Deconstructing Union Budget 2015-16: what has changed?

The budget has left unanswered some critical questions about the future of key social sector schemes

Much was expected out of the first full-year budget of the new government. Against the backdrop of the game-changing recommendations for greater financial devolution to states by the 14th Finance Commission (FFC) and the need to cut the fiscal deficit whilst also ensuring basic social safety nets, the task set out was not an easy one. So how did the budget deliver?

A look at some of the key themes suggests that while the budget does provide insights into the government’s intentions and future nature of economic and social policy, the roadmap and institutional mechanisms to achieve these are still to be clearly spelt out.

Decentralisation and cooperative federalism

As expected, the first major theme in the budget was the change in the nature of Union government expenditures. The FFC’s recommendation of increasing states’ share in divisible taxes from 32 per cent to 42 per cent and consequently, 62 per cent of total tax revenues collected by the country (Centre and states combined) will now accrue to states (up from 55 per cent in 2014-15).

This has had important consequences for the budget. First, it increases the pool of untied monies available with states to focus on state-specific priorities. In corollary, with a greater share of the pie going directly to states to spend as they like, Central assistance provided by the Union government through a number of schemes including Centrally Sponsored Schemes (CSS) would reduce. This has already happened in this budget. For instance, a comparison between budget estimates (BE) of 2014-15 and 2015-16 indicates a 39 per cent decrease in transfers through Central assistance. Compared with revised estimates (RE) for 2014-15, the drop is 26 per cent. (There was a difference of Rs 60,241 crore between BE and RE for 2014-15.)

The second important consequence is that it is now imperative that Indian public finances be assessed on a consolidated level rather than at the Central level alone. This is not going to be an easy task. Budget actuals often differ widely from projections, data on state government finances are never easy to obtain and collated finances are often out of date. An overhaul of accounting mechanisms as well as closer coordination between the Centre and states may serve as a first step.

Third, the speech spoke about a vision for India as one led by the states and guided by the Central government. This is evident from the clear distinction in the budget for different types of schemes. Eight schemes will no longer be funded by the Centre, including the Backward Regions Grant Fund (BRGF) and the National E-governance Plan (which states can continue to implement them if they desire). Thirty-one schemes (either legally mandated or having national priority), including the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the Mid Day Meal Scheme (MDM), the Sarva Shiksha Abhiyan (SSA) and scholarship schemes will remain fully funded by the Central government. In another 24 schemes, the onus will be on states to shoulder a greater share of the resource burden such as the National Health Mission (NHM) and Swachh Bharat Mission (SBM).

This has the potential to change the dynamics of Centre-state relations. The twin impact of states now having greater fiscal space and the decrease in the Centre’s role (both in terms of the number of schemes as well as a decrease in their fiscal responsibility) could mean that states finally and (ideally) have the autonomy and flexibility to decide policies. This was missing in many of the CSS. For instance, under SSA, in FY 2014-15, only 58 per cent of total proposals by states were approved by the Centre. Seen activity- or component-wise, the Centre’s focus on infrastructure under RTE meant that a number of state proposals for enhancing learning and quality were not approved in 2013-14 and 2014-15.

How will these CSS be restructured, especially those where the onus is on states to take a lead in financial responsibility? Will states be able to use their increased fiscal powers to have a greater say in design and implementation? What would the new institutional arrangements for fiscal transfers between the Centre and states look like? Will the Inter-State Council be restructured and revived (despite being mandated to meet three times a year, it has met 10 times since its establishment in 1990 and twice in the last 10 years) to play a key role in building this cooperative federalism? On these questions, the budget remained largely silent.

Social safety nets and social sector schemes

The next theme in the budget was the expansion of social sector nets. The finance minister announced a universal security system, covering pensions, accident and medical insurance. In line with the JAM trinity coined by the Economic Survey—Jan Dhan Yojana (JDY), Aadhaar and Mobiles—the stated focus will be on getting direct transfers to beneficiaries. In fact, the budget spoke about increasing the number of beneficiaries from the present 10 million to 103 million. But again, what was missing was the roadmap to get this done. The much lauded "success" of the Jan Dhan Yojana has focused on getting accounts opened. However, a deeper look at the numbers suggests that 84.3 million accounts had zero balance till the first week of February 2015. Moreover, only 35 per cent of the accounts were Aadhaar-seeded. In Bihar, this figure was only 10 per cent!

Finally, here are a few thoughts on some of the key programmes. Surprisingly, the budget had relatively little to say about the sanitation sector. Despite the hype around Swachh Bharat, allocations for the Swachh Bharat Mission decreased by 15 per cent compared to the BE of last year. Compared to RE, however, they increased by 27 per cent. Lower allocation is not the problem, especially given the fact that only 35 per cent of the funds available under SBM (gramin) had been spent till February 2015. With the states now playing a key role in this sector and the Centre acting as “guide”, I hoped for a clear articulation by the Centre on the need to a move away from focusing on construction to one that incentivises behaviour change.

Though the budget mentions a focus on welfare programmes for women and children and commits Rs 1.23 lakh crore in the 12th Five Year Plan to restructure the Integrated Child Development Services (ICDS), the massive decline of 44 per cent in ICDS may affect the implementation of the programme.

Allocations for the National Health Mission decreased significantly (18 per cent compared to BE). This would probably mean a further decrease in allocations for the National Rural Health Mission (NRHM) (which had already decreased by 8 per cent last year). Given that health is a State subject, and NRHM has not been successful in decreasing inter-state variations in per capita health expenditures, will the NRHM be restructured? What will the role of the Centre be, given its reduced financial commitments?

While it is true that the budget is essentially a statement of accounts of public finance, Arun Jaitley himself said that it has become an opportunity to indicate the direction and pace of India's economic and social policy. Hence, it is clear that the budget represents a number of intentions as well as questions about the future of key schemes and the nature of cooperative federalism. The opportunity now exists for a redesign of schemes and the role of the Centre and states. The extent to which this opportunity is embraced remains to be seen. It's time now to wait and watch the actions of the line ministries to see how this plays out.

Avani Kapur is senior researcher with Accountability Initiative at the Centre for Policy Research in New Delhi