Impact of Economic Reforms on Social Sector Expenditure in India

Author(s): Seema Joshi

Source: Economic and Political Weekly, Vol. 41, No. 4 (Jan. 28 - Feb. 3, 2006), pp. 358-365
Published by: Economic and Political Weekly
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on

of Economic Reforms
Impact
in India
Sector
Expenditure
Social

The economic crisis of 1990s was precipitated mainly by the growth of public expenditurein
the 1980s. An attempt was made to resolve this crisis through the introductionof stabilisation
and structural adjustmentprogrammes. One of the importantplanks of the stabilisation
measures was the compression of public expenditure.This has brought to the forefront the
issue of "transitionalsocial costs" of stabilisation. This paper attempts to analyse the social
sector outlays of the central and the state governmentsin the pre-reform and post-reform
period and assesses the impact these had on the social sector in India.
SEEMA
JOSHI

Introduction

T heIndianeconomygrew at a comparativelylow rateof

growthof 3.5 per cent from 1950 to 1980. The plethora

controlsandprotecof procedures,permits,bureaucratic
tionistpolicies createdunderimportsubstitutionstrategy(ISS)
along with otherfactorslandedus into the economiccrisis of
1991 which was reflectedin macroeconomicmismanagement
ashighfiscaldeficit,
of theeconomyjudgedfromsuchparameters
highbalanceof paymentsdeficit,doubledigitinflation,low forex
reserves,etc. An attemptwas madeto resolvethiscrisisthrough
the introductionof stabilisation and structuraladjustment
(SAP)/economicreforms.Oneof theimportant
planks
programme
of the stabilisationmeasuresis the compressionof public expenditureandthatof SAP is raisingefficiencyandinternational
competitiveness.
It is apprehendedthat any economic reform package that
especially relates to compressionin public expenditurewill
adverselyaffectthevulnerablesectionsof thesocietyas thiswill
lead to reductionin social sectorspending.This has broughtto
the forefrontthe issue of transitionalsocial costs of stabilisation
and SAP. The experiences of many developing countries
which have embarked upon a process of macroeconomic
reforms during the last 20 years shows that the accentuation
of reformsleadsto reductionin publicspendingon basicservices
and programmesdirectlyrelatedto social sector development
orhumanresourcedevelopment[GuptaandSarkar1994;Mahbub
ul HaqHumanDevelopmentCentre2001]. Even the European
countrieswhich have experiencedreforms have had diverse
experiences with respect to the social impact of reforms
[Panchamukhi
2000]. It is fromthis angle a studyof impactof
economicreformson socialsectorexpendituresin Indiabecomes
important.Duringthe 1970s "growthwith social justice"was
the popularslogan.But from 1980s onwards,i e, fromonsetof
reformsthesloganof "equitywithstabilisationandSAP"appears
to be more relevant.
is as criticalfor humanresourcedeveSocial infrastructure
[IGIDR2002]. The Human
lopmentas physicalinfrastructure
DevelopmentReport2004 of UNDP hadrankedIndia127thout
of 177 countrieswith an HDI of 0.595. At this level, India's
position is lower than that of several newly industrialised

358Economic

countries(NICs)suchas thoseof south-eastAsia like Indonesia

and Malaysiaand also lower thancountrieslike Chinaand Sri
Lanka.It is worthmentioningherethatthelow percapitaincome
of a countrydoes not meanlow level of humanresourcedevelopment.Even with limited funds and their properallocation
substantialimprovementin humancapitalcan be secured.Even
Sri LankaandChinawith low per capitaincomeshave secured
higherlevels of humanresourcedevelopmentand theirdevelopmenteffortswere initiatedat aboutthe same time as thatof
India[Griffin1992;TanandMingat1992].Oneof the principal
reasonsfor India'slow rankingis poor achievementin social
sector.Theexperienceof "miracleeconomies"of south-eastAsia
provideseloquenttestimonyto the fact that the real wealthof
a nationlies notin "material
resources"butin "humanresources".
Giventhisbackground,anattempthasbeenmadein thispaper
to examinetrendsin social sectoroutlaysof the centralandthe
stategovernmentsduringpre-reformandpost-1991periodand
assess theirimpacton the social sectorin India.Social sector
expenditurehas been defined as the total of all expenditures
incurredby thecentralandthestategovernmentson promotional
andprotectivemeasures.Theformalmeasureshavemediumand
long-termeffects whereas the latter measuresare ad hoc or
temporaryin nature.Promotionalmeasuresincludeamongother
things,education,medical,publichealth,familywelfare,water
supply and sanitation(i e, social and communityservices),
expenditureon ruraldevelopment(whichis listedundercentral
planoutlayin the budgetclassificationandis relatedmainlyto
ruraldevelopmentand ruralemploymentprogrammes)and on
food subsidy(whichis listedundernon-planexpenditurein the
budget classification).Naturalcalamities are includedunder
protectivemeasures.We haveexaminedtrendsin the combined
revenueand capitalexpendituresof the centraland state governmentsas well as in thoseexpendituresof the centralandthe
state governmentstakenseparatelywhich is devotedto social
sector1in the pre-reformandduringreformperiod.To examine
the trendsin social sector expenditures,we have takensocial
sector expenditureas a proportionof GDP or as a proportion
of aggregateexpenditure.The activitiescovered undersocial
sector contributeto humancapital formationand therebyto
human development. The study is based on secondary
sourcesof data and makes use of simple statisticaltools such
as percentages.

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II
ReformsandSocialSector:IndianExperience
The stabilisation-cum-structural
adjustmentprogrammewas
introducedby thegovernmentof Indiain July 1991at the behest
of IMFandWorldBank to correctimbalancesat both macrolevel andmicro-levelsandputthe Indianeconomyon to a higher
Afterovera decadeof implementingthereform
growthtrajectory.
an
assessment
of thesereformmeasuresis veryrelevant
package,
andusefulfor having"structural
adjustmentwitha humanface"
in our country.
In this context,an attempthas been made in this section to
addressthe followingquestions:(i) have the budgetaryallocationsor theexpendituresincurredon the socialsectoras a whole
beenaffectedduringreformperiod?(ii) Is thereany increasein
expenditureincurredon educationandhealthwhicharethe subsectorsof social sector duringthe reformperiodor not?
Theseaspects(reflectedin the above-mentioned
questions)of
the socialimpactof reformsin Indiahavebeendealtwithbelow.

in actual plan expenditures from approved outlays during the

seventh plan period.
Coming now to social sector outlays, Table 4 gives an overview
of shares of social sector and its components in aggregate
expenditureof the centraland state governments in the pre-reform
and post-reform period. It can be observed from the table that
the central and state governments spent on an average 25.48 per
cent of their aggregate expenditure on social sector during prereform period. But this share increased marginally to 26.09 per
cent in the post-1991 period. The share of promotional social
sectors in total expenditure too registered an increase during the
same period. Among the promotional social sector, except in the
case of labour and employment, others and rural development
subheads of promotional social sector; the shares of all other
components in aggregate expenditure increased. As a proportion
Table 1: Government's Revenue and Capital Expenditure,
Pre- and Post-Reform Periods
(as per cent of aggregate expenditure)
Period

Reforms and Social Sector Outlays

The very first questionrelatingto budgetaryallocationsto
social sectors duringthe period of reformshas attractedthe
attentionof manywriters[Guptaand Sarkar1994;Prabu1994;
Panchmukhi
2000;Dev andMooij2002].We havedonea similar
studycoveringa longerperiodandby broadeningthe definition
of socialsectorin termsof promotionalandprotectivemeasures.
Before takingup the social sectoroutlaysof the centraland
stategovernments,it is usefulto examinethetrendsin aggregate
in thepre-reform
andduring
of thecentralgovernment
expenditure
reformperiodas they have implicationsfor the social sector.
A key aspect of stabilisationprogrammeis to reduce the
duringthereform
government'sfiscaldeficits.Fiscaladjustments
about
have
been
brought
by reducingpublicinvestment
period
(i e, capitalexpenditure)ratherthanby revenueexpenditure.It
is quiteevidentfrom Table 1 thatthe capitalexpenditureas a
proportionof totalgovernmentexpenditure(revenueandcapital)
hasdeclinedfrom33.39percentin thepre-reform
periodto 20.67
percent in the post-reformperiod.As a proportionof aggregate
expenditure,wholecapitalplanexpenditurehas beendrastically
reducedfrom 20.98 per cent to 10.80 per cent and non-plan
expenditurehas come down marginallyfrom 12.41 per cent to
9.87 percent.At the sametime the revenueexpenditurein total
expenditurehas registeredan increasefrom 67.12 per cent to
77.80percent.Theoveralltrendhasbeenone of reducingcapital
planand non-planexpenditurewhich does not augurwell both
for raisingproductioncapacityof the economy and for maintenanceof existing schemes.
Table2 gives the averagedevelopmentalexpendituresof the
centralandstategovernmentsas percentagesof theaveragetotal
of therespectivegovernmentsduringthepre-reform
expenditures
period (1980-81 to 1990-91) and the post-reform period
(1991-92 to 2000-01). From Table 2 the declining trendsin
developmentalexpendituresof boththe centreandthe statescan
be noticedduringpre-reformand post-reformperiod.2
Further,the figuresset out in Table3 bringout the disturbing
trendsfromplanoutlayon social-servicesduringthe sixth and
seventhplanperiod(coincidingwithpre-reformperiod)andthe
eighthandninthplanperiods(coincidingwiththereformperiod).
Alongwiththeabovetrendis alsoobserveda tendencyof shortfall

Revenue Expenditure CapitalExpenditure Aggregate

Expenditure
as Per Cent
NP Total Plan NP
Plan
Total of GDP*

Pre-Reform
(1981-82 to
13.16 53.96
1990-91)
Post-Reform
(1991-92 to
14.02 63.78
2000-01)

67.12 20.98 12.41 33.39

77.80

10.80

9.87 20.67

21.1
20.36

Notes: (i) *The data on GDP at currentprices is available till 2001-02.

Provisionalestimatesof GDPatcurrentpriceshave been used for
1996-97and2000-01andquickestimatesfor1989-90and2001-02.
(ii) "The percentageshavebeen calculatedbytakingsumofabsolute
figures.
IndianEconomy,PublicFinance,Economic
Sources:(i) CentreforMonitoring
IntelligenceService, March2002.
(ii) Governmentof India,EconomicSurvey,variousissues.
Table 2: Average Developmental Expenditures of Central and
State Governments as Percentages of their Average
Total Expenditures
Period
Pre-reformperiod(1980-91)
Post-reformperiod(1991-2001)

Central
State
Combined
Government Governments
54.7
45.8

70.2
63.2

61.8
53.3

Source: Computedfrom figures in RBI, Handbookof Statistics on Indian

Economy,2000, p 142.
Table 3: Pattern of Public Sector Plan Outlay on Social Services*
(Rs crore)
Outlay
Pre-reformperiod
SixthPlan (1980-85)
Seventh Plan (1985-90)
Post-reformperiod
EighthPlan (1992-97)
NinthPlan(1997-2002)

Actuals

14035.0
(14.4)
31545.0
(17.5)

15917.0
(14.5)
34959.7
(16.0)

79011.0
(18.2)
183273.0
(21.3)

88806.7
(18.3)
175214.8
(22.9)**

Notes: (i) Figuresin bracketsindicatepercentageto the totalplanoutlay.

(ii) *Socialservices includeeducation, medicaland publichealth,
andothersocialservices.
familywelfare,housing,urbandevelopment
(iii) *The actual outlay for the ninthplan has been arrivedat by
summingupactualannualplanoutlaysforsome years (i e, 199798 to 2000-01) and budgetestimates forothers (i e, 2001-02).
Source: PlanningCommission.

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359

of aggregate expenditure, the share of protective social sector

measures in social sector as a whole was negligible. Its share
in aggregate expenditure increased from .006 per cent in prereformperiod to 0.05 per cent in post-reformperiod. The increase
in its share is due to the reason that in the pre-reform period,
the governmenthad to manage only a single droughtyear of 198788. But during the reform period it handled four difficult economic situations, namely, three earthquakes in Uttarkashi (October 1991), Latur(September 1993), and Gujarat(January2001)
and a cyclone in Orissa (October 1999).
The plan and non-plan expenditures on promotional and protective social sectors and on their components by the central
governmentduringthe pre-reformand post-reform period reveals
an increase in the share of central plan expenditure (expressed
as per cent of aggregate expenditure) on promotional measures
from 6.58 per cent in the pre-reformperiod (1986-87 to 1990-91)
to 8.59 per cent in the post-reform period (1991-92 to 2002-03).
The share of central non-plan expenditure too increased from
4.01 per cent to 5.28 per cent of aggregate expenditure. The
average social sector expenditure as a proportion of aggregate
expenditure registered an increase from 10.59 per cent to 13.87
per cent during the period. Except in the case of labour welfare
and rural development, the shares of all other components have
increased during the reform period. It is worth mentioning here
that unlike the experience of Chile and Morocco3 where social
sector outlays registered declines in both absolute and relative
terms, in India we have observed a rising trend in social sector
outlays both in terms of absolute numbersand ratios. Even though
the share in case of some of them (e g, labour and employment),
has increased marginally. It is pertinent to point out here that
among the various components of promotional social sectors,
the share of food subsidy in aggregate expenditure is not only
highest (3.53 per cent) in post-reform period but it registered
an increase from 2.26 per cent in the pre-reform period to 3.53
per cent in the post-reform period. In other words, this subsector
has contributedto the rise in the non-developmental expenditure
of the government.
Table 6 gives an overview of central govenment expenditure
on social sector as a percentage of aggregate expenditure and
as a percentageof GDP. As a proportionof aggregate expenditure,
social sector expenditure increased from 11.26 per cent in 198687 to 11.82 per cent in 1987-88. But it declined in 1988-89 and
in 1990-91. In the very first year of economic reforms, the share
of social sector in aggregate expenditure increased to 10.43 per
cent from 9.99 per cent in 1990-91. Since then a mixed trend
in social sector spending can be noticed from the table. In
2002-03, 17.86 per cent of aggregate expenditure was spent on
social sector which is expected to come down to 17 per cent in
2003-04. As a percentage of aggregate expenditure, India spent
11.12 per cent on the social sector in the pre-reform period. The
percentage increased to 14.28 per cent in the post-reform period.
In otherwords, duringthe post-reformperiod, a higher percentage
of central government's expenditure is going to the social sector
than was the case in the pre-reform period.
Coming now to the share of social sector expenditure in GDP,
the share of social sector expenditure in GDP varied between
2 to 2.62 per cent in the pre-reform period and between 1.96
to 2.70 per cent in the post-reform period. In both pre-reform
and post-reform period, the share of social sector as a proportion
of GDP has followed a highly fluctuatingtrend.In 1986-87, it was
2.62 per cent of GDP. It declined to 2.06 per cent in 1990-91.

360

Table 4: Combined (Revenue and Capital) Expenditure of

Centre and States on Social Sectors
(Percentages of aggregate expenditure)
Sector

Pre-Reform
During
Period
Reform
(1987-88 to Period(1991-92
to 2001-02)
1990-91)

1 Promotionalsocial sector
(i) Education,art,culture
(ii) Medical,publichealth,
watersupplyand sanitation
(iii) Familywelfare
(iv) Housing
(v) Urbandevelopment
(vi) Labourand employment
(vii) Social securityand welfare
(viii) Others*
(ix) Food subsidy**
(x) Ruraldevelopment***
2 Protectivesocial sectors
(xi) Reliefon accountof naturalcalamities
Social sector (1+2)

25.47
10.97

26.04
11.32

4.36
0.60
0.53
0.48
0.49
1.05
1.61
1.80
3.56
.006
.006
25.48

4.37
0.74
0.70
0.63
0.42
1.16
1.40
1.86
3.44
0.05
0.05
26.09

Notes: (i) *Othersincludescientificservices and research, broadcasting

and otherservices.
underthe head food subsidy is listed undernon(ii) **Expenditure
developmentexpenditureinthe IndianPublicFinanceStatistics,
Ministryof Finance,governmentof India.
(iii) ***Theexpenditureunderthe head "ruraldevelopment"is listed
underdevelopmentexpenditureandis a componentof agriculture
and allied services in the IndianPublic Finance Statistics. It
relatesmostlyto ruraldevelopmentandanti-poverty
programmes,
therefore,includedundersocial sector.
Source: Computedfromthe dataavailablein IndianPublicFinanceStatistics,
Ministryof Finance,governmentof India,variousissues.
Table 5: Central Plan and Non-Plan Outlay on Social Sector*:
Pre- and Post-Reform Periods (1991-92 to 2002-03)
(as per cent of aggregate expenditure)
Sector

Pre-ReformPeriod Post-ReformPeriod
(1986-87 to 1990-91) (1991-92 to 2002-03)
Plan Non- Total Plan Non- Total
Plan
Plan

1 Promotional
social sector (1 to 10)
i) Education,sports
and youthservices,
artand culture
ii) Medical,publichealth,
familywelfare
iii) Watersupplyand
sanitation
iv) Housingand urban
development
v) Welfareof SCs to
STs and OBCs
vi) Labourwelfare
vii) Labourand
employment
viii) Social security
and welfare
ix) Others**
x) Foodsubsidy
xi) Ruraldevelopment
2 Protectivesocial sectors
xii) Naturalcalamities
Social sector (1+2)

6.58

4.01 10.59 8.59

1.07

0.64

1.71

1.49

0.70

2.19

1.07

0.23

1.29

1.25

0.26

1.51

0.52

0.52

0.61

0.61

0.10

0.05

0.15

1.33

0.09

1.42

0.36
-

0.28

0.36
0.28

0.36
-

0.24

0.36
0.24

0.04

0.04

0.05

0.05

0.37
0.44
2.61

0.21
0.34
2.26
-

0.58 0.66
0.78 0.48
2.26
2.61 2.34
-.
4.01 10.59 8.59

0.12
0.34
3.53
-

0.79
0.82
3.53
2.34

6.58

5.28 13.87

5.28 13.87

Notes: (i) *Bothrevisedand budgetestimates have been used.

(ii)**Othersincludein case of plan outlayinformationand publicity,
services,secretarialsocialservices,
broadcasting,nutrition,othersocial
northeaster areas and in case of non-planoutlayinformationand
broadcasting,secretarialsocial services and others.
Source: Governmentof India,BudgetPapers and ExpenditureBudget,Vol1,
variousissues.

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It continued to decline in the first two years of reforms. There

was a resurgence observed in the social sector spending (as a
percentageof GDP) in 1993-94. But from 1994-95 onwards again
mixed trend can be observed in social sector expenditure. It can
also be observed from the table that India is spending a low
percentage of GDP on social sector and even after more than
10 years of reforms not much improvement in social sector
spending has taken place as its share in GDP continued to hover
around2.7 per cent in 2000-01 (in 1986-87 it was 2.62 per cent).
As a proportion of GDP, the central government on an average
spent 2.42 per cent in the pre-reformperiod. This percentage has
increased to 3.91 per cent during the post-reform period.
Social sector spending is the responsibility of the states. The
major components of social sector, viz, education and health are
in the concurrent and state lists respectively. A large chunk of
expenditure on these two subsectors is incurred by the state
Table 6: Social Sector Expenditure by Central Government
Period

Plan Non-Plan Total Plan Non-Plan Total

(as Per Cent of GDP)*
(as Per Cent of
AggregateExpenditure)

Pre-reformperiod
1986-87
1987-88
1988-89
1989-90
1990-91
Average
Post-reformperiod
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98**
1998-99
1999-2000
2000-01**
2001-02

6.13
7.16
6.76
6.90
6.10
6.58

5.13
4.66
4.70
4.71
3.89
4.54

11.26
11.82
11.47
11.61
9.99
11.12

1.43
1.58
1.44
1.53
1.26
1.43

1.19
1.03
1.00
1.05
0.80
0.99

2.62
2.61
2.44
2.58
2.06
2.42

6.12
6.31
7.82
8.35
9.52
8.22
9.29
7.87
8.30
8.39
8.99

4.31
3.77
5.45
4.12
4.96
4.68
4.72
5.08
4.48
4.22
6.57

10.43
10.08
13.27
12.47
14.48
12.90
14.01
12.95
12.78
12.61
15.56

1.17
1.23
1.44
1.42
1.58
1.29
1.55
1.38
1.43
1.48
1.56

0.83
0.73
1.00
0.70
0.82
0.74
0.79
0.88
0.77
0.74
1.14

2.00
1.96
2.44
2.12
2.41
2.03
2.34
2.26
2.20
2.22
2.70

2002-03
2003-04**

10.22
9.09

7.64
7.89

17.86
16.98

Average

8.65

5.63

14.28

2.37*** 1.54*** 3.91**

Notes: (i) *Quickestimates of GDP at currentprices have been used for

1989-90 and 2001-02 and provisionalestimates for1996-97 and
2000-01.
(ii) **Budgetestimates of aggregate expenditure.
(iii) '**Averageare based on the dataforthe period1991-92to200102 as estimates for2002-03 and 2003-04 are not yet available.
Source: (i) Governmentof India,Budget Papers and ExpenditureBudget,
Vol 1, variousyears.
(ii) Governmentof India,EconomicSurvey,variousissues.

governments.Some previousstudiesby Prabhu(1997);UNDP

(1997)andChelliahandSudarshan
(1999)revealthatsocialsector
of GSDPoraggregate
spending(expressedeitheras a proportion
expenditure)registereda decliningtrendin majorityof states
fromthe mid-1980s.In our studywe have coveredpost-reform
period(1991-92to 2000-01).ItcanbeobservedfromTable7 that
socialsectorspending(takenaspercentageof overallexpenditure
or GDP)followeda mixedtrendduringthe 1990s.In 1991-92,
thestatesspent35.39 percentof theiraggregateexpenditureand
5.82 per cent of GDP on social sector.However,these shares
camedownto 33.96percentand5.77 percentin 2000-01.Within
thesocialsector,withtheexceptionof threecomponentsof social
sector, viz, family welfare,labourand employmentand rural
thesharesof allothershadincreasedwhencompared
development;
with theirsharesin the initial year of reform,i e, 1991-92.
A comparisonof Table6 andTable7 bringsto light the fact
thatthecentralgovernmenthasfaredwellin termsof socialsector
spendingin the post-reformperiodin comparisonto the same
in the states.In the post-reformperiod,the centralgovernment
eventuallyspent more on the social sector (12.61 per cent of
aggregateexpenditureand 2.22 per cent of GDP in 2000-01).
However,over the same period,the social sectorsharesof the
states in both aggregateexpenditureand in GDP registereda
decline.It is importantto pointout here thatthe rise in central
governmentexpenditureis partiallyattainedby reducingallocationsmade by the centrefor the state plans.4
Education and Health
Comingnow to relativeexpenditureincurredon two componentsof socialsectors,viz,educationandhealth,thedecliningtrend
in theirexpenditurescan be noticedduringthe reformperiod.
The importanceof educationcannotbe overemphasised
in the
presentknowledge-basedeconomy. The knowledgeeconomy
drivenby information
technologies(IT)requireshighlyeducated
educationis critical.But"forrunningatechnologypeople.Primary
intensiveeconomy,we needto go beyondprimaryeducationand
build institutionsfor highereducation"[IGIDR 1999-2000].
The importanceof this subsector(whichcomes in concurrent
list) has been recognised in various plan documents. The
governmentof Indiaformulateda NationalPolicyon Education
in 1968 and in 1986. Both the policies aimed at eradicating
illiteracyand providinguniversalelementaryeducationin the
minimumpossibletime."By 1995,all childrenwill be provided
free andcompulsoryeducationup to 14 yearsof age"was the

Table 7: Shares of Major Heads in Social Sector Expenditure (State Government)

Sectors

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-20002000-01

1 Promotionalsocial sector
i) Education,art,culture
ii) Medical,publichealth,watersupply,sanitation
iii) Familywelfare
iv) Housingand urbandevelopment
v) Labouremployment
vi) 'Socialsecurityand welfare
vii) Others*
viii) Food subsidy (NP)
ix) Ruraldevelopment
2 Protectivesocial sectors
x) Reliefon accountof naturalcalamities
Social sector expenditureas per cent of aggregate
expenditureof states (1+2)
Social sector expenditureas per cent of GDP

99.99
50.72
19.57
2.88
4.44
1.43
4.91
1.42
0.14
14.48
.00
.0008

99.99
51.29
19.78
2.58
3.86
1.41
4.40
1.42
0.21
15.05
.00
.008

99.99
50.67
19.99
2.88
3.74
1.32
4.56
1.22
0.00
15.61
0.01
0.01

99.72
51.51
20.65
2.84
4.06
1.33
5.09
1.41
0.00
12.83
0.27
0.27

99.56
52.10
20.08
3.02
4.53
1.33
5.38
1.42
0.60
11.09
0.44
0.44

99.26
52.12
20.11
2.48
4.74
1.27
5.42
1.51
0.55
11.07
0.74
0.74

99.67
52.01
21.01
2.50
4.95
1.43
5.09
1.53
0.56
10.59
0.33
0.33

99.74
52.70
20.88
2.17
4.90
1.23
4.71
1.51
0.35
11.28
0.26
0.26

99.95
53.50
19.53
2.20
5.70
1.25
5.19
1.53
0.49
10.56
0.05
0.05

99.78
51.8
20.44
2.42
5.65
1.29
5.69
1.66
0.41
10.41
0.22
0.22

35.39
5.82

35.17
6.02

35.72
5.58

33.75
5.21

34.21
5.22

35.06
5.02

34.55
5.21

35.52
5.51

35.94
6.24

33.96
5.77

Source:Calculatedfromthe figuresgiven in IndianPublicFinanceStatistics,Ministryof Finance,governmentof India,variousissues.

Economic

and Political Weekly

January 28, 2006

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361

resolve of the National Policy on Education 1986. The seventh 0.89 per cent in 1992-93 and settled down at 0.76 per cent of
plan document laid stress on the implementation of the goals GDP in 1997-98. The government is contributing just 0.9 per
of this policy. Subsequently, the National Literacy Mission was cent of GDP to the health sector at present. In the New Health
launched in 1988. Further, in the ninth plan the national goals Policy, 2001, there is a proposal to raise it to 2 per cent of GDP
have been reiterated.But these goals cannot be achieved without by 2010. The currentannual per capita public health expenditure
adequate allocation for the education sector. The Kothari Com- in the country is just about Rs 200. Besides the reach and quality
mission (1966) suggested initially and the National Policy on of public health services has been below the desirable levels.
Education (1986) and Ramamurthy Committee (1991) stressed
It is clear from Table 10 that in spite of the fact that human
subsequentlythat6 per cent of GDP should be spent on this sector. development is at the core of our planning and reforms, yet
The analysis of expenditure incurred on education at an all- allocations made to the social sector as a whole and particularly
India level reveals that the education expenditure rose from to education and health have not only been low duringthe reform
3.2 per cent of GDP in 1980-81 to a peak of 4.1 per cent period but these have also been declining also due to lack of
in 1989-90. It has followed a continuous declining trend since political commitment on the partof governments which is crucial
then. Despite the suggestions of Kothari Commission (1966) and for achieveing the goal of human development.
the New Policy on Education (1986) that at least 6 per cent of
GDP should be devoted to education, the goal remains distant
III
even aftermore then 10 years of reforms, as the government spent
A Decadeof Reforms
just 3.5 per cent of GDP on education in 1997-98.
As has already been observed6 that reduction in social sector
Intra-sectoral allocation of education expenditure in Table 9
shows that both the centre and the states combined together outlays would have its effects on the final outcomes of different
allocated more than 40 per cent of their budgetary resources to social sectorcomponents,thoughthe responseof outcome variables
elementaryeducation and ever 30 per cent to secondary education to fall in social sector outlay may vary for each subsector. In
in 1991-92 to 1998-99 period. As a consequence, expenditures
Table 8: Expenditure Incurred on Education
incurred on other subsectors, viz, adult, higher and technical
Education
education were relatively low. Allocation to elementary educa- Year
(in Rs crore)
tion were increased following the New Policy on Education
(1986) and it can also be attributedto the introductionof nutrition Pre-reformperiod
1980-81
3859 (3.2)
programme and district primary education programmes in the
1989-90
16905 (4.1)
mid-1990s.5 Higher priority is assigned to the objectives of
1990-91
19791 (3.87)
universal elementary education (under Sarva Shiksha Abhiyan Post-reformperiod
1991-92
21914(3.72)
also) and on secondary education which has resulted in larger
1992-93
24722 (3.68)
allocations for these subsectors.
1993-94
27530 (3.52)
1994-95
32107 (3.51)
Fromtheforegoing it is quiteobvious thatnot only theeducational
1995-96
37097 (3.48)
sector but some of its subsectors too have suffered during the
1996-97
43035 (3.48)
reformperiod so far as financial allocations to them are concerned.
1997-98
49200 (3.55)
1999-2001

Health
The first formal health care policy for India was laid out by
the Bhore Committee Report (1946). Despite the fact that it was
adopted by the government of India, but its recommendations
could not be implemented fully due to financial stringency of
the centralgovernmemt. In the formulation of the National Health
Policy, the state governments are also involved as the bulk of
expenditure on health sector is incurred by them.
The importance of development of health services and health
infrastructurehas been duly recognised in the various five year
plans in India. A new policy Health for all by 2000 AD (1977)
announced a long-term objective of population stabilisation by
bringing down net reproduction rate to one by 1995. Since this
goal could not be achieved, the National Health Policy (1983)
outlined in the Eighth Five-Year Plan reiterated the same goal.
Despite two decades of governmental emphasis on access to
health services by all and India also being a signatory to the Alma
Ata declaration (1978), we are nowhere near this goal. The
reiteration of the above-mentioned goal in New Health Policy
(1983) and consequent larger allocations for health account one
can observe the rise in health expenditure from 0.8 per cent of
GDP in 1980-81 to 0.92 per cent in 1989-90 (i e, duringpre-reform
period). During the post-reform period, the expenditure incurred
on health sector rose from 0.83 per cent of GDP in 1991-92 to

362

4.1

Notes: (i) Figuresin parentheses indicatepercentageto GDP.

(ii) Educationexpenditurein Indiaare classifiedintoexpenditureon
general and technical education. General education includes,
elementary,secondary,adultand highereducation.
(iii) * UNDP,HumanDevelopmentReport,2004, p 204.
Source: CentralStatisticalOrganisation,Selected Socio-EconomicStatistics
for India, 2000, Department of Statistics, Ministryof Finance,
governmentof India,p 64.
Table 9: Percentage Allocation of Total (Centre+State) Budget
for Education by Subsectors (Revenue Accounts)*
Years

of TotalBudgetAllocated
for
Percentage
Elemen-Second- Adult University
Technical Other Total
taryEdu-aryEdu- Educat-Educat- Educat- Educatcation cation ion
ion
ion
ional
Programmes

1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98(RE)
1998-99(BE)

46.3
45.2
46.2
46.4
48.3
49.1
49.7
48.7

33.1
34.3
33.1
33.2
32.8
32.3
30.9
30.1

1.2
1.0
1.2
1.2
0.8
0.6
0.6
0.5

13.0
12.9
13.3
1.0
12.3
11.8
11.9
13.5

4.3
4.3
4.4
4.4
4.1
4.0
4.0
4.2

2.1
2.3
1.8
1.8
1.7
2.2
2.9
3.0

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

Note:

*Alargepercentageof publicexpenditureon educationis incurredon

revenueaccountand the share of capitalexpenditureis negligiblein
education.
Source: CentralStatisticalOrganisation,Selected Socio-EconomicStatistics
ofStatistics,Ministry
ofFinance,government
forlndia,2000,Department
of India,p 64.

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January 28, 2006

case of some subsectorsthis becomesvisible duringthe short to fee hikes which would act as a deterring factor for parents
period.In this sub-section,outcome-effectsof reformson se- of these first generation learner families.7
lectedcomponentsof socialsector,viz, education,health,water
supplyand sanitationduringthe reformperiodhave been disHealth
cussed.Thisdiscussionalso bringsto light the challengeposed
Since the 1980s, in India notable improvements have taken
bytherisingcasesof HIV/AIDSduringthereformperiodinIndia.
place on some of the health indicators like life expectancy (63.7
years in 2002) and infant mortality rate (67 per thousand live
Education
births in 2002), mainly as a result of large-scale government
Afterovera decadeof reformswe find thatalthoughwe have programmes. But the health status of vast majorityof population
madeprogressin the sphereof education,our performanceis continues to remain poor despite morp than a decade of reforms.
farfromsatisfactoryandcomparespoorlywith performanceof As per Human Development Report 2004, 21 per cent population
countrieslike Sri Lanka,Indonesia,Malaysia,Koreaand the of India was undernourishedin 1999/2000 as against Indonesia's
Philippines.No doubtliteracyratehas increasedfrom43.57 per 6 per cent and China's 11 per cent. Between 1998-2002, the
cent in 1981 to 65.38 per cent in 2001. Yet with a literacyrate proportion of low birth weight babies was 30 per cent in India.
of 65 per cent, we have 296 million illiteratesin the age group The maternalmortalityrateper 1,00,000 live births,between 1990
of sevenyearsandabove.Grossenrolmentratiowas 55 percent and 1998, was estimated to be around 410 as against 65 per
in 1999 in India,but the high dropoutrateswhich stoodat 38.7 1,00,000 live births in China. In 1998-99 (which covers eight
percent for boys and2.3 per cent for girls at the primarylevel years of reforms), 58 per cent of population (in the age group
in 1999-2000(CSO 2000) make a mockeryof the high "gross of 12-23 years) was not immunised. Besides, 51 percent of India's
enrolmentratios"reported.
population was not having sustainable access to affordable
With globalisationwe requirebettereducationand a more essential drugs in 1999 and 16 per cent of the population was
skilled labourforce but contraryto the needs of the hour the not using improved water sources in 2000 (IGIDR, 2000, UNDP
overalllevels of educationand skill formationcontinuedto be various issues).
low in Indiaduring1995-99.Forinstance48 percentof children
Although social sector services are the responsibility of the
in Indiadid not reachgrade5. The percentageincreasedfrom states, yet in 1998 substantial proportion of population in India
38 per cent during1990-95to 48 per cent during1995-99 (i e, was not able to access health services. As is evident from the
anincreaseof 10percentin five years).However,thisproportion fact that medical professional assistance at the time of child birth
was as low as 3 percent in Sri Lanka[Mahbubul Haq Human was not available to 57.5 per cent of population in 1998-99. The
data about percentage distribution of deaths by type of medical
DevelopmentCentre2001].
In India,thebulkof publicexpenditure
on education(morethan attention received before death is also disturbing. It reveals that
90 percent)is incurredby the statesandthattoo undernon-plan during the period of reforms this percentage increased from 12.4
heads. Severalmicro-levelstudies show that due to reduction per cent in 1991 to 16.7 per cent in 1996 in rural areas, so far
in non-planexpenditureon educationsmanyschools could not as institutional attention was concerned. In urban areas. it inrecruitteachersand fill up the vacancies.Consequently,pupil- creased from 31.3 per cent in 1991 to 35.7 per cent in 1996.
teacherratioincreased[Panchamukhi
2000].In 1994,pupil-teacher It is important to point out here that at 16.7 per cent in rural
ratioin Indiawas 63.5 per cent for primaryschools compared areas and 35.7 per cent in urban areas, more or less 83 per cent
to 13 in Cuba,19.8 in Thiland,20 in Malaysia,22 in China,39 of rural population and 64 per cent of urban population did not
in Nepal and 50 per cent in Pakistanespecially[IGIDR2002]. have access to institutional assistance before death [CSO 2000].
is poor
The qualityand maintenanceof school infrastructure
There has been an increase in HIV/AIDS cases in India during
andbecomingworse in recentyearsbecauseof declinein non- the reform period. This poses a challenge for the health planners
planexpendituremeantforthemaintenanceof theexistingassets as well as service providers. The seriousness of this epidemic
andschemes.In 1993,only6.5 percentof all schoolshad'pucca' can be judged from the fact that in 1997, out of total AIDS cases

buildings,4 per cent were run on open spaces, 3 per cent in

thatchedhutsand0.3 per cent in tents.Besides, drinkingwater
andtoiletfacilitieswere not availablein 56 per cent and70 per
cent of schools respectively.
In1993,therewasasingleteacherin20percentofprimaryschools
andtherewas no teacherat all in 0.8 per cent of schools. Huge
variationscanbe noticedacrossstates.On the one side is Kerala
where99 percent of schools hadthreeor moreteachersandon
the otherside areMadhyaPradeshand Haryana;in the former
30 percentof primaryschoolshadonlyoneteacherandin Haryana
2.5 percent of primaryschoolshadno teachers'[IGIDR2002].
One of the facets of the stabilisationprogrammeis to reduce
subsidies. If governmentsubsidies are withdrawnfrom the
educationsectoras a whole, this can have adverseimplications
for countrieslike Indiawhichhave been lmakingsincereefforts
to coverthe firstgenerationlearnersunderthe systemwho have
got a chanceto move to highereducationafterreceivingbasic
school education.Moreover,end of subsidieswould also lead

Table 10: Health Expenditure

Year
Pre-reformperiod
1980-81
1989-90
1990-91
Post-reformperiod
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
2001*

Health
(in Rs crore)
943 (0.8)
3767 (0.92)
4508 (0.88)
4888 (0.83)
5621 (0.89)
6218(0.79)
6920(0.73)
7880 (0.73)
9231 (0.72)
10544 (0.76)
0.9

Notes: (i) Figuresin parentheses indicatepercentageto GDP.

*
(ii) UNHumanDevelopmentReport2004, p 158.
Source: CentralStatisticalOrganisation,Selected Socio-EconomicStatistics
ofStatistics,Ministry
ofFinance,government
forlndia,2000, Department
of India,p 64.

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363

of 4.1 millionreportedin southAsiain theagegroupof 0-49years,

Indiaaccountedfor97 percent of thesecases. Increasein global
labourmigrationat inter-regional,intra-regionaland internationallevels along with high levels of illiteracyrateleadingto
low awarenessamongstthepotentialriskgroups,increaseof drug
tractinfection
addicts,unsafebloodtransfusionandreproductive
amongstmales andfemales have contributedto the rise of this
epidemic[Mahbubul Haq HumanDevelopmentCentre2001].

follow suit, as it is quite low at present. Secondly, the prioritisation

of social sectors is also essential. Both higher allocations and
prioritisation constitute necessary conditions for social sector
development in India [Joshi 2003]. The sufficient condition
demands thatthe funds allocated must flow in to desired channels
through good governance and effective implementation. Herein
comes the role of the state. As has been aptly emphasised in Asian
Development Outlook [Asian Development Bank 2001] that the
social sector development along with sustainablegrowth and good
governance are the three pillars of poverty eradication.Moreover,
Water Supply and Sanitation
there is a need to improve service delivery through institutional
Safe andadequatedrinkingwateris not yet availableto entire changes as has been emphasised in the WDR (2004). Further,
population.In 2000, 16 per cent of populationwas not using these changes are time-consuming and cannot be brought about
improvedwatersources.At 28 per cent sanitationcoveragein overnight; country-specific solutions will have to be found out.

is bleakandunsatisfactory
as approxi2000,India'sperformance
mately70 per cent of populationhas not been broughtunder
sanitationcoverageas yet. In sharpcontrast,in Sri Lankaand
Chinapercentagecoverage was 94 per cent and 40 per cent
respectively.Even some Africancountrieswhose HDI ranking
is below India,have bettersanitationcoveragethanIndia.For
example,in Tanzaniathe sanitationcoverageis 90 per cent, in
Uganda79 per cent, in Zambia78 per cent, in Malawi76 per
cent and in Mali 69 per cent [UNDP 2004].

V
Conclusions

It is well recognised that social infrastructureis as critical as

physical infrastructurein the development of human resources.
Given the importance of the social sector in India's context, it
is very relevant and useful to examine the impact of economic
reforms on social sector expenditures after more than a decade's
experience with reforms. Such an attempt has been made in this
IV
paper by analysing the expenditures incurred by the central and
state governments on social sector duringthe pre-reformandpostPolicyIssues andSuggestions
reform period.
The above-mentionedpatternof social sectorspendinghave
One of the questions raised in the beginning of this paper is
theirpolicyimplications.Firstly.thereis an urgentneedto raise whether the budgetary allocations to the social sector as a whole
socialsectorspendingby the centralgovernmentandstateswill been affected during the reform period? This can be answered

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in the following way. As a proportionof aggregate expenditure,

i e, the share of social sector expenditure in the combined
expenditures of the central and state governments registered an
increase during the reform period. In case of central plan and
non-plan expenditure, the social sector spending (as a per cent
of aggregate expenditure) increased significantly from 10.59 per
cent in the pre-reform period (1986-87 to 1990-91) to 13.87 per
cent in the post-reform period (1991-92 to 2002-03). As a
proportionof GDP, central government expenditure incurredon
the social sector has followed a highly fluctuating trend in both
pre-reformand post-reform periods. India is spending a very low
percentage of GDP on this particular sector. Even over decade
of reforms not much improvement in social sector spending has
been made as the share of social sector to GDP remained at a
very low of 2.7 per cent in 2000-01 (in 1986-87 it was 2.62 per
cent). In the post-reform period (1991-92 to 2000-01) social
sector spending (expressed as percentage of GDP and aggregate
expenditure) in the states has come down.
A fact that is worth noting is that the social sector expenditure
of the centre as percentage of aggregate expenditure and GDP
has increased during the reform period. However, one cannot
afford to neglect the fact that higher expenditure incurredby the
central government on social sector is at the cost of lower
allocations made from the central plan outlay to the states.8
Now let us see whether there is any increase in expenditure
incurred on education and health. With regard to education, the
share of education increased during the pre-reform period. But
during the post-reform period, it continued to decline till 199697 with a rise in educational expenditure in 1997-98. The increase
is due to increase in spending on elementary education and also
because of the introductionof the mid-day meal programme.The
intra-sectoralallocations also bring to light the fact that with the
exception of elementary education, expenditure on all other subsectors of education has suffered during the 1990s.
Generally speaking, with regard to health expenditure too, a
similar declining trend has been observed in the post-reform
period. This is despite the fact that the share of this subsector
in GDP increased marginally in 1992-93 and in 1997-98.
The development strategyoutlined in the Eighth Five-Year Plan
marked a clear-cut departurefrom the earlier strategies adopted,
for declaring human development as its "ultimate goal". The
achievement of this objective which has been reiterated in the
approachpapertotheTenthFive-YearPlanrequiresnotonly higher
budgetaryallocations for the development of social sector but also
a series of well integrated policies along with a political commitment on behalf of the government so that reforms have a
human face.
From the above discussion it is clear that India indeed has made
noticeable improvements in key social indicators on education
and health since the 1980s, mainly as a result of large-scale
government programmes. But even then the conditions with
respect to social sector development in India are appalling when
compared with conditions prevailing in countries like Sri Lanka,
China and some countries of south-east Asia. The educational
and health status of a vast majority of the population continues
to remain poor even after a decade of reforms. Moreover, the
rising cases of HIV/AIDs cases in India during the reform period
pose a serious challenge which demand an immediate and
sustained response from the government. S3
Email: seemajoshil43 @hotmail.com

Notes
[This is a substantiallyrevised version of the paper presentedearlier at a
workshop on 'Social Sector Development: Present Status and Future
Challenges'held at ISEC- BangalorefromFebruary19-21, 2003. The author
is grateful to V ChandrasekaraNaidu, MIDS, Chennai for his insightful
commentson earlierdraftof this paperand to L R Sharmafor his guidance.]
1 In some of the previous studies [Prabhu1997] only revenueexpenditure
has been included.
2 A similardeclining trendhas been observedby Panchamukhiin his study
(2000) covering comparativelyshorterperiod of time.
3 See Bourguignon and Morrisson (1992). In Chile, per capita social
expenditurein case of education, health and housing fell 20 per cent
between 1981 and 1983-86, despite a low rate of populationgrowthand
in percentageterms share of social sector in budget declined from 30
per cent before adjustmentto 23 per cent. In Morocco, social expenditure
droppedfrom 8.3 per cent of GDP in 1983 to 7.2 per cent in 1986. During
the same period,per capitaexpenditurefor educationand healthdeclined
by 11 per cent and 5 per cent respectively.
4 See also Dev and Mooij, forthcoming, Sarma, 2001.
5 Dev and Mooij (2002).
6 See Panchmukhi,2000.
7 See Panchmukhi,2000.
8. Dev and Mooij forthcoming.

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