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Spending on social welfare schemes by the top 11 Indian states — accounting for 75-80 per cent of aggregate gross state domestic product (GSDP) — is expected to reach a decadal high of over 1.7 per cent of GSDP, or Rs 4 lakh crore, according to the budget estimates (BE) of these states for fiscal 2024.
These expenditures have risen consistently in the past few years, from 1.2-1.3 per cent of GSDP on average before fiscal 2018 to 1.6 per cent in fiscal 2023, according to revised estimates. Going by the taxonomy of state government budgets, revenue expenditure for ‘social welfare’ refers primarily to disbursements which take place in the form of direct transfers, cash incentives and distribution of personal or household goods, Crisil said in a report.
However, these do not include spending on education, agriculture, public health and other key sectors, which are budgeted separately, it said. “The revenue expenditure of states can be broadly divided into committed and non-committed,” Crisil said.
Committed expenditure, which states have limited flexibility in managing — including salaries, pension, and interest payments, accounting for 45-47 per cent of revenue expenditure — is estimated to log a compound annual growth rate (CAGR) of 9 per cent between fiscal years 2018 and 2024. Non-committed expenditure includes outlays on education (10-11 per cent of revenue expenditure), power sector (6-7 per cent), agriculture (6-7 per cent), public health (4-5 per cent), and social welfare schemes (13 per cent), according to Crisil.
Said Anuj Sethi, Senior Director, CRISIL Ratings, “Expenditure on social welfare schemes is estimated to clock 16 per cent CAGR between fiscals 2018 and 2024, much faster than 11 per cent growth in overall revenue expenditure. The higher growth on social welfare schemes is due to states prioritising financial assistance to certain target demographics in the form of direct transfers, pensions and cash incentives, and, in some instances, to honour election commitments.”
Among other components of non-committed revenue expenditure, public health spending is estimated to clock a robust 12-13 per cent CAGR over the six-year period owing to increased allocations amid Covid-19 and continuing focus post-pandemic as well, it said.
Growth in allocation towards education and agriculture would be in single digit, at 7-9 per cent. Thus, social welfare spending is expected to log the fastest growth in the period analysed, taking its share in overall revenue expenditure by state governments up to 13 per cent this fiscal from 10 per cent in fiscal 2018.
Crisil said this increased allocation, however, has coincided with moderate growth in revenue receipts — 10-11 per cent CAGR between fiscals 2018 and 2024 — resulting in continuing revenue deficits for the states. “The higher allocation towards welfare schemes has come during a period when capital expenditure (capex) is estimated to log a CAGR of 11 per cent, keeping it range-bound at 2.0 per cent of GSDP. Higher allocation for capex or towards education and health has a relatively higher impact on uplifting revenue and productivity for states in the near to medium term,” Crisil said.
While allocation towards social welfare schemes is seen as essential considering India’s demography, a steady increase in the same without commensurate increase in revenues may have an impact on the credit profiles of the states in the longer run, it said.
