Education, health expenditure grow faster than GDP

Social welfare and subsidies have been the fastest growing items of government expenditure in the last decade, leading to pressure on the government’s fiscal position, according to CRISIL Research, which has analysed the trends in combined spending of both central and state governments from 2003-04 to 2010-11 to assess the trends in expenditure in social and physical infrastructure.

The research firm said on Tuesday that from India’s long-term growth perspective, expenditure on physical infrastructure and social infrastructure are a good indication of the kind of investments India is making in its future.

From 2003 to 2011, spending on social infrastructure grew at a Compound Annual Growth Rate of (CAGR) of 18.7 pc, ahead of CAGR of nominal GDP at 15.3 pc. On the other hand, growth in spending on physical infrastructure (15.7 pc) just about kept pace with nominal GDP growth. Consequently the share of spending on social infrastructure in GDP increased from 4.1 pc to 5 pc over this period, while the share of physical infrastructure spending in GDP marginally increased from 4.5 pc to 4.6 pc, CRISIL said in its study.

According to Roopa Kudva, MD and CEO, CRISIL, “There are some positive features in the expenditure patterns of government. Within social infrastructure, spends in all the four sub-sectors of health (17.5 pc), education (19 pc), family welfare (22.3 pc) and scientific services (16.8 pc) have grown faster than nominal GDP. Within physical infrastructure, spends have grown particularly fast in urban development (CAGR of 28.9 pc), roads and bridges (22.1 pc) and rural development (19.4 pc).”

The challenges to be tackled lie in areas that are lagging behind and in the distance from the government’s own goals, Kudva said.

Dharmakirti Joshi, Chief Economist, CRISIL said that expenditure on power projects (3.2 pc), ports (12 pc), irrigation (13.7 pc), and Railways (14.8 pc) have grown below the CAGR of nominal GDP. “There is a need for increased thrust in these areas. There is also a need for government to involve the private sector more actively in power and ports, by removing policy bottlenecks,” Joshi said.

He noted that there is still quite some distance for government to cover to reach its own stated targets for education expenditure at 6 pc of GDP and health at 2 pc of GDP. India needs to protect and prioritise spending in these areas – currently, we rank lowest among BRICS countries in health, education, and physical infrastructure.