Expenditure by States on key sectors remains flat

November 28, 2016 12:42 am | Updated November 27, 2021 04:20 pm IST - New Delhi:

Expenditure by the States on key social and economic sectors has not changed substantially following the implementation of the 14th Finance Commission recommendations in 2015-16, shows an analysis of the budgets of 17 States by PRS Legislative Research. These States account for over 80 per cent of the total expenditure of all States.

The “State of State Finances” report of PRS says that between 2014-15 and 2016-17, expenditure on education, health and rural development is expected to grow marginally. Comparisons here are made between “actuals” (reflects actual expenditure) for 2014-15 and “budget estimates” (allocations only, not spending) for 2016-17.

Data for 17 states; Source: PRS

Data from the study show that spending as a percentage of total expenditure is expected to increase from 14.2 per cent to 14.6 per cent on education, from 3.9 per cent to 4 per cent on health and from 5.8 per cent to 6 per cent on rural development.

By the commission’s recommendations, the share of Central taxes devolved to States, which they can spend as per their discretion (untied funds), was increased from 32 per cent to 42 per cent. The increase was compensated by a decrease in Central spending on schemes, most of which are tied in nature. This change was expected to increase the fiscal autonomy of the States, allowing them the flexibility of deciding the schemes they would wish to continue and allocating the additional funds accordingly.

As a result, the tied transfers, as a proportion of gross tax revenues of the Union government, reduced by 6.5 per cent, while untied transfers increased by 8.5 per cent between the two years, says a working paper published by the National Institute of Public Finance and Policy (NIPFP) in November.

Various studies have suggested that there has been an increase in Central transfers and social sector expenditures in a number of States in 2015-16. However, the NIPFP working paper argues that the magnitude of gains from Central transfers at the State level is likely to be much lower than the extent documented in those studies.

* = Revised Estimates, ** = Budget Estimates; Source: NIPFP

One problem is that only the last year of the 13th Finance Commission, 2014-15, has been used for comparisons, which itself was a low-base year. In 2014-15, data show that aggregate transfer to States as a proportion of gross tax revenue of the Union government was 55 per cent, down from 63 per cent in 2010-11. In 2015-16 and 2016-17, the figure was 57 per cent — an increase of 2 percentage points from the 2014-15 figure, but likely to be lower than the average of the TFC period, the NIPFP study remarks.

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