A Centre-state pact to help India’s vulnerable
India turned 75 on August 15. It marked a moment of celebration but also of quiet reflection and planning. HT brings together India’s top minds with one question — what is your vision for India@100? Today, Janmejaya Sinha details his plan for India’s collaborative progress
In an earlier piece on these pages, I segmented India into three different per capita income countries. A Europe of 50 million people, an Indonesia of 425 million people and a sub-Saharan Africa of 900 million people. I highlighted a concern: The higher relative growth rates in the income of India’s Europe and Indonesia compared to India’s sub-Saharan Africa was widening this rift. The life chances of people in the upper two segments changed dramatically over the past two decades; sadly, only the aspirations of the sub-Saharan segment changed, not their opportunities for upliftment. India’s democratic polity cannot remain stable if such a large part of its population has poor opportunities to achieve its aspirations. Ideally, India at 100 should not have any sub-Saharan Africa within it. That is my dream for 2047. 
There is nothing novel in identifying what needs to be done. Every commentator has identified the need for quality school and adult education, skilling, primary health care, and quality hospitals, with an accompanying strike on malnutrition and a renewed focus on agriculture by fixing water management. Today’s geopolitics has highlighted another critical gap – the need for advanced weaponry for our armed forces. Many other gaps require attention, but I believe fixing the highlighted areas will provide many Indians a chance to escape their sub-Saharan African conditions.
Much has been written on these subjects, and much progress has been made. Yet, the reality is that the current situation is unsatisfactory. Fixing these areas is not easy because it requires a level of Centre-state coordination that is difficult to achieve in a raucous democracy.
How can this problem be tackled?
The critical question first. How do we increase expenditures and set a mandated minimum expenditure in these areas? For example, our expenditure on education is around 3.1% of the Gross Domestic Product (GDP), much less than the aspiration of 6% in the national education policy. Our expenditure on health care at 3% is even lower than that of low-income countries. By comparison, the expenditure in high-income countries is at 12.5%, middle-income countries at 5.3%, and low-income countries at 4.9%. Changing allocations in our budget is challenging. The easiest way would have been by increasing the tax-to-GDP ratio. However, this ratio has not moved over the years and is politically tricky. To make any progress, the states will need to spend more.
In broad terms, states get about 65% of the total revenues raised by the government – around 35% by direct levies and another 30% from the Centre (41% state allocation as per the Finance Commission formula and on account of some targeted schemes). The states spend 55-60% of the total government expenditures while the Centre spends around 40-45%. Thus, there is always pressure on the Centre to control the fiscal deficit.
The 2003 Fiscal Responsibility and Budget Management Act was set to institutionalise financial discipline, reduce India’s fiscal deficit, and strengthen fiscal prudence by moving towards a balanced budget. Can we add another twist by mandating a fixed minimum allocation to education, health, water, and defence? This requires a consensus that is not easy to reach due to the compulsions of electoral politics. Short-term compulsions divert funds to areas with more immediate electoral payoffs.
Given this construct, the Niti Aayog should try and obtain alignment on a basic minimum expenditure on these categories with the states. Once the states agree, expenditures by category should be monitored quarterly and recorded on a transparent dashboard. In case targets are not met, their allocation of central funds should be reduced in the next Finance Commission report award. In addition, an evaluation scheme should be introduced by a private body to evaluate the delivery of both education and health care in every state so that performance can be measured and shared within the country to highlight good and bad performers.
Regarding water management, the hard political reforms of correcting the mispricing of power and water are overdue. We offer free water and don’t charge for power in agricultural areas. However, this has crippled the State distribution companies and has led to a fundamental misuse of water, leading to irresponsible cropping patterns and a continuously falling groundwater table. As a result, our dependence on the monsoons does not reduce. Mispricing also has second-order adverse effects of higher power costs, impeding our ability to compete in manufacturing goods, despite the opportunity arising out of the world seeking a China-plus-one strategy. The other steps around water are equally challenging – cleaning our rivers, connecting rivers, and ensuring water harvesting in cities (built without any concern for how water flows may be captured).
The armed forces need better equipment. So, we must procure the best but also create a predictable and profitable environment for defence production. If that’s done, Indian industry will flock to the sector, increasing the share of manufacturing as a per cent of GDP too, improving atmanirbharta (self-reliance), and ensuring security preparedness for facing a deteriorating geopolitical environment.
As Mahatma Gandhi said, the “the future depends on what you [we] do today.” Better managed water will improve agricultural productivity and improve farmer incomes. Education remains the passport for a better future, yet malnourished children cannot achieve their full potential. Malnourishment and waste are eroding India’s demographic dividend – a young population in an ageing world. We also need strong, well-equipped armed forces to secure India in a tough neighbourhood. China’s arms advantage is double its significant economic advantage.
These initiatives are critical for India. It will allow India to become a country where all Indians can improve their life chances. Having no Indians trapped in the sub-Saharan segment is my dream for India@100.
Janmejaya Sinha is chairman, BCG India
The views expressed are personal
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