Very often, governments at the Centre and in the states defend their modest allocation for certain key sectors by citing absolute increases over the previous year instead of using GDP as a benchmark to measure the allocation.
This is also seen in parliamentary debates and replies to MP’s questions. However, the former method distorts reality. In a growing economy indicated by an increase in GDP numbers, it is a fair expectation that all sectors would see an increase in gross allocations.
But what is important is whether these increases are at the same rate as the GDP increase rate. If not, it would indicate a lesser priority of the government for that sector.
For example, allocations as a percentage of GDP estimate for 2022-23 either declined or remained stagnant in 13 of the 21 key sectors compared to similar percentages last year. Amongst these 13 sectors are School Education, Higher Education, Agriculture and Farmers’ Welfare, Environment, Health and Women and Child Development. These are, in fact, some of the thrust areas of the central government by its own admission.
Though the Budget speech laid out a clear direction and reinforced India’s commitment to the goal of achieving net-zero carbon emissions by 2070, the Budget allocated merely Rs. 3030 crores for the Ministry of Environment, which forms an abysmal 0.012% of GDP as compared to 0.03% of GDP in 2006-07. As stated by the MoEFCC in Rajya Sabha, India’s announcements at COP26 require an additional climate financing of approximately $1 trillion.
Similarly, health allocation in the present Budget still constitutes a mere 0.335% of GDP, with no significant improvement over last year despite the country facing an ongoing public health crisis. This is concerning since the public health allocation was 0.26% of GDP in 2015-16, witnessing only a marginal improvement in seven years.
Even if we consider the health allocation as a percentage of total expenditure, it doesn’t bode well. The health outlay was 2.2% of the total expenditure in 2006-07. Fast forward to Budget 2022-23, the budgetary allocation towards health dipped to 2.1%.
Interestingly, the cess-excluded allocation on health stands at about Rs 62,000 crore, or 1.6% of the total expenditure, signifying a sizeable reduction of allocations from out of the centre’s share from the divisible pool of taxes and duties.
An even grimmer picture is visible in education. The total education outlay has stagnated in recent years when viewed through the prism of the percentage of GDP. The Economic Survey reveals that the combined outlay of the Centre and the States is 3.1% of GDP per 2021-22 BE. However, this outlay is the same as in 2013-14, dipping to 2.8% over the ensuing years before recovering against the backdrop of the pandemic.
It is also critical to view this stagnation in light of the National Education Policy (NEP) which has re-emphasised the need for increasing the education expenditure to at least 6% of GDP. Even the NEP talks about the percentage of GDP and not in absolute gross numbers.
Numbers in the agriculture and allied sectors don’t inspire too much confidence either, having increased only marginally from 0.17% of GDP in 2006-07 to 0.51% of GDP in the present Budget across a span of 15-plus years.
It is a well-established international practice to calculate and evaluate public expenditure as a percentage of GDP. Sectoral allocation in absolute terms is a one-dimensional metric that tells us nothing other than the basic value of government expenditure and fails to provide information about rising inflation, inequality or the spending’s relationship with other economic allocations. Since India is a developing economy, our GDP is growing faster than other large economies. Hence, an increase in final allocations is all but expected.
In contrast, when we measure the allocations as a percentage of GDP, we begin to understand how small or large the allocation is. We also can draw linkages and comparisons not only with other sectors in the economy but also with other countries similarly placed as us and whom we aspire to emulate. This context helps prioritise the areas that need urgent focus and informs better policy-making.
India’s per capita GDP grew five times from 2006-07 to 2022-23. However, the same increase is not visible in the allocations to key sectors. This has resulted in inequitable growth where the rich become richer, leaving the poor on the margins of society. India’s Gini coefficient, a matrix to measure wealth inequality, stood at 82.3 in 2020, rising from 74.7 in 2000.
There needs to be a paradigm shift in how the country approaches its issues – changing the lens that informs decision-making. The government must depart from the old ways of viewing incremental, absolute increases in allocations as a successful milestone to measuring allocations as a percentage of GDP. Only then can it serve the needs of the people and sufficiently prepare itself for the ‘Amrit Kaal’.
AMAR PATNAIK
Rajya Sabha MP and former CAG bureaucrat
(amar_patnaik@yahoo.com)