Physical, social infra spending growing faster than GDP

Government, public and private sector expenditure on education, health and family welfare has been growing at a faster clip than India’s Gross Domestic Product (GDP). But civil aviation spending registered the fastest growth during the 2003-04 to 2010-11 period, rising by 37.2 per cent.

India’s nominal GDP recorded a compound annual growth rate (CAGR) of 15.3 per cent during the eight-year period, according to research and ratings agency Crisil. Family welfare spending, on the other hand, shot up by 22.3 per cent, while education expenditure rose by 19 per cent. What is more, the outgo on health initiatives rose by 17.5 per cent and even scientific research expenditure grew by 16.8 per cent to pip the CAGR of the country’s GDP.

With respect to physical infrastructure, spending on urban development grew by 28.9 per cent, while roads and bridges construction expenses moved up by 22.1 per cent and rural development costs by 19.4 per cent.

But expenditure on railway infrastructure (14.8 per cent), irrigation (13.7 per cent), ports (12 per cent) and power projects (3.2 per cent) grew at a slower pace than the GDP.

The share of spending on social infrastructure such as health and education increased from 4.1 per cent to 5 per cent of the GDP during the 2003-04 to 2010-11 period, while the proportion of physical infrastructure expenditure to GDP rose marginally from 4.5 to 4.6 per cent.

But there is still scope for improvement of spending on social infrastructure, given the Government’s self-set target of education expenditure at 6 per cent of GDP and health at 2 per cent of GDP. India is ranked lowest among BRICS nations in terms of health, education and physical infrastructure spending.

The clear solution to ramping up physical infrastructure development, according to Crisil, lies in greater private sector involvement in ports and power sector projects, coupled with heightened public sector participation in irrigation and the railways. In the 11th Plan (2007-12), the private sector accounted for around 80 per cent of the overall investment in the ports sector, but their share of power sector expenditure was lower at 37 per cent. Suitable policy to encourage private sector investment in these sectors will free up public sector resources to focus on areas such as irrigation.

Crisil says ensuring that Government expenditure reaches the target beneficiaries and the effectiveness of various spending programmes in creating the desired impact also needs to be addressed. The recent diesel price hike, proposed direct cash transfer of subsidies and Kelkar panel recommendations on subsidy reductions a step in the right direction, it said.

>arvind.jayaram@thehindu.co.in

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