States have a big role in next-generation social sector reforms

The shift towards states as accelerators of future reforms stems from a feeling that the Centre has concluded its role in easing the process of doing business.

In the flurry of excitement over the Interim Budget, little attention was paid to the brief economic statement that replaced the usual annual survey. However, this document has given some clear hints about the way forward in terms of the next-generation reforms in case this Bharatiya Janata Party (BJP)-led government returns to power after the general elections in a few months.

Looking ahead to the creation of a developed economy by 2047, it highlights the states’ role in making future reforms more ‘purposeful and fruitful’. It also underlines the need to improve governance at the district, block and village level, making them both citizen- and business-friendly. Equally significantly, it notes that states will have to be proactive in areas like health, and education which are mentioned among the next big things on the reform front.

The focus on states being the drivers for the next stage of reforms was echoed in the budget proposals. Pointing to their increasing role in formulating growth and development-oriented reforms, Finance Minister Nirmala Sitharaman announced that Rs 75,000 crore would be offered to them as a 50-year interest-free loan to achieve these milestones.

The shift towards states as accelerators of future reforms stems from a feeling — voiced in recent times by top officials — that the Centre has concluded its role in easing the process of doing business. The next round of procedural changes, it is being stressed, need to be at the ground level. In other words, regulatory processes must be eased at the state, municipal, and village level.

The view has found resonance with investors who have frequently complained about intricate rules and procedures that bog down the establishment of projects in states. These include approvals by municipalities or by village-level governing bodies that have yet to alter existing systems. The broad swathe of clearances that used to hamstring investors at the central level has now been reduced to a large extent, but the number of approvals needed to set up a new business remains sizable, and are a daunting prospect.

The areas proposed to be given more attention in the next generation of reforms are also substantially different from the past. The economic statement identifies these as health, education, skilling, and land acquisition. These are all sectors that come directly under the purview of states rather than the Union government.

What is heartening is that finally there is a shift towards sectors that have been relatively neglected in the past for reforms. Industrial development has taken centre stage ever since the economic liberalisation and reforms of 1991. In contrast, the social sectors — health and education — have consistently received inadequate outlays for building up quality infrastructure. In the case of health, for instance, India has been allocating only 2.1 per cent of GDP compared to 5 per cent by China, and 9.2 per cent by Brazil. Developed countries typically have a much higher allocation, with the United States at over 16 per cent.

Similarly, education outlay has been kept at 2.9 per cent of GDP, according to the Economic Survey for 2022-2023. In contrast, China is reported to be spending about 4.01 per cent of GDP on this sector.

The outcomes of such slim funding for these sectors became evident during the Covid-19 pandemic. The lack of infrastructure in tier two and tier three cities as well as rural areas was revealed starkly at the time. The inability to maintain sufficient hygiene levels as well as to implement protocols to prevent infection was glaringly obvious. There have not been any reports since then indicating that the status of primary health facilities within states has improved by any significant extent.

As far as education is concerned, it was again the pandemic which exposed the fault lines between the rich and poor, as well as between the urban and the rural segments across India. With schools closed then, the decision to opt for online learning meant that only students who had access to electronic devices could keep pace with the courses. More affluent students, especially in urban areas, naturally had an advantage over their less privileged peers.

The other new reform areas cited in the statement include skilling to meet the needs of new technologies as well as land acquisition. The former is critical to ensure the young become employable, while the latter has proved a major stumbling block for investors. These issues are in the purview of states. It is, thus, possible that the Modi government’s expected third term could usher in an era of greater Centre-state co-operation to make the next phase of reforms more effective.

This would be a welcome development as the social sectors need urgent attention as India is not yet able to provide basic healthcare and modern education to its citizens. It cannot become a developed economy till then.

Sushma Ramachandran is a senior journalist.

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.