Budgetary Aspects, Public Finance & Economic Impact of Schemes

A. Analysis of Allocations for Welfare Schemes

• Key Social Sectors: Health, Education, Rural Development (including agriculture & allied), Social Justice & Empowerment, Women & Child Development, Urban Development, Water & Sanitation.
• Trend Analysis:
  • Overall Increase: Generally, there has been an increasing trend in absolute allocations to the social sector over the years, reflecting growing needs and political commitments.
  • Share in Total Expenditure/GDP: Examining social sector spending as a percentage of total government expenditure and as a percentage of GDP provides a better perspective on relative priority. India's social sector expenditure (Centre + States combined) as a percentage of GDP has historically been lower than many other developing and developed countries, though it has been increasing. (Cite latest Economic Survey or Budget documents for data).
  • Focus on Flagship Schemes: A significant portion of social sector spending is channelized through flagship schemes like MGNREGS, NHM, Samagra Shiksha, PMAY, JJM, PM-KISAN. Allocations to these schemes often reflect government priorities.
• Data Sources: Union Budget documents (Expenditure Budget), Economic Survey, RBI reports, reports by PRS Legislative Research, Centre for Policy Research, Accountability Initiative.

B. Shifts in Priorities Over Budget Cycles

• Influence of National Goals & Events:
  • Post-COVID-19: Increased focus on health infrastructure (PM-ABHIM), social safety nets (PMGKAY), and livelihood support.
  • National Education Policy 2020: Leading to increased allocations or restructuring in education sector schemes.
  • Sustainable Development Goals (SDGs): Budgetary allocations are increasingly being mapped to SDGs.
  • Focus on "Amrit Kaal" / Viksit Bharat @ 2047: Recent budgets emphasize themes like infrastructure, inclusive development, green growth, youth power, and financial sector reforms, influencing scheme allocations.
• Sectoral Shifts:
  • Increased focus on infrastructure: Significant push for capital expenditure in recent years, which can have a multiplier effect.
  • Shift towards direct income support/DBT: (e.g., PM-KISAN) rather than solely relying on input subsidies.
  • Emphasis on specific areas like digital infrastructure, renewable energy, climate action.
• Example of Shifts: Increased allocation for Jal Jeevan Mission reflects priority for rural tap water. Higher outlay for PM-ABHIM post-pandemic. Focus on PLI schemes to boost manufacturing.

C. Impact of Economic Reforms

• Pre-1991: State-led development, significant role of public sector in social service delivery.
• Post-1991 Reforms (Liberalization, Privatization, Globalization - LPG):
  • Initial phase saw concerns about potential reduction in social sector spending due to fiscal consolidation pressures.
  • However, sustained economic growth post-reforms also created fiscal space for increased social sector investments over time.
  • Shift in Role of State: From primary provider to facilitator, regulator, and financer, with increased scope for private sector and NGO participation in service delivery.
  • Emphasis on targeted subsidies and improved efficiency in welfare delivery (e.g., through DBT).
  • Increased focus on outcomes and accountability.
• Fiscal Responsibility and Budget Management (FRBM) Act, 2003: While aimed at fiscal discipline, it sometimes led to cuts in social sector spending during periods of fiscal stress, though recent years have seen flexibility (e.g., "escape clause" invoked).

Table: Social Sector Spending - Key Aspects

A. Budgetary Allocations (Revenue vs. Capital Expenditure)

• Primary Source: Most schemes are funded through annual budgetary allocations by Central and State governments.
• Classification of Expenditure:
  • Revenue Expenditure: Does not create assets or reduce liabilities. Incurred for normal functioning of government departments and services. Examples: Salaries, pensions, interest payments, subsidies (e.g., food, fertilizer, LPG), grants to states, operational costs of schemes (e.g., wages under MGNREGS, recurring costs of schools/hospitals). Dominates social sector scheme spending.
  • Capital Expenditure: Leads to creation of assets (e.g., infrastructure like roads, buildings, machinery) or reduction in liabilities. Considered developmental and has a multiplier effect on the economy. Examples: Construction of schools, hospitals, irrigation projects, roads (PMGSY), housing (PMAY). Recent Union Budgets have emphasized increasing capital expenditure.
• Implications: A high proportion of revenue expenditure can limit resources for asset creation. Quality of expenditure (revenue vs. capital) is as important as quantity.

B. Extrabudgetary Resources (EBRs)

• Definition: Funds raised by Public Sector Undertakings (PSUs) or government agencies through loans or bonds, which are not part of the formal budget but are used to finance government schemes or projects.
• Mechanism: PSUs borrow from market (e.g., NABARD for irrigation projects, NHAI for roads, FCI for food subsidy) and this expenditure is often directed by government priorities.
• Rationale: To finance large infrastructure projects or meet expenditure needs without directly impacting the fiscal deficit calculated from budgetary transactions.
• Concerns: Can understate the true extent of government liabilities and fiscal deficit. Lack of parliamentary scrutiny comparable to budgetary allocations. Can increase debt burden of PSUs.
• National Investment and Infrastructure Fund (NIIF): Established in 2015 as an investment vehicle for funding commercially viable greenfield, brownfield and stalled infrastructure projects. A collaborative investment platform for international and Indian investors, anchored by Government of India. Manages multiple funds (Master Fund, Fund of Funds, Strategic Opportunities Fund). Aims to attract equity investments into infrastructure.

C. Public-Private Partnerships (PPPs) in Scheme Implementation

• Definition: A long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance.
• Application in Schemes: Infrastructure (Roads - BOT, HAM models, ports, airports), Skill Development (DDU-GKY), Healthcare Delivery (PM-JAY empanelment), Education.
• Benefits: Leverages private sector capital, technology, and efficiency. Can expedite project implementation. Risk sharing.
• Challenges: Ensuring quality and affordability, protecting public interest, transparency, regulatory capacity, potential for crony capitalism, renegotiation. (Kelkar Committee on Revisiting and Revitalising PPP model).

D. Corporate Social Responsibility (CSR)

• Legal Mandate: Section 135 of Companies Act, 2013, mandates companies with certain net worth, turnover, or profit to spend at least 2% of their average net profits of the preceding three years on CSR activities.
• Schedule VII of Companies Act: Lists eligible CSR activities (e.g., education, health, poverty, environment, rural development).
• Role in Complementing Government Efforts: CSR funds can supplement government spending, partner with agencies, bring corporate efficiency and innovation.
• Challenges: Ensuring effective spending, geographical concentration, transparency, measuring impact.
• Recent Trends: Increased CSR spending, especially post-COVID. Focus on health, education, environment.

E. External Aid and International Cooperation

• Sources: Multilateral agencies (World Bank, ADB, UN agencies), bilateral aid from other countries.
• Application in Schemes: Large infrastructure projects, capacity building, technical assistance, pilot projects in health, education, environment. Examples: World Bank support for RAMP (MSME), STRIVE (Skill Dev). ADB support for urban infrastructure.
• Forms: Loans (concessional or market-based), grants, technical assistance.
• Significance: Provides additional resources, access to global best practices and technical expertise.
• Considerations: Alignment with national priorities, debt sustainability, conditionalities. India is now also a significant provider of development assistance.

Table: Financing Mechanisms & Key Features

A. Poverty Reduction, Inequality Reduction, Improvements in HDI

• Poverty Reduction: Direct impact via MGNREGS, PDS/NFSA, NSAP, PM-KISAN. Indirect impact via health (NHM, PM-JAY), education (Samagra Shiksha), livelihoods (NRLM). (Cite NITI Aayog MPI).
• Inequality Reduction: Progressive social spending and targeted schemes for vulnerable sections. Effectiveness depends on targeting.
• Improvements in HDI Components:
  • Health: NHM, PM-JAY, ICDS, JJM, SBM improve life expectancy, reduce IMR/MMR.
  • Education: RTE, Samagra Shiksha, PM-POSHAN increase literacy, enrolment.
  • Living Standards: MGNREGS, NRLM, PM-KISAN improve per capita income. (Cite UNDP HDR).

B. Employment Generation, Income Redistribution, Demand Creation

• Employment Generation: Direct (MGNREGS, PMEGP), Indirect (infra schemes, MSME support, skill development).
• Income Redistribution: Progressive taxation + social welfare spending. Subsidies & DBT support lower-income groups.
• Demand Creation: Increased income for poorer sections (higher MPC) boosts aggregate demand (MGNREGS, PM-KISAN). Infra spending creates input demand.

C. Macroeconomic Implications

• Impact on Inflation: Demand-pull if supply lags. Agri-productivity schemes can control food inflation. Subsidies can distort prices.
• Fiscal Deficit & Debt Sustainability: Welfare schemes impact fiscal deficit. High deficits can lead to debt accumulation. FRBM Act for fiscal discipline. Rationalization of subsidies, DBT, enhancing tax revenues are crucial.
• GVA Contribution: Sectoral schemes (agriculture, MSME, PLI for manufacturing) aim to enhance GVA and growth.

D. Crowding-in vs. Crowding-out Effect on Private Investment

• Crowding-out Effect: Large government borrowing can increase interest rates, making private investment costlier. High fiscal deficits can create uncertainty.
• Crowding-in Effect: Government spending on infrastructure (roads, digital) can create a conducive environment for private investment. Social sector spending (health, education) enhances human capital, boosting productivity.
• Net effect depends on quality of government spending and macro environment. Recent emphasis on capital expenditure aims for crowding-in.

E. Impact on Labor Markets

• MGNREGS on Rural Wages: Studies suggest increased rural agricultural wages and bargaining power, especially for women.
• Skill Development Schemes: Aim to improve employability and wage levels.
• Social Security Schemes: (PM-SYM, APY) provide safety net, potentially influencing labor supply.
• Formalization of Labor: Schemes promoting MSME formalization (Udyam) or incentivizing formal employment (ABRY) impact labor market structure.

Table: Economic Impact Areas of Schemes

A. Outcome Budgeting in India

• Concept: Links financial allocations (inputs) to measurable outputs and desired outcomes (results/impact). Shifts focus from expenditure to results.
• Evolution in India: Introduced 2005-06. Since 2007-08, all ministries prepare Outcome Budgets. In 2017-18, merged with Demand for Grants; Output-Outcome Monitoring Framework (OOMF) by NITI Aayog.
• Components of Outcome Budget / OOMF: Financial outlays, quantifiable physical outputs, measurable outcomes, timelines, responsible agencies.
• Potential Benefits: Enhances accountability, improves resource allocation, facilitates monitoring & evaluation, helps identify underperforming schemes.
• Limitations and Challenges: Difficulty defining measurable outcomes, lack of reliable data, capacity constraints, often a procedural exercise, political considerations.

B. Role of Comptroller and Auditor General of India (CAG)

• Constitutional Body: Article 148.
• Mandate (Article 149): Audit all receipts and expenditure of GoI and State Governments.
• Types of Audit: Financial, Compliance, Performance (Economy, Efficiency, Effectiveness - "3 Es").
• Process of Performance Audit: Defining objectives, criteria, methodology, data collection, analysis, reporting. Reports laid before Parliament/State Legislature, examined by PAC/COPU.
• Significance: Independent assessment, highlights deficiencies, recommendations for improvement, enhances parliamentary oversight and public accountability.
• Challenges: Timely follow-up on recommendations, capacity constraints, data access, defining performance indicators.

Table: Outcome Budgeting & Performance Auditing - Key Aspects