80% of social sector spending comes from States’ budgets: YV Reddy

About 80 per cent of social sector spending has come from the States’ budgets in the last 25 years, according to 14{+t}{+h} Finance Commission Chairman and former RBI Governor YV Reddy.

Delivering a lecture on the 14{+t}{+h} Finance Commission and its implications on State finances at the Centre for Economic and Social Studies here, Reddy said the Commission did not provide any sector-specific grants to States which was a departure from the past.

While examining the various routes for social sector spending, through earmarked cesses and centrally-sponsored schemes, he said in the Indian federal system States are the primary drivers of social sector spending, be it on health or education.

Financing social sector through big ticket Central schemes is a phenomenon of the last one-and-a-half decades.

“However, despite spending through centrally-sponsored schemes in social sector in a big way, States’ share in social sector has remained significantly higher than the share of Centre,” Reddy said.

States’ share in the combined social sector expenditure, both Plan and non-Plan, was 90.32 per cent in the 2014-15 Budget while the net of Central transfers in combined social sector expenditure comes to 70.78 per cent.

“Thus, over 20 per cent of the social sector expenditure by States is funded by Central transfers,” he said.

On the response of additional fiscal space given to States by way of increasing their share in the divisible pool of tax revenue from 32 per cent to 42 per cent by the 14{+t}{+h} Finance Commission, Reddy said different States are expected to respond differently to additional fiscal space available to them both in quantitative and qualitative terms.

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