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LATEST NEWS UPDATES | Political expediency wins over cooperative federalism -Nitin Sethi & Ishan Bakshi

Political expediency wins over cooperative federalism -Nitin Sethi & Ishan Bakshi

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published Published on Mar 4, 2016   modified Modified on Mar 5, 2016
-Business Standard

Cess, surcharges come in handy

New Delhi: Looking to leave its political imprint over spending in rural India, the National Democratic Alliance (NDA) government has budgeted for a massive 31 per cent hike in its share of spending on nine big-ticket centrally sponsored schemes (CSS) in 2016-17 over last year's budgetary allocation. Last year's Budget mantra of 'cooperative federalism' has been sidestepped to favour political exigencies.

To fund these schemes, which it hopes to claim political ownership over, the Centre has introduced new cesses and surcharges on top of existing ones. Revenue from these sources remains in the central kitty and will not have to be shared with states.

In the coming financial year, the Centre hopes to mop up Rs 2,66,493 crore through this route, up from Rs 2,48,480 crore in 2015-16. This year's number is itself a substantial hike over its initial expectations. The government had originally budgeted to collect Rs 1,96,281 crore as cess and surcharge in 2015-16.
 
Nitin Sethi
Surprisingly, despite the Opposition's repeated attempts to paint it as being anti-poor, the NDA government has not claimed too much political dividend out of the fact that it actually spent more on most of these centrally sponsored schemes in 2015-16 as compared to its original budgetary allocations. The mid-course correction in the shape of hike in spending came as an afterthought. It suggests that the government hit by the 'suit-boot' jibes of the Congress and aware of growing distress in rural areas, routed the additional tax revenue it garnered to prop up the rural economy.

Business Standard looked at nine major programmes under central assistance for state plans, which together account for more than three-fourths of the total allocation for CSS in 2016-17.

The renewed faith in CSS this year is in sharp contrast to last year's Budget rhetoric. After accepting the recommendations of the 14th Finance Commission, which proposed to increase the states share in the divisible pool from 32 per cent to 42 per cent, the NDA government had cut back on several of these schemes such as Integrated Child Development Scheme (ICDS) and midday meals last year. The sharp increase in untied funds was matched by an almost commensurate cut in central funding to central schemes.

Trumpeting the phrase cooperative federalism, the NDA government suggested that cash-rich states were now capable of more than matching the fall in the Centre's contribution to these schemes and knew where to best spend the money. So, it withdrew itself partially from funding these central schemes.

After presenting the Budget and paring down the allocations last year, the government went about retrofitting the schemes. A committee was set up under the aegis Madhya Pradesh Chief Minister Shivraj Singh Chouhan to recommend which central schemes could be shut down entirely, which should be funded purely out of the Centre's pocket and in which schemes it should prune its share. It was only by October 2015 that these formulations could be worked out for all the schemes.

This is reported to have caused tremendous flux on the ground, with services and wages remaining unpaid for months as many states had already finalised their budgets before the cuts were announced by Delhi. Social schemes require predictability of funds, as much as a specific volume to operate. The schemes suffered on both counts to begin with. Central ministries remained confused about how much funds to transfer to states and for what components. Funds from the Centre began to flow only once the new cost sharing formulae had been finalised.

But now centrally sponsored schemes are back with a bang. The government's renewed interest in Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), in contrast with the initial derisive remarks of the Prime Minister, is still well known. NDA upped its allocation for the rural employment programme around the middle of last year, overheated rural demand for the programme and ended up with arrears of more than Rs 6,000 crore to pay. The budget for MGNREGA has been enhanced this year by Rs 3,800 crore but it does not match up to the amount spent previously added to the arrears and the mandatory rise in wages that the scheme will see this year. But, it's still a far cry from the point in 2014-15 when the scheme saw its worst.

What is less talked about is its ramping up of spending on other schemes. Compared to MGNREGA, the spending increase on the Pradhan Mantri Gram Sadak Yojana to build rural roads is even more impressive. Though it had originally budgeted to spend Rs 10,100 crore in 2015-16, it eventually ended up spending Rs 15,176 crore on the scheme - an increase of over 50 per cent. It has now increased the allocation further to Rs 19,000 crore in 2016-17.

The government's deep cut to the ICDS, down to Rs 8,400 crore in the last Budget, had resulted in uproar. But, by the end of the year, spending on the scheme was ramped up to Rs 15,100 crore - an increase of almost 80 per cent. In the coming financial year, allocation to ICDS has been raised further to Rs 16,120 crore.

On other programmes, too, spending was ramped up in similar fashion. The government eventually ended up spending Rs 8,227 crore against a budgeted Rs 6,000 crore on its marquee Swachh Bharat Mission. In the coming financial year, the government promises increase its funding further to Rs 11,300 crore.

The government's expenditure on the rural component of the Housing for All scheme (rechristened Pradhan Mantri Awas Yojana) matched the initially budgeted amount in 2015-16. By comparison, in urban areas it was able to spend only a third of what it had originally planned to on doing. On this scheme too, the NDA promises to spend Rs 20,075 crore in 2016-17 as compared to the budgeted amount of Rs 14,000 crore in 2015-16.

The one social sector that didn't find adequate attention was primary education. While expenditure on Sarva Shiksha Abhiyan and the midday meal scheme was budgeted at Rs 27,575 crore in 2015-16, the government ended up spending only Rs 19,298 crore by the year-end. But, even here the government promises to inject more money with the budgeted allocation for 2016-17 marked at Rs 32,200 crore.

The health budget has seen an increase as well but it doesn't add up to suggest any substantial enhancement of public health services. Two years over and NDA's national health policy remains an iterant draft, while the government has now looked for the insurance route in the short-term. The fiscal burden of a targeted insurance scheme is expectedly much lower than what would be required for a universal public health care system, even if it was limited to primary and secondary health care.

The only original idea of the NDA government - the Smart City programme - is the one that seems to have gotten off to a slow start. As against a budgeted amount of Rs 2,000 crore in 2015-16, the government was able to spend a mere Rs 417 crore, as it went about selecting 20 cities out of the 100 to fund initially. This year, it plans to spend Rs 3,003 crore on the programme.

Business Standard, 2 March, 2016, http://www.business-standard.com/budget/article/political-expediency-wins-over-cooperative-federalism-116030200042_1.html?utm_content=buffer2b549&utm_medium=socia


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