Housing And Urban Development Benefit From Shift In States’ Social Spending

Indian states are seen pushing up spending on social sector initiatives in the current year with greater emphasis seen on sanitation, housing and urban development.

Social sector spending is estimated to constitute 44.4 percent of aggregate expenditure for the fiscal year 2018-19, up from 44 percent in 2017-18, showed the Reserve Bank of India's annual report on state finances. As a percentage of the state GDP, social sector spending is seen holding steady at 8 percent.

12 states have budgeted to increase social sector expenditure as a percentage of gross state domestic product in the current year, showed the report which analyses state budgets presented for the current year.

“Social sector expenditure has a strong link with overall economic development, particularly in the medium to long term,” said the RBI while highlighting the trend.

While states continue to spend on the social sector, the composition of expenditure is showing a shift. The report points towards a tilt in the composition away from education and health and towards water supply, sanitation, housing and urban development.

Education, sports and culture, which made up about 46 percent of social sector spending in 2014-15, now constitute 41 percent of social sector spending. Expenditure on public health and social security has remained at about 10 percent of total spending over this period. Nutrition and family welfare as a percentage of overall spending on social services has seen a slight reduction.

Segments that have been getting more funding from states over the last four years include sanitation, housing and urban development.

The report attributes this shift to recent initiatives including Swachh Bharat Mission, affordable housing schemes and smart cities mission. 

D.K. Joshi, chief economist at rating agency CRISIL says these trends are encouraging. “Education and public health will always remain critical, but sanitation, housing, and urban development are crucial as well. As long as it is towards productive investments, a shift is justified,” Joshi told BloombergQuint. He added that the only cause of concern has been the expenditure directed at farm loan waivers.

The total debt waiver granted during 2017-18 amounted to 0.32 percent of GDP as per revised estimates as opposed to budget estimates of 0.27 percent of GDP, showed the report. Total debt waivers are budgeted at 0.2 per cent of GDP during 2018-19.

State finances are expected to improve due to higher tax collections in 2018-19, showed the report. However, the RBI flagged off risks emerging from states that are going to the polls this year. The consolidated state fiscal deficit for the current year is pegged at 2.6 percent compared to the revised estimate of 3.1 percent last year.