Possibility of a looming recession and the climate crisis are widely anticipated to result in significant headwinds for social and economic development of communities globally, and for vulnerable, marginalized communities in particular.
As such, it is prudent for the government to continue its focus on social sector spending as it works on the Union Budget 2023-24. While government is redoubling its efforts to accelerate the economic growth agenda, it is increasingly being mindful of the fiscal space available given ballooning deficit and resultant strain on the exchequer. If current state of public finances continue, government is expected to meet its budgeted fiscal deficit target of 6.4% of GDP in 2022-23, which is of particular note, since fiscal space was already less supportive that it was in 2020-21 due to lower revenue and non-debt capital receipts.
In 2022-23 the government had allocated Rs 71.61 lakh crores for social sector spending which was 0.4% higher than the actual spend in the previous fiscal. This could however, be largely attributed to increased spending on healthcare, while spending on other sectors such as sanitation, labour welfare, and women and child development saw a small decline. It is also of note that India presently allocates approximately 1.4% of GDP for social sector (excluding health) as against an average of 2.5% for low- and middle-income countries as per the World Social Protection Report 2021. Further reducing the already low allocation to the social sector at this juncture, in order to taper the fiscal deficit, might result in a long-term negative impact on the social and economic upliftment of the vulnerable and marginalized.
This presents a unique dilemma, wherein reduction in spending is counterproductive in the long-term; while current fiscal scenario not being conducive to either maintaining or increasing the spend. While almost all experts and key voices support higher allocation of programs and policies that address burning issues such as food security, nutrition, health outcomes, access to education, and livelihood opportunities. One could expect an increase in allocation for flagship schemes such as rural development and social sector schemes such as PM KISAN, PM Awas Yojana, Jal Jeevan Mission, PM Grameen Sadak Yojana, and MGNREGA as these are large scale schemes aimed at improving living conditions and infrastructure particularly in rural areas of India, including increasing access to housing, water, roads, and livelihood opportunities.
Notwithstanding the above, Government should move beyond a one-dimensional approach of viewing returns from social sector as a function of monetary allocations and look at efficiency in delivering the desired outcomes. There is an urgent need to make social sector spending more efficient and effective. More than 6 lakh crore is spent across a number of schemes, quite a few of which are trying to achieve same or similar outcomes with the same target beneficiary cohort. While the JAM trinity (Jan-Dhan Aadhaar Mobile) for Direct Benefits Transfer (DBT) has resulted in a significant reduction in leakages, a similar innovative approach may be essential to drive efficiency, to achieve the desired levels of outcomes with same/ reduced spending. New tenets of governance which have driven success in other sectors must be embodied for social welfare schemes.
There is a need to systematically enable supply-side consolidation at a demographic and thematic level. Standout examples such as “Mission Shakti” have demonstrated how consolidation at a thematic level allows for better management, cost-effectiveness, and focused oversight. Scheme convergence through enabling umbrella programs will reduce duplication of entitlements, plug leakages and significantly reduce administrative overheads. It would also allow for better governance architecture with focused roles, responsibilities, and clear accountability among various functionaries.
Government could consider phasing in market-based and enterprise driven mechanisms for enabling social and development outcomes. While government has already enabled development financing instruments such as, impact/ green bonds, fund of funds, social stock exchange, among others, implementation of the same needs to be accelerated. Addis Ababa Action Agenda provided a global framework for financing sustainable development, and since then we have seen the global financing apparatus mature. We would do well to replicate strategies and actions which have proven to be successful globally such as ‘pay for outcomes’ model.
At present, a large amount of CSR funds are used as either supplementary or supplanting government schemes without scale or institutional maturity which would enable better social return on capital. There is a need for these funds to be channelized better (through market based institutional mechanisms such as aggregation platforms, impact instruments, enterprise-based implementation etc.) for these funds to catalyse exponential impact and large-scale transformation.
As it is unlikely that Government will stay the course on deficit financing, therefore adopting a multidimensional long-term view will be critical for India to achieve its long-term social development agenda.
This article was originally published in The Times of India.