Where do the States spend their money?

December 14, 2016 11:35 am | Updated November 27, 2021 04:19 pm IST

Andhra Pradesh spent over Rs. 20,000 crore on education, according to a report.

Andhra Pradesh spent over Rs. 20,000 crore on education, according to a report.

Budgets serve as instruments of policy change. States, on an average, spend 1.3 times more as compared to the Centre. In 2015-16, all States taken together budgeted to spend approximately Rs 23.4 lakh crore, around 30 per cent more than the Rs 17.6 lakh crore figure of the Union Budget.

These numbers come from the ‘State of State Finances’ report released by PRS Legislative Research, which analysed budget documents of 17 States (including Delhi). These states account for over 80 per cent of the total state expenditure.

In annual conference of PRS on ‘Effective Legislatures’, Haseeb Drabu, economist and now Finance Minister of Jammu and Kashmir, reckoned that state budgets are crucial for the quality of citizen’s life. “State budgets impact welfare, Union budget impact your wallet,” he said. He further added that State spending doesn’t impact the macroeconomy — inflation or interest rates — but it affects poverty alleviation.

Where do states spend? Which sectors get priority? Check our interactive to see how budgetary allocation varied across 17 states in 2016-17.

Instructions to read the chart: The bubble size is proportional to the amount allocated to the sector. Larger bubble size corresponds to higher allocation. Percentage spending to the sector is placed on the vertical axis – the higher the placement of the bubble on the vertical axis, the higher the share of the sector in the state budget.


States primarily spend funds on three key services, the PRS report says. First, economic services, which includes agriculture, transport, and electricity. Second, social services, constituting education, health, and housing. The third category deals with general services such as administration expenses in the state. Over the last five years, states spent the highest proportion of their budget on education, followed by energy, rural development, and agriculture.

Budgetary spending reflects the priorities of the government in power as well as the needs of the state. For instance, highest percentage allocation to ‘Irrigation and flood control’ was done by Telangana — around 21 per cent — significantly more than the second largest allocation by Maharashtra, around eight per cent. But on education, Telangana has budgeted the lowest share.

Allocation to sectors by Delhi lies at the extremes. It has the highest percentage allocation on education and health but the lowest for agriculture, rural development, irrigation and flood control, and police. Note that Delhi Police is under the Central government. The amount allocated under ‘police’ by Delhi government goes to forensic laboratories.

Further, spending on ‘Welfare of SC, ST and OBCs’ will depend on the population of the castes in the various states. While 13 of the 17 states analysed are expected to spend less than three per cent on this sector, Telangana and Andhra Pradesh have budgeted to spend more than seven per cent.

Mr. Drabu laments that discussions around budget are inadequate. There are neither pre-budget discussions, nor post-budget analysis, he said. Plus, he emphasised the importance to look beyond ‘budget estimates’, and shift the focus to ‘actuals’ and ‘revised estimates’.

Revenue vs Capital Expenditure

Government spending can be broadly classified into two heads: revenue and capital. Revenue expenditure, which includes administration, implementation of schemes, and payment of salaries, constitutes the dominant share of state budgets — expected to be around 84 per cent in 2016-17.

In health and education, wages account for a significant portion of the overall expenditure, Yamini Aiyar from the Accountability Initiative said in a conference organised by the National Institute of Public Finance and Policy. Talking about the education sector, she said: “While states contribute to 70-80 per cent of the overall expenditure on education, the bulk of that goes to salaries.” Hence, she added, the transfers by the Centre, in the form of Centrally Sponsored Schemes, becomes crucial for any investment decision that the state government wants to make outside of wages.

The share of capital expenses is expected to be around 16 per cent, which comprises of repayment of loans, spending on infrastructure such as roads, buildings hospitals and schools.

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