Social Sector Spending in 2015-16

In the constitutional scheme of things, it is the states rather than the centre which bear the larger responsibility for social sector spending. Indeed, the states already account for as much as 80% of total outlays in the area. But central government intervention in the form of establishment of and funding for certain flagship programmes has meant that in recent years, it is the centre which has been the driving force behind new initiatives. This is set for a change with the Fourteenth Finance Commission (FFC) having awarded the states a significant increase in their share in the divisible pool of tax revenue. Going by the Union Budget for 2015–16, in the first year of the FFC’s award, additional “untied funds” of as much as Rs 1,86,000 crore will flow from the centre to the states. The expectation is that the states will use these funds to set their priorities in the social sector and other areas. The FFC’s idea of enhancing tax devolution is to give fiscal autonomy to the states in deciding allocations at their level in the social sector and other areas, to restore a balance in the freedom to set spending priorities which had heavily shifted in favour of the centre.

The replacement of the flow of a good part of conditional grants or tied funds (for central schemes of various kinds) by the flow of untied funds means that the centre has been compelled to correspondingly reduce its allocation of grants to the states. It has been estimated that the decline in such allocation of grants will be close to Rs 88,000 crore this year. Not all of this reduction will be of central government allocation to social sector programmes, but a good part will be. In the Union Budget for 2015–16 the centre announced a new grouping of central government schemes, including centrally-sponsored schemes (CSS), around three kinds of funding. One group would see no change in funding patterns from the past, in the second the states are to meet a greater share of financing and, in the third, the centre will withdraw completely. A large number of important social sector schemes fall in the second category. These include the National Food Security Commission, Integrated Child Development Services (ICDS), Sarva Shiksha Abhiyan (SSA), and drinking water and sanitation programmes (subsumed under the Swachh Bharat Abhiyaan). In all these schemes, central government funding in 2015–16 has seen huge cuts, with the expectation that the states will step in. The union budget claims that while the funding pattern will be modified, total funding “will not change”; though how the centre can be certain that the states will cover each and every gap, we do not know.