Budget and Central sponsoring of public expenditure

By Bibek Debroy| Published: 23rd January 2021 07:19 AM
amit bandre

We will soon have the Union Budget for 2021-22. Apart from policy announcements made, the Budget is about the Union government’s annual statement of receipts and expenditure. Receipts can be non-tax or tax. Most people want the Centre to spend. Indeed, as economists argue, multiplier benefits of government expenditure exceed those of tax reductions. That is, if there is going to be an expansionary fiscal policy, that is better accomplished by increasing government expenditure, not reducing taxes.

Of course, to increase government expenditure, one needs to find resources without imposing costs on the future. Nor does government expenditure only occur at the Union government level. Since the bulk of public expenditure occurs at state government level and since most public goods are delivered by local bodies, I am surprised that more attention is not paid to state government Budgets and recommendations of state Finance Commissions.

I am also surprised people don’t realise the bulk of expenditure is fixed for the Union Budget. It is exogenously determined, at least in the short turn, and I don’t mean salaries, pensions and interest payments alone. I have in mind Central Sector and Centrally Sponsored Schemes (CSS-s) too. In case of a Central Sector scheme, the entire expenditure is borne by the Union government. For a CSS, the state government (or Union territory) has to bear a part of the expenditure, with the share depending on the type of state.

In every act of expenditure, even if it is a household budget, there is a question of prioritisation, trade-offs and focus. Focus is important for every activity. One doesn’t shoot pellets from a shotgun, hoping something will stick somewhere. One focuses on what is important, even though one feels a compulsion to do fifty different things. It is no different with CSS-s. There is a question of increasing public expenditure and there is the equally important question of examining efficiency of existing public expenditure. Without saving resources through the latter exercise, one can’t generate resources for the former.  In the days of the Planning Commission, I saw a report that mentioned 455 CSS-s.

Later, there was a 2011 Planning Commission Committee Report, chaired by B K Chaturvedi. To quote from this, “In the initial Plan years, no. of CSS was very large (190 at the end of Fifth Plan which increased to 360 at the end of Ninth Plan). The total no. of CSS have reduced gradually over time.” Has it truly declined? Not really. In recent years, that impression has been fuelled by the 2015 Report of the Sub-Group of Chief Ministers (chaired by Shivraj Singh Chouhan) on rationalisation of CSS-s. Following an earlier trend (June 2013), all that happened was several schemes were clubbed under umbrella headings, giving an impression of rationalisation.

Specifically, the Shivraj Singh Chouhan Sub-Group divided schemes into core and optional. Union Budgets follow that reporting pattern and ostensibly, there are six “core of core” schemes and 24 “core” schemes. But these are like holdalls that used to be carried on trains once upon a time. Many sub-schemes are crammed into a single holdall. Because the reporting goes ministry- and department-wise, it is difficult to count. But there are at least 230 CSS-s, provided the counting is transparent. In 2020-21, the Union government’s contribution towards CSS-s was roughly `3.4 lakh crore. As I said, everything seems to be important. But if we spend `8 crore annually on Gram Nyayalayas, is it worth including this scheme as a CSS?

The NDC (National Development Council) has discussed issues relating to CSS extensively in several meetings; the earliest I know of, was in 1967. In 1967, the obvious was stated. Let us prune and have focus. Let me quote from the B K Chaturvedi Report. “The first Sub-Committee on this was set up in 1967 which recommended a limited number of important schemes …such as family planning, resettlement of landless agriculture labourers and schemes in several other areas.

Subsequently, these issues have been discussed in NDC meetings in 1968 and 1984 and in several other meetings. In meetings of NDC, state chief ministers have emphasised on several occasions the need to reduce the number of CSS. Measures suggested to do so include

(i) putting a cap on CSS at 1/6th or 1/7th of Central Plan assistance,

(ii) transferring a number of identified schemes to state governments,

(iii) consultation with states, particularly if the schemes are not 100% Central funded.”

There is a difference between restructuring and rationalisation. If I relabel, that can be called restructuring. What we need is rationalisation. A CSS requires matching contributions from states. That imposes constraints on what a state can do with resources obtained from a Finance Commission. Ideally, there should be no CSS-s on anything in the State List of the Seventh Schedule.

Union government schemes should only be for items in the Union List of the Seventh Schedule and these should be Central Sector, not CSS-s. (If they are important enough, they should be funded 100% by the Union government.) In the Concurrent List, we should have nothing not linked to SDGs. Nothing prevents states from introducing other schemes with resources obtained from the Finance Commission. Even if one doesn’t agree with these principles, one ought to agree that there need to be some principles; 230 schemes are too many. Obviously, there are hurdles in the path towards rationalisation. States have to be consulted. Some CSS-s have legislative backing. Perhaps the 15th Finance Commission’s recommendations (not yet in public domain) have some indications.

Bibek debroy (Tweets @bibekdebroy)
Chairman, Economic Advisory Council to the PM. Views are personal

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