succour through its multiplier effects to the poor is yet to yield results. Therefore, increased welfare expenditure visible in the first year of the pandemic needed to continue. However, this has not been the case. Allocations for MGNREGS reduced from ₹1.1 lakh crore in 2020-21 to ₹98,000 in 2021- 22. For 2022-23, Budget estimates are at a lower ₹73,000 crore. MGNREGS apart, overall outlays for the rural development have reduced from 1.09% of the GDP to 0.89% of the GDP in the current fiscal. This downward trend in expenditure will continue into 2022-23. But perhaps the biggest reduction can be found in the food subsidy bill. Outlays for food subsidy have collapsed from 2.74% of the GDP in 2020-21 to 1.23% in 2021-22 revised estimates. It is projected to reduce further to 0.80% GDP in 2022-23.
Beyond MGNREGS and food subsidies, centrally sponsored schemes (CSS) finance critical public services – education, health, nutrition, drinking water. Spending in these areas has been slow since the start of the pandemic. However, overall allocations for centrally sponsored schemes have reduced, down from 1.94% of the GDP in FY 21 to 1.79% in FY 22, and are projected to reduce further to 1.72% of the GDP in FY 23.
Many of these schemes are state subjects and it could be argued that state governments will be able to make up for the reductions in CSS. However, the devolution to states remains lower than what was mandated by the Fifteenth Finance Commission. The share of the states as a percentage of gross tax revenue remains static at 29% despite the finance commission mandate of devolution of 41% from the divisible pool of taxes. The central government’s old habit of deploying cess and duties to deprive states of their share of revenues continues unabated. The Budget does commit to a ₹1 lakh crore interest-free loan to states. This is a positive move but it is linked to conditions, thus deepening centralisation rather than empowering states to provide public goods as prioritised by their voters.
The real policy bet in this Budget is on the significant expansion in capital expenditure. As the FM presented her Budget speech, it would be easy to forget that India is just emerging from a pandemic. Rather, this was a Budget with a vision for a country with vast digital network and robust physical infrastructure. This may well be our Amrit Kaal (as the government refers to the period between the 75th and the 100th year of Independence)
but the reality of today is an economy that still is struggling with the devastation of Covid-19. The informal sector is in deep distress, poverty has risen leading to increased inequality. The buoyant tax revenue was an opportunity to respond to these immediate challenges. On this, the Budget disappoints.
This inability to balance increased capital expenditure with elevated welfare expenditure, is in part, a consequence of a repeated failure to meet disinvestment targets. The proposed target of ₹1,75,000 crore in disinvestments receipts in 2021-22 has been missed. Going forward, in 2022-23, the government has been more conservative, reducing its disinvestment target to ₹65,000 crore. While realistic targets are welcome, the failure to disinvest is costing the country dearly.
Finally and most worryingly, health expenditure is down from 0.41% of the GDP in 2021-22 to 0.37% in 2022-23, perhaps because Covid-specific expenditure has reduced. The National Health Mission — the government’s flagship central scheme for health — has seen a marginal increase from ₹34,460 crore to ₹36,960 crore. Clearly we have chosen to learn little from the ravages of Covid-19. India needs far greater investments in health. That is the one lesson that Covid-19 has taught us, but once again we have refused to learn.