Welfare spending has been getting a regular pruning
This year’s Union Budget was criticised by experts over a decline in allocations for welfare schemes in real terms, at a time of post-COVID-19 recovery when welfare spending should have been a priority. Similarly, last year’s Budget too ignored social spending in favour of capital expenditure.
The analysis below, based on Budget papers, shows that the trend of declining central government spending on critical social schemes is not new, having begun when the National Democratic Alliance (NDA) government came to power in 2014. Since then, central allocations for welfare schemes and sectors that ensure basic rights have declined as a proportion of GDP.
Saksham Anganwadi and Poshan 2.0 aims to address child malnutrition and hunger. From 2021-22, the Anganwadi programme (ICDS) was merged with POSHAN Abhiyaan and a nutrition scheme for adolescent girls. Even with more components, its allocation went down from 0.13% of GDP in 2014-15 to 0.07% in 2023-24 — almost half of what it was.
According to National Family Health Survey (NFHS)-5 data, the percentage of anaemic, underweight and stunted children in India is 67%, 32% and 36%, respectively, which is among the worst in the world. Yet, funds meant to address malnutrition are being slashed with abandon.
Another important nutrition scheme is the mid-day meal (MDM) scheme, covering almost 12 crore children. Evidence shows that the scheme has led to an improvement in class attendance, learning as well as nutritional outcomes and reduced stunting in children. However, the Budget allocation for MDM decreased by 50% as a share of GDP, from 0.08% in 2014-15 to 0.04% in 2023-2024. In 2021 the Ministry of Finance rejected a breakfast at school plan citing funds constraint, a plan that has shown promising results in Tamil Nadu within a year.
Lastly, the PM Matru Vandana Yojana (PMMVY) provides maternity benefits as a conditional cash transfer of ₹5,000 to women in the unorganised sector. To cover all women and births as per the National Food Security Act (NFSA) mandate, the scheme needs around ₹14,000 crore, but the PMMVY Budget is yet to cross ₹3,000 crore.
Working class distress worsens
The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and NFSA (Food Subsidy) have also declined as a share of GDP since 2014. MGNREGA guarantees 100 days of employment to every rural household whereas the NFSA provides subsidised grains to over 80 crore people.
MGNREGA expenditure as a share of GDP went from 0.26% in 2014-15 to 0.20% in 2023-24. For NFSA it went to 0.65% this year from 0.94% in 2014-15. As experts point out, MGNREGA and the Public Distribution System were key to averting disaster during the pandemic. Both schemes saw record demand in 2020-21; MGNREGA saw 8.55 crore households avail employment, while Public Distribution System (PDS) grain offtake was 93 million tonnes, leading to an expenditure of 2.73% and 0.56% of GDP on NFSA and MGNREGA, respectively. However, since 2020-21, NFSA and MGNREGA allocations have declined rapidly as a share of GDP.
As the economist, Jean Drèze, highlighted recently, real wages of casual workers grew at less than 1% per year from 2014-15 to 2021-22 according to Reserve Bank of India data. Prof. Drèze argues that this worrying trend calls for a reorientation of economic policies, with a sharper focus on drivers of wage growth.
The National Social Assistance Programme (NSAP) is a scheme that provides pensions to the elderly, widows, and disabled individuals below the poverty line and monetary assistance to families that have lost a breadwinner. As a share of GDP, its allocations went down from 0.06% in 2014-15 to 0.03% in 2023-24. The share steadily declined over this period except for 2020-21 when it was 0.21% with COVID relief in cash included in the NSAP.
The NSAP cuts go against advice from 60-odd economists who have been urging the government for long to increase the paltry pension amounts of ₹200 per month for the elderly and ₹300 for widows. The pensions have not increased since 2006.
As a share of GDP, central expenditure on school education (primary and secondary) has steadily declined from 0.37% in 2014-15 to 0.23% 2023-24. It is surprising to see no increase here even after the pandemic which had catastrophic effects including a surge in primary dropout rates because of over 70 weeks of school closures — double the global average.
Only marginal health-care gains
Health-care expenditure, unlike others, rose under the NDA government. The share of central health expenditure in GDP went up from 0.25% in 2014-15 to 0.30% this year. While this is a welcome change, it is too little too late in a post-COVID world.
According to the latest State of the World’s Children report by UNICEF, India has the lowest vaccination rates in South Asia. Furthermore, India’s out-of-pocket expenditure on health remains much higher than the global average, pushing millions into poverty each year.
For these schemes/sectors for which comparable data was available, the allocations saw a noticeable increase from 2004-05 to 2013-14. The share of GDP remained stable for MDM, food subsidy and health care, tripled for ICDS, doubled for NSAP, and increased by 45% for school education with a combined increase from 1.48% of GDP in 2004-05 to 1.8% in 2014-15. But then it dropped to 1.32% this year under the NDA government.
On the other hand, the NDA government was relatively successful in delivering tangible goods — a policy paradigm Subramanian et al. (2021) refer to as the New Welfarism of the Right. They show that considerable progress has been made in access to cooking fuel, electricity, and financial inclusion of women, with an accelerated pace of improvement since 2015. The authors argue that there are rich electoral gains in new welfarism as tangible goods and services are easier to deliver, monitor, and attribute to the central government when compared with traditional government services such as primary education and child nutrition.
A stagnant HDI rank
It is only fair to expect that as a country’s GDP grows, its expenditure on welfare programmes should grow proportionately. In fact, going by international experience, the share of social expenditure in GDP should be rising over time in India. The vital importance of social security programmes was acknowledged by the government when it raised the Budget allocation for all the aforementioned schemes during the pandemic year to 4.3% of GDP; but we are now back to just 1.5%.
According to the World Social Protection Report by the International Labour Organization, only 24.8% of Indians are covered by at least one social security scheme against the Asia-Pacific average of 44%. Its result can be clearly seen in India’s stagnant Human Development Index rank at 132 and rising malnutrition levels. It is difficult for India to be a superpower with an uneducated and unhealthy population.
If fiscal prudence is a worry, we suggest the government recover the ₹4.3 lakh crore of revenue foregone due to tax concessions during NDA-1 and another ₹1.85 lakh crore foregone between 2019-21 after lowering corporate tax rates in 2019.
An analysis of the trend of welfare expenditure on key schemes and sectors since 2014