Investing in human capital through interventions in nutrition, health, and education is critical for sustainable growth. But India’s human capital indicators remain low. In the World Bank’s Human Capital Index, the country ranked 116th.
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]
The National Family Health Survey-5 for 2019-20 shows that malnutrition indicators stagnated or declined in most States. The National Achievement Survey 2017 and the Annual Status of Education Report 2018 show poor learning outcomes. In addition, there is little convergence across States. This is a cause of concern as these statistics could worsen due to the COVID-19 pandemic.
Several government initiatives have been launched to address these issues. The National Health Policy of 2017 highlighted the need for interventions to address malnutrition. On the basis of NITI Aayog’s National Nutrition Strategy, the Poshan Abhiyaan was launched, as part of the Umbrella Integrated Child Development Scheme.
The latest Union Budget has announced a ‘Mission Poshan 2.0’ and the Samagra Shiksha Abhiyan has been the Centre’s flagship education scheme since 2018. However, India spends just 4% of its GDP as public expenditure on human capital (around 1% and 3% on health and education respectively) — one of the lowest among its peers.
International experience suggests that one reason why these interventions are not leading to better outcomes may be India’s record with decentralisation. Globally, there has been a gradual shift in the distribution of expenditures and revenue towards sub-national governments. These trends are backed by studies demonstrating a positive correlation between decentralisation and human capital.
In recent years, India has taken some steps towards decentralisation. The Fourteenth Finance Commission increased the States’ share in tax devolution from 32% to 42%, which was effectively retained by the Fifteenth Finance Commission.
In India, three tiers of government are envisaged, with the Constitution dividing powers between the first two tiers — the Centre and the States, as per the three lists under the Seventh Schedule. While public health is in the State List, the broader subject of economic and social planning is in the Concurrent List.
In 1976, education was shifted from the State List to the Concurrent List through the 42nd Amendment. The placement of a subject in the Concurrent List, in effect, indicates the presence of overarching considerations that warrant the Centre’s involvement.
Fiscally, while the Constitution assigns the bulk of expenditure responsibilities to States, the Centre has major revenue sources. To address this vertical imbalance, the Constitution provides for fiscal transfers through tax devolution and grants-in-aid.
In addition, the Centre can make ‘grants for any public purpose’ under Article 282 of the Constitution. While fiscal transfers that are part of tax devolution are unconditional, transfers under grants-in-aid or Centrally Sponsored Schemes (CSSs) can be conditional. Therefore, the increase in the States’ share of tax devolution represents more meaningful decentralisation.
Several imbalances
The 73rd and 74th Amendments bolstered decentralisation by constitutionally recognising panchayats and municipalities as the third tier and listing their functions in the Eleventh and Twelfth schedules, respectively.
These include education, health and sanitation, and social welfare for panchayats, and public health and socio-economic development planning for municipalities. However, the Constitution lets States determine how they are empowered, resulting in vast disparities in the roles played by third-tier governments.
Despite some shifts towards greater State autonomy in many spheres, the centralised nature of India’s fiscal architecture has persisted. Centrally Sponsored Schemes have formed a sizeable chunk of intergovernmental fiscal transfers over the years, comprising almost 23% of transfers to States in 2021-22.
But its outsized role strays from the intentions of the Constitution. Article 282 of the Constitution is listed as a ‘Miscellaneous Financial Provision’, unlike Articles 270 and 275, which fall under ‘Distribution of Revenues between the Union and the States’.
Constitutional expert Nani Palkhivala had characterised it as more of a residuary power, opining that grants-in-aid under Article 275 as per Finance Commission recommendations are the more appropriate, regular route. The Supreme Court in Bhim Singh vs Union of India had observed that “Article 282 is normally meant for special, temporary or ad hoc schemes”.
There are issues in the design of CSSs as well, with the conditions being overly prescriptive and, typically, input-based. Against this, international experience reveals that schemes with output-based conditions are more effective. Moreover, CSSs typically have a cost-sharing model, thereby pre-empting the States’ fiscal space. This is incongruous, given that many CSSs cover subjects in the State and Concurrent Lists, such as health and education.
A functionally and fiscally empowered third tier would not only be more in keeping with the constitutional spirit, but also lead to better outcomes. But ironically, States, too, have been responsible for centralisation. Many States do not clearly demarcate or devolve functions for panchayats and municipalities.
Further, third-tier governments are not fiscally empowered either. The collection of property tax, a major source of revenue for third-tier governments, is very low in India (under 0.2% of GDP, compared to 3% of GDP in some other nations).
The Constitution envisages State Finance Commissions (SFCs) to make recommendations for matters such as tax devolution and grants-in-aid to the third tier. However, many States have not constituted or completed these commissions on time, and hence, the Fifteenth Finance Commission has recommended no grants after March 2024 to any State that does not comply with the constitutional provisions pertaining to SFCs.
Towards a solution
To begin with, the Centre should play an enabling role, for instance, encouraging knowledge-sharing between States. For States to play a bigger role in human capital interventions, they need adequate fiscal resources. To this end, States should rationalise their priorities to focus on human capital development.
The Centre should refrain from offsetting tax devolution by altering cost-sharing ratios of CSSs and increasing cesses. The unconditional nature of these vertical transfers should be effectuated in spirit. Concomitantly, the heavy reliance on CSSs should be reduced, and tax devolution and grants-in-aid should be the primary sources of vertical fiscal transfers. Panchayats and municipalities need to be vested with the functions listed in the Eleventh and Twelfth Schedules.
Leveraging the true potential of our multi-level federal system represents the best way forward towards developing human capital.
Recent Posts
- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)