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Impact of Economic Reforms on Social Sector Expenditure in India

The economic crisis of 1990s was precipitated mainly by the growth of public expenditure in the 1980s. An attempt was made to resolve this crisis through the introduction of stabilisation and structural adjustment programmes. One of the important planks of the stabilisation measures was the compression of public expenditure. This has brought to the forefront the issue of "transitional social costs" of stabilisation. This paper attempts to analyse the social sector outlays of the central and the state governments in the pre-reform and post-reform period and assesses the impact these had on the social sector in India.

Impact of Economic Reforms on Social Sector Expenditure in India

The economic crisis of 1990s was precipitated mainly by the growth of public expenditure in the 1980s. An attempt was made to resolve this crisis through the introduction of stabilisation and structural adjustment programmes. One of the important planks of the stabilisation measures was the compression of public expenditure. This has brought to the forefront the issue of “transitional social costs” of stabilisation. This paper attempts to analyse the social sector outlays of the central and the state governments in the pre-reform and post-reform period and assesses the impact these had on the social sector in India.

SEEMA JOSHI

I Introduction

T
he Indian economy grew at a comparatively low rate of growth of 3.5 per cent from 1950 to 1980. The plethora of procedures, permits, bureaucratic controls and protectionist policies created under import substitution strategy (ISS) along with other factors landed us into the economic crisis of 1991 which was reflected in macroeconomic mismanagement of the economy judged from such parameters as high fiscal deficit, high balance of payments deficit, double digit inflation, low forex reserves, etc. An attempt was made to resolve this crisis through the introduction of stabilisation and structural adjustment programme (SAP)/economic reforms. One of the important planks of the stabilisation measures is the compression of public expenditure and that of SAP is raising efficiency and international competitiveness.

It is apprehended that any economic reform package that especially relates to compression in public expenditure will adversely affect the vulnerable sections of the society as this will lead to reduction in social sector spending. This has brought to the forefront the issue of transitional social costs of stabilisation and SAP. The experiences of many developing countries which have embarked upon a process of macroeconomic reforms during the last 20 years shows that the accentuation of reforms leads to reduction in public spending on basic services and programmes directly related to social sector development or human resource development [Gupta and Sarkar 1994; Mahbub ul Haq Human Development Centre 2001]. Even the European countries which have experienced reforms have had diverse experiences with respect to the social impact of reforms [Panchamukhi 2000]. It is from this angle a study of impact of economic reforms on social sector expenditures in India becomes important. During the 1970s “growth with social justice” was the popular slogan. But from 1980s onwards, i e, from onset of reforms the slogan of “equity with stabilisation and SAP” appears to be more relevant.

Social infrastructure is as critical for human resource development as physical infrastructure [IGIDR 2002]. The Human Development Report 2004 of UNDP had ranked India 127th out of 177 countries with an HDI of 0.595. At this level, India’s position is lower than that of several newly industrialised countries (NICs) such as those of south-east Asia like Indonesia and Malaysia and also lower than countries like China and Sri Lanka. It is worth mentioning here that the low per capita income of a country does not mean low level of human resource development. Even with limited funds and their proper allocation substantial improvement in human capital can be secured. Even Sri Lanka and China with low per capita incomes have secured higher levels of human resource development and their development efforts were initiated at about the same time as that of India [Griffin 1992; Tan and Mingat 1992]. One of the principal reasons for India’s low ranking is poor achievement in social sector. The experience of “miracle economies” of south-east Asia provides eloquent testimony to the fact that the real wealth of a nation lies not in “material resources” but in “human resources”.

Given this background, an attempt has been made in this paper to examine trends in social sector outlays of the central and the state governments during pre-reform and post-1991 period and assess their impact on the social sector in India. Social sector expenditure has been defined as the total of all expenditures incurred by the central and the state governments on promotional and protective measures. The formal measures have medium and long-term effects whereas the latter measures are ad hoc or temporary in nature. Promotional measures include among other things, education, medical, public health, family welfare, water supply and sanitation (i e, social and community services), expenditure on rural development (which is listed under central plan outlay in the budget classification and is related mainly to rural development and rural employment programmes) and on food subsidy (which is listed under non-plan expenditure in the budget classification). Natural calamities are included under protective measures. We have examined trends in the combined revenue and capital expenditures of the central and state governments as well as in those expenditures of the central and the state governments taken separately which is devoted to social sector1 in the pre-reform and during reform period. To examine the trends in social sector expenditures, we have taken social sector expenditure as a proportion of GDP or as a proportion of aggregate expenditure. The activities covered under social sector contribute to human capital formation and thereby to human development. The study is based on secondary sources of data and makes use of simple statistical tools such as percentages.

II

Reforms and Social Sector: Indian Experience

The stabilisation-cum-structural adjustment programme was introduced by the government of India in July 1991 at the behest of IMF and World Bank to correct imbalances at both macrolevel and micro-levels and put the Indian economy on to a higher growth trajectory. After over a decade of implementing the reform package, an assessment of these reform measures is very relevant and useful for having “structural adjustment with a human face” in our country.

In this context, an attempt has been made in this section to address the following questions: (i) have the budgetary allocations or the expenditures incurred on the social sector as a whole been affected during reform period? (ii) Is there any increase in expenditure incurred on education and health which are the subsectors of social sector during the reform period or not?

These aspects (reflected in the above-mentioned questions) of the social impact of reforms in India have been dealt with below.

Reforms and Social Sector Outlays

The very first question relating to budgetary allocations to social sectors during the period of reforms has attracted the attention of many writers [Gupta and Sarkar 1994; Prabu 1994; Panchmukhi 2000; Dev and Mooij 2002]. We have done a similar study covering a longer period and by broadening the definition of social sector in terms of promotional and protective measures.

Before taking up the social sector outlays of the central and state governments, it is useful to examine the trends in aggregate expenditure of the central government in the pre-reform and during reform period as they have implications for the social sector.

A key aspect of stabilisation programme is to reduce the government’s fiscal deficits. Fiscal adjustments during the reform period have been brought about by reducing public investment (i e, capital expenditure) rather than by revenue expenditure. It is quite evident from Table 1 that the capital expenditure as a proportion of total government expenditure (revenue and capital) has declined from 33.39 per cent in the pre-reform period to 20.67 per cent in the post-reform period. As a proportion of aggregate expenditure, whole capital plan expenditure has been drastically reduced from 20.98 per cent to 10.80 per cent and non-plan expenditure has come down marginally from 12.41 per cent to

9.87 per cent. At the same time the revenue expenditure in total expenditure has registered an increase from 67.12 per cent to

77.80 per cent. The overall trend has been one of reducing capital plan and non-plan expenditure which does not augur well both for raising production capacity of the economy and for maintenance of existing schemes.

Table 2 gives the average developmental expenditures of the central and state governments as percentages of the average total expenditures of the respective governments during the pre-reform period (1980-81 to 1990-91) and the post-reform period (1991-92 to 2000-01). From Table 2 the declining trends in developmental expenditures of both the centre and the states can be noticed during pre-reform and post-reform period.2

Further, the figures set out in Table 3 bring out the disturbing trends from plan outlay on social-services during the sixth and seventh plan period (coinciding with pre-reform period) and the eighth and ninth plan periods (coinciding with the reform period). Along with the above trend is also observed a tendency of shortfall in actual plan expenditures from approved outlays during the seventh plan period.

Coming now to social sector outlays, Table 4 gives an overview of shares of social sector and its components in aggregate expenditure of the central and state governments in the pre-reform and post-reform period. It can be observed from the table that the central and state governments spent on an average 25.48 per cent of their aggregate expenditure on social sector during prereform period. But this share increased marginally to 26.09 per cent in the post-1991 period. The share of promotional social sectors in total expenditure too registered an increase during the same period. Among the promotional social sector, except in the case of labour and employment, others and rural development subheads of promotional social sector; the shares of all other components in aggregate expenditure increased. As a proportion

Table 1: Government’s Revenue and Capital Expenditure,Pre- and Post-Reform Periods

(as per cent of aggregate expenditure)

Period Revenue Expenditure Capital Expenditure Aggregate Expenditure as Per Cent Plan NP Total Plan NP Total of GDP*

Pre-Reform (1981-82 to

1990-91) 13.16 53.96 67.12 20.98 12.41 33.39 21.1 Post-Reform (1991-92 to

2000-01) 14.02 63.78 77.80 10.80 9.87 20.67 20.36

Note s: (i) *The data on GDP at current prices is available till 2001-02. Provisional estimates of GDP at current prices have been used for 1996-97 and 2000-01 and quick estimates for 1989-90 and 2001-02.

(ii) **The percentages have been calculated by taking sum of absolute figures.

Sources:(i) Centre for Monitoring Indian Economy, Public Finance, Economic Intelligence Service, March 2002.

(ii) Government of India, Economic Survey, various issues.

Table 2: Average Developmental Expenditures of Central and State Governments as Percentages of their Average Total Expenditures

Period Central State Combined Government Governments

Pre-reform period (1980-91) 54.7 70.2 61.8 Post-reform period (1991-2001) 45.8 63.2 53.3

Source: Computed from figures in RBI, Handbook of Statistics on Indian Economy, 2000, p 142.

Table 3: Pattern of Public Sector Plan Outlay on Social Services*

(Rs crore)

Outlay Actuals

Pre-reform period
Sixth Plan (1980-85) 14035.0 15917.0
(14.4) (14.5)
Seventh Plan (1985-90) 31545.0 34959.7
(17.5) (16.0)
Post-reform period
Eighth Plan (1992-97) 79011.0 88806.7
(18.2) (18.3)
Ninth Plan (1997-2002) 183273.0 175214.8
(21.3) (22.9)**
Notes: (i) Figures in brackets indicate percentage to the total plan outlay.
(ii) *Social services include education, medical and public health,
(iii) family welfare, housing, urban development and other social services. **The actual outlay for the ninth plan has been arrived at by
summing up actual annual plan outlays for some years (i e, 1997
98 to 2000-01) and budget estimates for others (i e, 2001-02).

Source: Planning Commission.

Economic and Political Weekly January 28, 2006 of aggregate expenditure, the share of protective social sector measures in social sector as a whole was negligible. Its share in aggregate expenditure increased from .006 per cent in prereform period to 0.05 per cent in post-reform period. The increase in its share is due to the reason that in the pre-reform period, the government had to manage only a single drought year of 1987

88. But during the reform period it handled four difficult economic situations, namely, three earthquakes in Uttarkashi (October 1991), Latur (September 1993), and Gujarat (January 2001) and a cyclone in Orissa (October 1999).

The plan and non-plan expenditures on promotional and protective social sectors and on their components by the central government during the pre-reform and post-reform period reveals an increase in the share of central plan expenditure (expressed as per cent of aggregate expenditure) on promotional measures from 6.58 per cent in the pre-reform period (1986-87 to 1990-91) to 8.59 per cent in the post-reform period (1991-92 to 2002-03).

The share of central non-plan expenditure too increased from

4.01 per cent to 5.28 per cent of aggregate expenditure. The average social sector expenditure as a proportion of aggregate expenditure registered an increase from 10.59 per cent to 13.87 per cent during the period. Except in the case of labour welfare and rural development, the shares of all other components have increased during the reform period. It is worth mentioning here that unlike the experience of Chile and Morocco3 where social sector outlays registered declines in both absolute and relative terms, in India we have observed a rising trend in social sector outlays both in terms of absolute numbers and ratios. Even though the share in case of some of them (e g, labour and employment), has increased marginally. It is pertinent to point out here that among the various components of promotional social sectors, the share of food subsidy in aggregate expenditure is not only highest (3.53 per cent) in post-reform period but it registered an increase from 2.26 per cent in the pre-reform period to 3.53 per cent in the post-reform period. In other words, this subsector has contributed to the rise in the non-developmental expenditure of the government.

Table 6 gives an overview of central government expenditure on social sector as a percentage of aggregate expenditure and as a percentage of GDP. As a proportion of aggregate expenditure, social sector expenditure increased from 11.26 per cent in 198687 to 11.82 per cent in 1987-88. But it declined in 1988-89 and in 1990-91. In the very first year of economic reforms, the share of social sector in aggregate expenditure increased to 10.43 per cent from 9.99 per cent in 1990-91. Since then a mixed trend in social sector spending can be noticed from the table. In 2002-03, 17.86 per cent of aggregate expenditure was spent on social sector which is expected to come down to 17 per cent in 2003-04. As a percentage of aggregate expenditure, India spent

11.12 per cent on the social sector in the pre-reform period. The percentage increased to 14.28 per cent in the post-reform period. In other words, during the post-reform period, a higher percentage of central government’s expenditure is going to the social sector than was the case in the pre-reform period.

Coming now to the share of social sector expenditure in GDP, the share of social sector expenditure in GDP varied between 2 to 2.62 per cent in the pre-reform period and between 1.96 to 2.70 per cent in the post-reform period. In both pre-reform and post-reform period, the share of social sector as a proportion of GDP has followed a highly fluctuating trend. In 1986-87, it was

2.62 per cent of GDP. It declined to 2.06 per cent in 1990-91.

Table 4: Combined (Revenue and Capital) Expenditure of Centre and States on Social Sectors

(Percentages of aggregate expenditure)

Sector Pre-Reform During
Period Reform
(1987-88 to Period (1991-92
1990-91) to 2001-02)
1 Promotional social sector 25.47 26.04
(i) Education, art, culture 10.97 11.32
(ii) Medical, public health,
water supply and sanitation 4.36 4.37
(iii) Family welfare 0.60 0.74
(iv) Housing 0.53 0.70
(v) Urban development 0.48 0.63
(vi) Labour and employment 0.49 0.42
(vii) Social security and welfare 1.05 1.16
(viii) Others* 1.61 1.40
(ix) Food subsidy** 1.80 1.86
(x) Rural development*** 3.56 3.44
2 Protective social sectors .006 0.05
(xi) Relief on account of natural calamities .006 0.05
Social sector (1+2) 25.48 26.09
Notes: (i) *Others include scientific services and research, broadcasting
and other services.
(ii) **Expenditure under the head food subsidy is listed under non
development expenditure in the Indian Public Finance Statistics,
Ministry of Finance, government of India.

(iii) ***The expenditure under the head “rural development” is listed under development expenditure and is a component of agriculture and allied services in the Indian Public Finance Statistics. It relates mostly to rural development and anti-poverty programmes, therefore, included under social sector.

Source: Computed from the data available in Indian Public Finance Statistics, Ministry of Finance, government of India, various issues.

Table 5: Central Plan and Non-Plan Outlay on Social Sector*:Pre- and Post-Reform Periods (1991-92 to 2002-03)

(as per cent of aggregate expenditure)

Sector Pre-Reform Period Post-Reform Period (1986-87 to 1990-91) (1991-92 to 2002-03) Plan Non-Total Plan Non-Total Plan Plan

1 Promotional social sector (1 to 10) 6.58 4.01 10.59 8.59 5.28 13.87 i) Education, sports

and youth services, art and culture 1.07 0.64 1.71 1.49 0.70 2.19 ii) Medical, public health, family welfare 1.07 0.23 1.29 1.25 0.26 1.51 iii) Water supply and sanitation 0.52 -0.52 0.61 -0.61 iv) Housing and urban development 0.10 0.05 0.15 1.33 0.09 1.42 v) Welfare of SCs to

STs and OBCs 0.36 -0.36 0.36 -0.36 vi) Labour welfare -0.28 0.28 -0.24 0.24 vii) Labour and

employment 0.04 -0.04 0.05 -0.05 viii) Social security

and welfare 0.37 0.21 0.58 0.66 0.12 0.79 ix) Others** 0.44 0.34 0.78 0.48 0.34 0.82 x) Food subsidy -2.26 2.26 -3.53 3.53 xi) Rural development 2.61 -2.61 2.34 -2.34

2 Protective social sectors -----xii) Natural calamities ------Social sector (1+2) 6.58 4.01 10.59 8.59 5.28 13.87

Notes : (i) *Both revised and budget estimates have been used.

(ii) **Others include in case of plan outlay information and publicity, broadcasting, nutrition other social services, secretarial social services, north eastern areas and in case of non-plan outlay information and broadcasting, secretarial social services and others.

Source: Government of India, Budget Papers and Expenditure Budget, Vol 1, various issues.

It continued to decline in the first two years of reforms. There was a resurgence observed in the social sector spending (as a percentage of GDP) in 1993-94. But from 1994-95 onwards again mixed trend can be observed in social sector expenditure. It can also be observed from the table that India is spending a low percentage of GDP on social sector and even after more than 10 years of reforms not much improvement in social sector spending has taken place as its share in GDP continued to hover around 2.7 per cent in 2000-01 (in 1986-87 it was 2.62 per cent). As a proportion of GDP, the central government on an average spent 2.42 per cent in the pre-reform period. This percentage has increased to 3.91 per cent during the post-reform period.

Social sector spending is the responsibility of the states. The major components of social sector, viz, education and health are in the concurrent and state lists respectively. A large chunk of expenditure on these two subsectors is incurred by the state

Table 6: Social Sector Expenditure by Central Government

Period Plan Non-Plan Total Plan Non-Plan Total (as Per Cent of (as Per Cent of GDP)* Aggregate Expenditure)

Pre-reform period 1986-87 6.13 5.13 11.26 1.43 1.19 2.62 1987-88 7.16 4.66 11.82 1.58 1.03 2.61 1988-89 6.76 4.70 11.47 1.44 1.00 2.44 1989-90 6.90 4.71 11.61 1.53 1.05 2.58 1990-91 6.10 3.89 9.99 1.26 0.80 2.06 Average 6.58 4.54 11.12 1.43 0.99 2.42

Post-reform period 1991-92 6.12 4.31 10.43 1.17 0.83 2.00 1992-93 6.31 3.77 10.08 1.23 0.73 1.96 1993-94 7.82 5.45 13.27 1.44 1.00 2.44 1994-95 8.35 4.12 12.47 1.42 0.70 2.12 1995-96 9.52 4.96 14.48 1.58 0.82 2.41 1996-97 8.22 4.68 12.90 1.29 0.74 2.03 1997-98** 9.29 4.72 14.01 1.55 0.79 2.34 1998-99 7.87 5.08 12.95 1.38 0.88 2.26 1999-2000 8.30 4.48 12.78 1.43 0.77 2.20 2000-01** 8.39 4.22 12.61 1.48 0.74 2.22 2001-02 8.99 6.57 15.56 1.56 1.14 2.70 2002-03 10.22 7.64 17.86 --2003-04** 9.09 7.89 16.98 ---Average 8.65 5.63 14.28 2.37*** 1.54*** 3.91***

Notes: (i) *Quick estimates of GDP at current prices have been used for 1989-90 and 2001-02 and provisional estimates for 1996-97 and 2000-01.

(ii) **Budget estimates of aggregate expenditure.

(iii) *** Average are based on the data for the period 1991-92 to 200102 as estimates for 2002-03 and 2003-04 are not yet available.

Source: (i) Government of India, Budget Papers and Expenditure Budget, Vol 1, various years.

(ii) Government of India, Economic Survey, various issues.

governments. Some previous studies by Prabhu (1997); UNDP (1997) and Chelliah and Sudarshan (1999) reveal that social sector spending (expressed either as a proportion of GSDP or aggregate expenditure) registered a declining trend in majority of states from the mid-1980s. In our study we have covered post-reform period (1991-92 to 2000-01). It can be observed from Table 7 that social sector spending (taken as percentage of overall expenditure or GDP) followed a mixed trend during the 1990s. In 1991-92, the states spent 35.39 per cent of their aggregate expenditure and

5.82 per cent of GDP on social sector. However, these shares came down to 33.96 per cent and 5.77 per cent in 2000-01. Within the social sector, with the exception of three components of social sector, viz, family welfare, labour and employment and rural development; the shares of all others had increased when compared with their shares in the initial year of reform, i e, 1991-92.

A comparison of Table 6 and Table 7 brings to light the fact that the central government has fared well in terms of social sector spending in the post-reform period in comparison to the same in the states. In the post-reform period, the central government eventually spent more on the social sector (12.61 per cent of aggregate expenditure and 2.22 per cent of GDP in 2000-01). However, over the same period, the social sector shares of the states in both aggregate expenditure and in GDP registered a decline. It is important to point out here that the rise in central government expenditure is partially attained by reducing allocations made by the centre for the state plans.4

Education and Health

Coming now to relative expenditure incurred on two components of social sectors, viz, education and health, the declining trend in their expenditures can be noticed during the reform period.

The importance of education cannot be overemphasised in the present knowledge-based economy. The knowledge economy driven by information technologies (IT) requires highly educated people. Primary education is critical. But “for running a technologyintensive economy, we need to go beyond primary education and build institutions for higher education” [IGIDR 1999-2000].

The importance of this subsector (which comes in concurrent list) has been recognised in various plan documents. The government of India formulated a National Policy on Education in 1968 and in 1986. Both the policies aimed at eradicating illiteracy and providing universal elementary education in the minimum possible time. “By 1995, all children will be provided free and compulsory education up to 14 years of age” was the

Table 7: Shares of Major Heads in Social Sector Expenditure (State Government)

Sectors 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01

1 Promotional social sector 99.99 99.99 99.99 99.72 99.56 99.26 99.67 99.74 99.95 99.78 i) Education, art, culture 50.72 51.29 50.67 51.51 52.10 52.12 52.01 52.70 53.50 51.8 ii) Medical, public health, water supply, sanitation 19.57 19.78 19.99 20.65 20.08 20.11 21.01 20.88 19.53 20.44 iii) Family welfare 2.88 2.58 2.88 2.84 3.02 2.48 2.50 2.17 2.20 2.42 iv) Housing and urban development 4.44 3.86 3.74 4.06 4.53 4.74 4.95 4.90 5.70 5.65 v) Labour employment 1.43 1.41 1.32 1.33 1.33 1.27 1.43 1.23 1.25 1.29 vi) Social security and welfare 4.91 4.40 4.56 5.09 5.38 5.42 5.09 4.71 5.19 5.69 vii) Others* 1.42 1.42 1.22 1.41 1.42 1.51 1.53 1.51 1.53 1.66 viii) Food subsidy (NP) 0.14 0.21 0.00 0.00 0.60 0.55 0.56 0.35 0.49 0.41 ix) Rural development 14.48 15.05 15.61 12.83 11.09 11.07 10.59 11.28 10.56 10.41

2 Protective social sectors .00 .00 0.01 0.27 0.44 0.74 0.33 0.26 0.05 0.22 x) Relief on account of natural calamities .0008 .008 0.01 0.27 0.44 0.74 0.33 0.26 0.05 0.22

Social sector expenditure as per cent of aggregate

expenditure of states (1+2) 35.39 35.17 35.72 33.75 34.21 35.06 34.55 35.52 35.94 33.96

Social sector expenditure as per cent of GDP 5.82 6.02 5.58 5.21 5.22 5.02 5.21 5.51 6.24 5.77

Source: Calculated from the figures given in Indian Public Finance Statistics, Ministry of Finance, government of India, various issues.

Economic and Political Weekly January 28, 2006 resolve of the National Policy on Education 1986. The seventh plan document laid stress on the implementation of the goals of this policy. Subsequently, the National Literacy Mission was launched in 1988. Further, in the ninth plan the national goals have been reiterated. But these goals cannot be achieved without adequate allocation for the education sector. The Kothari Commission (1966) suggested initially and the National Policy on Education (1986) and Ramamurthy Committee (1991) stressed subsequently that 6 per cent of GDP should be spent on this sector.

The analysis of expenditure incurred on education at an all-India level reveals that the education expenditure rose from

3.2 per cent of GDP in 1980-81 to a peak of 4.1 per cent in 1989-90. It has followed a continuous declining trend since then. Despite the suggestions of Kothari Commission (1966) and the New Policy on Education (1986) that at least 6 per cent of GDP should be devoted to education, the goal remains distant even after more then 10 years of reforms, as the government spent just 3.5 per cent of GDP on education in 1997-98.

Intra-sectoral allocation of education expenditure in Table 9 shows that both the centre and the states combined together allocated more than 40 per cent of their budgetary resources to elementary education and over 30 per cent to secondary education in 1991-92 to 1998-99 period. As a consequence, expenditures incurred on other subsectors, viz, adult, higher and technical education were relatively low. Allocation to elementary education were increased following the New Policy on Education (1986) and it can also be attributed to the introduction of nutrition programme and district primary education programmes in the mid-1990s.5 Higher priority is assigned to the objectives of universal elementary education (under Sarva Shiksha Abhiyan also) and on secondary education which has resulted in larger allocations for these subsectors.

From the foregoing it is quite obvious that not only theeducational sector but some of its subsectors too have suffered during the reform period so far as financial allocations to them are concerned.

Health

The first formal health care policy for India was laid out by the Bhore Committee Report (1946). Despite the fact that it was adopted by the government of India, but its recommendations could not be implemented fully due to financial stringency of the central governmemt. In the formulation of the National Health Policy, the state governments are also involved as the bulk of expenditure on health sector is incurred by them.

The importance of development of health services and health infrastructure has been duly recognised in the various five year plans in India. A new policy Health for all by 2000 AD (1977) announced a long-term objective of population stabilisation by bringing down net reproduction rate to one by 1995. Since this goal could not be achieved, the National Health Policy (1983) outlined in the Eighth Five-Year Plan reiterated the same goal. Despite two decades of governmental emphasis on access to health services by all and India also being a signatory to the Alma Ata declaration (1978), we are nowhere near this goal. The reiteration of the above-mentioned goal in New Health Policy (1983) and consequent larger allocations for health account one can observe the rise in health expenditure from 0.8 per cent of GDP in 1980-81 to 0.92 per cent in 1989-90 (i e, during pre-reform period). During the post-reform period, the expenditure incurred on health sector rose from 0.83 per cent of GDP in 1991-92 to 0.89 per cent in 1992-93 and settled down at 0.76 per cent of GDP in 1997-98. The government is contributing just 0.9 per cent of GDP to the health sector at present. In the New Health Policy, 2001, there is a proposal to raise it to 2 per cent of GDP by 2010. The current annual per capita public health expenditure in the country is just about Rs 200. Besides the reach and quality of public health services has been below the desirable levels.

It is clear from Table 10 that in spite of the fact that human development is at the core of our planning and reforms, yet allocations made to the social sector as a whole and particularly to education and health have not only been low during the reform period but these have also been declining also due to lack of political commitment on the part of governments which is crucial for achieveing the goal of human development.

III A Decade of Reforms

As has already been observed6 that reduction in social sector outlays would have its effects on the final outcomes of different social sector components, though the response of outcome variables to fall in social sector outlay may vary for each subsector. In

Table 8: Expenditure Incurred on Education

Year Education (in Rs crore)

Pre-reform period 1980-81 3859 (3.2) 1989-90 16905 (4.1) 1990-91 19791 (3.87)

Post-reform period 1991-92 21914 (3.72) 1992-93 24722 (3.68) 1993-94 27530 (3.52) 1994-95 32107 (3.51) 1995-96 37097 (3.48) 1996-97 43035 (3.48) 1997-98 49200 (3.55) 1999-2001* 4.1

Notes: (i) Figures in parentheses indicate percentage to GDP.

(ii) Education expenditure in India are classified into expenditure on general and technical education. General education includes, elementary, secondary, adult and higher education.

(iii) * UNDP, Human Development Report, 2004, p 204.

Source: Central Statistical Organisation, Selected Socio-Economic Statistics for India, 2000, Department of Statistics, Ministry of Finance, government of India, p 64.

Table 9: Percentage Allocation of Total (Centre+State) Budgetfor Education by Subsectors (Revenue Accounts)*

Years Percentage of Total Budget Allocated for Elemen-Second-Adult University Technical Other Total tary Edu-ary Edu-Educat-Educat-Educat-Educatcation cation ion ion ion ional Programmes

1991-92 46.3 33.1 1.2 13.0 4.3 2.1 100.0 1992-93 45.2 34.3 1.0 12.9 4.3 2.3 100.0 1993-94 46.2 33.1 1.2 13.3 4.4 1.8 100.0 1994-95 46.4 33.2 1.2 1.0 4.4 1.8 100.0 1995-96 48.3 32.8 0.8 12.3 4.1 1.7 100.0 1996-97 49.1 32.3 0.6 11.8 4.0 2.2 100.0 1997-98 (RE) 49.7 30.9 0.6 11.9 4.0 2.9 100.0 1998-99 (BE) 48.7 30.1 0.5 13.5 4.2 3.0 100.0

Note: *A large percentage of public expenditure on education is incurred on revenue account and the share of capital expenditure is negligible in education.

Source: Central Statistical Organisation, Selected Socio-Economic Statistics for India, 2000, Department of Statistics, Ministry of Finance, government of India, p 64.

case of some subsectors this becomes visible during the short period. In this sub-section, outcome-effects of reforms on selected components of social sector, viz, education, health, water supply and sanitation during the reform period have been discussed. This discussion also brings to light the challenge posed by the rising cases of HIV/AIDS during the reform period in India.

Education

After over a decade of reforms we find that although we have made progress in the sphere of education, our performance is far from satisfactory and compares poorly with performance of countries like Sri Lanka, Indonesia, Malaysia, Korea and the Philippines. No doubt literacy rate has increased from 43.57 per cent in 1981 to 65.38 per cent in 2001. Yet with a literacy rate of 65 per cent, we have 296 million illiterates in the age group of seven years and above. Gross enrolment ratio was 55 per cent in 1999 in India, but the high dropout rates which stood at 38.7 per cent for boys and 2.3 per cent for girls at the primary level in 1999-2000 (CSO 2000) make a mockery of the high “gross enrolment ratios” reported.

With globalisation we require better education and a more skilled labour force but contrary to the needs of the hour the overall levels of education and skill formation continued to be low in India during 1995-99. For instance 48 per cent of children in India did not reach grade 5. The percentage increased from 38 per cent during 1990-95 to 48 per cent during 1995-99 (i e, an increase of 10 per cent in five years). However, this proportion was as low as 3 per cent in Sri Lanka [Mahbub ul Haq Human Development Centre 2001].

In India, the bulk of public expenditure on education (more than 90 per cent) is incurred by the states and that too under non-plan heads. Several micro-level studies show that due to reduction in non-plan expenditure on educations many schools could not recruit teachers and fill up the vacancies. Consequently, pupilteacher ratio increased [Panchamukhi 2000]. In 1994, pupil-teacher ratio in India was 63.5 per cent for primary schools compared to 13 in Cuba, 19.8 in Thiland, 20 in Malaysia, 22 in China, 39 in Nepal and 50 per cent in Pakistan especially [IGIDR 2002].

The quality and maintenance of school infrastructure is poor and becoming worse in recent years because of decline in nonplan expenditure meant for the maintenance of the existing assets and schemes. In 1993, only 6.5 per cent of all schools had ‘pucca’ buildings, 4 per cent were run on open spaces, 3 per cent in thatched huts and 0.3 per cent in tents. Besides, drinking water and toilet facilities were not available in 56 per cent and 70 per cent of schools respectively.

In 1993, there was a single teacher in 20 per cent of primary schools and there was no teacher at all in 0.8 per cent of schools. Huge variations can be noticed across states. On the one side is Kerala where 99 per cent of schools had three or more teachers and on the other side are Madhya Pradesh and Haryana; in the former 30 per cent of primary schools had only one teacher and in Haryana

2.5 per cent of primary schools had no teachers’ [IGIDR 2002].

One of the facets of the stabilisation programme is to reduce subsidies. If government subsidies are withdrawn from the education sector as a whole, this can have adverse implications for countries like India which have been making sincere efforts to cover the first generation learners under the system who have got a chance to move to higher education after receiving basic school education. Moreover, end of subsidies would also lead to fee hikes which would act as a deterring factor for parents of these first generation learner families.7

Health

Since the 1980s, in India notable improvements have taken place on some of the health indicators like life expectancy (63.7 years in 2002) and infant mortality rate (67 per thousand live births in 2002), mainly as a result of large-scale government programmes. But the health status of vast majority of population continues to remain poor despite more than a decade of reforms. As per Human Development Report 2004, 21 per cent population of India was undernourished in 1999/2000 as against Indonesia’s 6 per cent and China’s 11 per cent. Between 1998-2002, the proportion of low birth weight babies was 30 per cent in India. The maternal mortality rate per 1,00,000 live births, between 1990 and 1998, was estimated to be around 410 as against 65 per 1,00,000 live births in China. In 1998-99 (which covers eight years of reforms), 58 per cent of population (in the age group of 12-23 years) was not immunised. Besides, 51 per cent of India’s population was not having sustainable access to affordable essential drugs in 1999 and 16 per cent of the population was not using improved water sources in 2000 (IGIDR, 2000, UNDP various issues).

Although social sector services are the responsibility of the states, yet in 1998 substantial proportion of population in India was not able to access health services. As is evident from the fact that medical professional assistance at the time of child birth was not available to 57.5 per cent of population in 1998-99. The data about percentage distribution of deaths by type of medical attention received before death is also disturbing. It reveals that during the period of reforms this percentage increased from 12.4 per cent in 1991 to 16.7 per cent in 1996 in rural areas, so far as institutional attention was concerned. In urban areas, it increased from 31.3 per cent in 1991 to 35.7 per cent in 1996. It is important to point out here that at 16.7 per cent in rural areas and 35.7 per cent in urban areas, more or less 83 per cent of rural population and 64 per cent of urban population did not have access to institutional assistance before death [CSO 2000].

There has been an increase in HIV/AIDS cases in India during the reform period. This poses a challenge for the health planners as well as service providers. The seriousness of this epidemic can be judged from the fact that in 1997, out of total AIDS cases

Table 10: Health Expenditure

Year Health (in Rs crore)

Pre-reform period 1980-81 943 (0.8) 1989-90 3767 (0.92) 1990-91 4508 (0.88)

Post-reform period 1991-92 4888 (0.83) 1992-93 5621 (0.89) 1993-94 6218 (0.79) 1994-95 6920 (0.73) 1995-96 7880 (0.73) 1996-97 9231 (0.72) 1997-98 10544 (0.76) 2001* 0.9

Notes: (i) Figures in parentheses indicate percentage to GDP.

(ii) * UN Human Development Report 2004, p 158.

Source: Central Statistical Organisation, Selected Socio-Economic Statistics for India, 2000, Department of Statistics, Ministry of Finance, government of India, p 64.

Economic and Political Weekly January 28, 2006 of 4.1 million reported in south Asia in the age group of 0-49 years, India accounted for 97 per cent of these cases. Increase in global labour migration at inter-regional, intra-regional and international levels along with high levels of illiteracy rate leading to low awareness amongst the potential risk groups, increase of drug addicts, unsafe blood transfusion and reproductive tract infection amongst males and females have contributed to the rise of this epidemic [Mahbub ul Haq Human Development Centre 2001].

Water Supply and Sanitation

Safe and adequate drinking water is not yet available to entire population. In 2000, 16 per cent of population was not using improved water sources. At 28 per cent sanitation coverage in 2000, India’s performance is bleak and unsatisfactory as approximately 70 per cent of population has not been brought under sanitation coverage as yet. In sharp contrast, in Sri Lanka and China percentage coverage was 94 per cent and 40 per cent respectively. Even some African countries whose HDI ranking is below India, have better sanitation coverage than India. For example, in Tanzania the sanitation coverage is 90 per cent, in Uganda 79 per cent , in Zambia 78 per cent, in Malawi 76 per cent and in Mali 69 per cent [UNDP 2004].

IV Policy Issues and Suggestions

The above-mentioned pattern of social sector spending have their policy implications. Firstly, there is an urgent need to raise social sector spending by the central government and states will follow suit, as it is quite low at present. Secondly, the prioritisation of social sectors is also essential. Both higher allocations and prioritisation constitute necessary conditions for social sector development in India [Joshi 2003]. The sufficient condition demands that the funds allocated must flow in to desired channels through good governance and effective implementation. Herein comes the role of the state. As has been aptly emphasised in Asian Development Outlook [Asian Development Bank 2001] that the social sector development along with sustainable growth and good governance are the three pillars of poverty eradication. Moreover, there is a need to improve service delivery through institutional changes as has been emphasised in the WDR (2004). Further, these changes are time-consuming and cannot be brought about overnight; country-specific solutions will have to be found out.

V Conclusions

It is well recognised that social infrastructure is as critical as physical infrastructure in the development of human resources. Given the importance of the social sector in India’s context, it is very relevant and useful to examine the impact of economic reforms on social sector expenditures after more than a decade’s experience with reforms. Such an attempt has been made in this paper by analysing the expenditures incurred by the central and state governments on social sector during the pre-reform and postreform period.

One of the questions raised in the beginning of this paper is whether the budgetary allocations to the social sector as a whole been affected during the reform period? This can be answered in the following way. As a proportion of aggregate expenditure, i e, the share of social sector expenditure in the combined expenditures of the central and state governments registered an increase during the reform period. In case of central plan and non-plan expenditure, the social sector spending (as a per cent of aggregate expenditure) increased significantly from 10.59 per cent in the pre-reform period (1986-87 to 1990-91) to 13.87 per cent in the post-reform period (1991-92 to 2002-03). As a proportion of GDP, central government expenditure incurred on the social sector has followed a highly fluctuating trend in both pre-reform and post-reform periods. India is spending a very low percentage of GDP on this particular sector. Even over decade of reforms not much improvement in social sector spending has been made as the share of social sector to GDP remained at a very low of 2.7 per cent in 2000-01 (in 1986-87 it was 2.62 per cent). In the post-reform period (1991-92 to 2000-01) social sector spending (expressed as percentage of GDP and aggregate expenditure) in the states has come down.

A fact that is worth noting is that the social sector expenditure of the centre as percentage of aggregate expenditure and GDP has increased during the reform period. However, one cannot afford to neglect the fact that higher expenditure incurred by the central government on social sector is at the cost of lower allocations made from the central plan outlay to the states.8

Now let us see whether there is any increase in expenditure incurred on education and health. With regard to education, the share of education increased during the pre-reform period. But during the post-reform period, it continued to decline till 199697 with a rise in educational expenditure in 1997-98. The increase is due to increase in spending on elementary education and also because of the introduction of the mid-day meal programme. The intra-sectoral allocations also bring to light the fact that with the exception of elementary education, expenditure on all other subsectors of education has suffered during the 1990s.

Generally speaking, with regard to health expenditure too, a similar declining trend has been observed in the post-reform period. This is despite the fact that the share of this subsector in GDP increased marginally in 1992-93 and in 1997-98.

The development strategy outlined in the Eighth Five-Year Plan marked a clear-cut departure from the earlier strategies adopted, for declaring human development as its “ultimate goal”. The achievement of this objective which has been reiterated in the approach paper to the Tenth Five-Year Plan requires not only higher budgetary allocations for the development of social sector but also a series of well integrated policies along with a political commitment on behalf of the government so that reforms have a human face.

From the above discussion it is clear that India indeed has made noticeable improvements in key social indicators on education and health since the 1980s, mainly as a result of large-scale government programmes. But even then the conditions with respect to social sector development in India are appalling when compared with conditions prevailing in countries like Sri Lanka, China and some countries of south-east Asia. The educational and health status of a vast majority of the population continues to remain poor even after a decade of reforms. Moreover, the rising cases of HIV/AIDs cases in India during the reform period pose a serious challenge which demand an immediate and sustained response from the government.

EPW

Email: seemajoshi143@hotmail.com

Notes

[This is a substantially revised version of the paper presented earlier at a workshop on ‘Social Sector Development: Present Status and Future Challenges’ held at ISEC – Bangalore from February 19-21, 2003. The author is grateful to V Chandrasekara Naidu, MIDS, Chennai for his insightful comments on earlier draft of this paper and to L R Sharma for his guidance.]

1 In some of the previous studies [Prabhu 1997] only revenue expenditure has been included.

2 A similar declining trend has been observed by Panchamukhi in his study (2000) covering comparatively shorter period of time.

3 See Bourguignon and Morrisson (1992). In Chile, per capita social expenditure in case of education, health and housing fell 20 per cent between 1981 and 1983-86, despite a low rate of population growth and in percentage terms share of social sector in budget declined from 30 per cent before adjustment to 23 per cent. In Morocco, social expenditure dropped from 8.3 per cent of GDP in 1983 to 7.2 per cent in 1986. During the same period, per capita expenditure for education and health declined by 11 per cent and 5 per cent respectively.

4 See also Dev and Mooij, forthcoming, Sarma, 2001.

5 Dev and Mooij (2002).

6 See Panchmukhi, 2000.

7 See Panchmukhi, 2000.

8. Dev and Mooij forthcoming.

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    Economic and Political Weekly January 28, 2006

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