Indian Journal of Human Development, Vol. 5, No.

2, 2011

Social Sector Expenditures and

Their Impact on Human Development:
The Indian Experience

Binoy Goswami and M.P. Bezbaruah*

India’s cl im b to a h igh - grow th path foll

ow ing m ark et- orie nte d e conom ic re form s initiated in
19 9 1 h as not be e n m atch e d by an im provem ent in h er w orl d rank ing in h um an de ve l opm e nt.

th e rh etoric of publ ic pol icy is curre ntl

y on m ak ing th e grow th proce ss incl usive . In pu rsuance
of th is state d goal , th e al locations of publ ic expe nditure s on socialse ctors h ave be en ste pped
up w ith th e expectation of e nh ancing th e acce ss of th e m asse s to th e basic nece ssitie s of l ife.
Th is pre se nts a detail e d anal ysis of publ ic expe nditure on socialse ctors in India during th e
post- re form pe riod w ith an eye on its contribution to th e proce ss of h um an de vel opm e nt in th e
country. An e conom e tric anal ysis using state leve ldata h as re ve al ed th at variations in h um an
deve lopm ent across states h ave m ore to do w ith th e ir re spe ctive grow th attainm ents th an w ith
th e publ ic e xpe nditure on socialsectors. As for th e pol icy aim ed at expe diting th e proce ss of
h um an deve l opm ent in th e country, th e paper sugge sts th e tw in strate gies of continuation of
grow th - orie nte d e conom ic reform s and im prove m e nt of th e de l ive ry m ech anism for facil itating
a m ore effe ctive de pl oym e nt of th e socialse ctor e xpe nditure s.

K e yw ords: Socialse ctor, H eal

th , Education, Publ
ic e xpe nditure s, H um an de ve l
opm e nt

INTRODUCTION
Since the beginning of liberalization in 1991, the Indian economy has been traversing
a higher growth path. The euphoria surrounding this impressive growth performance
seems to be invoking a sense of pride in most people in their being citizens of an
emerging economic powerhouse. However, amidst these celebrations lie certain bitter
realities, which continue to haunt the nation. A sizable section of the population still
suffers from abject poverty, cannot read and write, and is subject to many deprivations,
or in other words, it does not have even a bare minimum standard of living. This
implies that the daunting challenge that India faces today is that of making the growth
process inclusive or translating economic growth into enhanced human capabilities. In
this context, the State or more precisely, public policy with regard to what in economic
parlance is called the ‘social sector’ assumes critical importance.
There are basically two approaches that may govern public policy with regard to
the social sector in any country, namely, the human capital/resource development

* Assistant Professor, Dibrugarh University, Email: goswamibinoy150@gmail.com; and Professor, Gauhati

University; Email: bezbaruah.mp@gmail.com, respectively.
366 Indian Journal of Human Development

approach and the human development approach. In the human resource development
approach, social sectors may be defined as all those sectors which contribute to an
enhancement of human capital, that is, the skills and productive knowledge embodied
in people (Prabhu, 2005). This approach asserts that people should invest on themselves
through education, healthcare, and other such indicators to form human capital. Such
investments enhance their productivity and fetch them higher returns by contributing
to higher growth. Thus, the human resource development approach, which is also
known as the income-centred approach, focuses primarily on higher growth and
economic efficiency. It is therefore, hardly surprising that this approach equates an
increase in GNP per capita with development. This approach, however, admits that a
part of human capital, or more precisely knowledge, is not private and has a spillover
effect (Marshall, 1961). A formal treatment of this understanding in economic theory
can be found in Romer’s (1986) work—popularly known as the endogenous growth
theory—wherein he has tried to explain the source of increasing returns to scale in an
economy in terms of investment on human capital. Thus, on the ground that human
capital or knowledge has a positive spillover effect, the human resource development
approach allows a role for public policy in the social sector. However, this role is very
limited in its scope as it judges investment on human capital—including healthcare,
nutrition and education—to be worthwhile only when the returns or the values that
market places on human capital from such investments are higher than the costs
(Anand and Ravallion, 1993).
A rather different view of the meaning of development was expressed in the
Human Development Report (HDR) produced by the United Nations Development
Programme (UNDP) in 1990, the conceptual underpinning for which could be found
in Sen’s work (Sen, 1984; 1985). The essence of this view is that human development,
or what people can actually do and be, is the over-riding purpose of economic
development (Anand and Ravallion, 1993). This does not imply that economic growth
or improvement in income is not important. This view does attach importance to higher
income as can be understood from the inclusion of per capita income in the Human
Development Index (HDI). The inclusion of per capita income in HDI is justified on
the ground that besides contributing directly to human development, it enables one
to exercise choice with respect to the other means of human development such as
education and healthcare. Notwithstanding the importance of income, this approach,
however, maintains that the association between private income and achievement in
certain dimensions of human development is far from tight (Dreze and Saran, 1995;
Anand and Ravallion, 1993). In other words, private income may not always result in
the attainment of human development. Private activities and market signals often fall
short when it comes to widespread and equal provision of certain services like basic
education.1 This is where public provisioning of social services as an instrument of
human development has a larger role to play.
From the discussion above, the striking differences between the human resource
development approach and the human development approach can be understood.
The human resource development approach considers human beings as a means to an
 Social Sector Expenditures and their Impact on Human Development 367

end, with the end being economic growth whereas the human development approach
treats human beings as ends in themselves. The difference in treating human beings
as means or ends defines the scope of public policy under these two approaches. The
scope of public provisioning of social services is limited under the human resource
development approach, as it approves only such investments on human capital that
fetch more returns than costs. In contrast, the human development approach argues
that enhancement of the ability to lead a happy and healthy life should be viewed
as an end in itself and hence there should be a greater public supply of services like
healthcare and education, irrespective of whether or not such investments generate
any conventionally measured economic returns.
In the light of the above theoretical understanding, this paper makes an attempt to
assess the impacts of expenditures made in the social sector on human development
in India. The expenditures of the governments, as described in the Central and state
budgets, consist of three broad categories, namely, non-developmental expenditures,
developmental expenditure, and loans and advances. Non-developmental expenditures
include the following items: defence services, border roads, interest payments, fiscal
and administrative services, organs of states, pension and other retirement benefits,
relief on account of natural calamities (non-Plan expenditure), technical and economic
cooperation with other countries, compensations and assignment to local bodies,
food subsidy, and social security and welfare (non-Plan expenditure). On the other
hand, developmental expenditures contain expenditures made on railways, posts and
communications, social and community services, general economic services, industries
and minerals less departmental commercial undertakings, fertilizer subsidy, power,
irrigation and flood control, transport and communications, and public works. Out
of these items, the expenditures in social sectors include money spent on ‘social and
community services’ and ‘rural development’ (Dev and Mooij, 2002). Again, social and
community services comprise: i) education, art and culture; ii) scientific services and
research; iii) medical, public heath, water supply and sanitation; iv) family welfare;
v) housing; vi) urban development; vii) broadcasting; viii) labour and employment;
ix) relief on account of natural calamities; (Plan expenditure); x) social security and
welfare (plan expenditure) and xi) others. Expenditures on rural development fall
under economic services, which basically relate to anti-poverty programmes. Both
the Plan and non-Plan expenditures incurred on these items have been considered
in the study. However, expenditure on food subsidy has not been considered as a
component of social sector expenditure in the study as it is difficult to identify as
to which part of food subsidy goes to the poor and which component benefits the
producers of foodgrains (Mooij and Dev, 2004).
The specific objectives of the paper are as follows: 1) to analyse the trends and
patterns of social sector expenditures in India; 2) to profile the status of human
development in India; and 3) to identify the factors that might have impacted human
development in the country. As far as the first objective is concerned, trends in aggregate
(the Centre and states combined) social sector expenditures are analysed for revenue
and capital expenditures separately and combined as well. However, at the state level,
368 Indian Journal of Human Development

only trends in combined social sector expenditures2 have been considered. In order
to fulfil the first and second objectives, information on social sector expenditures and
human development has been collected from various secondary sources. While the
Indian Public Finance Statistics published by the Ministry of Finance, Government of
India, presents data on combined social sector expenditures of the Central and state
governments, information on social sector expenditures of various states has been
collected from the Study of State Finances produced by the Reserve Bank of India
(RBI). Data relating to various indicators of human development for different states
of India and countries of the world have been gathered from different issues of the
Economic Survey and Census reports, Ministry of Human Resource Development and
Ministry of Health and Family Welfare, National Sample Survey (NSS) reports, Human
Development Reports (HDRs) produced by UNDP and World Data Bank of the World
Bank. A regression model has been constructed to fulfil the third objective, that is, to
identify the factors which might have impacted human development in India.
The paper has been organized into five sections. Section 2 analyses the trends
and patterns of social sector expenditures in India. A profile of the status of human
development in India has been presented in Section 3. Section 4 presents the regression
model and its result. Section 5 ends with a few concluding remarks and discusses the
implications of social sector expenditures for policy.

TRENDS AND PATTERNS OF SOCIAL SECTOR EXPENDITURES IN INDIA

Trends and Composition of Aggregate (Central and State Governments

Combined) Social Sector Expenditures
Table 1 shows the recent reversal in the declining trend of the combined social sector
expenditures of the Central and state governments. Public expenditure as a percentage
of the GDP declined from 30.12 per cent to 27.44 per cent over the period 1990-91 to
2005-06. The percentage has since risen to 30.47 per cent by 2009-10.

Table 1
Trend in Social Sector Expenditures in India
(Central and State Governments Combined)

Year Public Social Sector Expenditure as % of Social Sector Expenditure

Expenditure Total Public Expenditure as % of GDP
as % of GDP RE CE Total RE CE Total
1990-91 30.12 24.12 1.22 25.34 7.26 0.37 7.63
1995-96 27.06 25.33 1.20 26.53 6.85 0.33 7.18
2000-01 28.68 24.07 1.26 25.33 6.91 0.36 7.27
2005-06 27.44 24.12 1.79 25.91 6.62 0.49 7.11
2009-10 (BE) 30.47 27.28 2.29 29.57 8.31 0.70 9.01
Notes: BE—Budget Estimates, RE—Revenue Expenditures and CE—Capital Expenditures.
Source: Computed from Indian Public Finance Statistics, 2004-05 and 2009-10, Ministry of Finance,
Government of India.
 Social Sector Expenditures and their Impact on Human Development 369

On the other hand, social sector expenditure as a percentage of the public

expenditure remained a little above 25 per cent during the period 1990-91 to 2005-06,
which increased to 29.57 per cent in 2009-10. Again, in terms of the shares of revenue
and capital expenditures, while revenue expenditure in the social sector as a percentage
of public expenditure remained marginally above 24 per cent during the period 1990-
91 to 2005-06, and the percentage since then improved to 27.28 per cent by 2009-10. The
capital expenditure in the social sector as a percentage of public expenditure had been
slightly above only 1 per cent during the period 1990-91 to 2005-06, and then went up
to 2.29 per cent in 2009-10. Further, as a percentage of the GDP, the expenditure in the
social sector had been a little more than 7 per cent during the period 1990-91 to 2005-
06, which increased to 9.01 per cent in 2009-10. While the revenue expenditure in the
social sector as a percentage of the GDP declined from 7.26 per cent in 1990-91 to 6.62
per cent in 2005-06, and increased to 8.31 per cent in 2009-10, the capital expenditure in
the social sector as a percentage of the GDP has always been less than 1 per cent. This
reveals that revenue expenditure component constitutes an overwhelming proportion
of the total social sector expenditures. Thus, it becomes clear from the above discussion
that in recent times, while public expenditure as a percentage of the GDP has shown
a positive turnaround from the long downward trend, social sector expenditure as a
percentage of the public expenditure and GDP remained steady at a little above 25 per
cent and 7 per cent, respectively, till 2005-06 and has improved notably since then. It
may be mentioned here that the recent overhauling in public expenditure, in general,
and social sector expenditure, in particular, may partly be due to the temporary3
fiscal stimulus given to the economy to enable it to emerge out of the global economic
recession or a manifestation of the attempts made to realize the objective of inclusive
growth.
As far as the composition of social sector expenditures is concerned, education,
healthcare and rural development are the three heads that receive the majority shares
(Table 2). Expenditure on education as a percentage of the GDP declined from 3.37 per
cent in 1990-91 to 2.89 per cent in 2005-06, and then increased to 3.39 per cent in 2009-

Table 2
Component of Social Sector Expenditures in India
(Centre and States Combined) as a Percentage of the GDP

Major Heads 1990-91 1995-96 2000-01 2005-06 2009-10

Education 3.37 (44.08) 2.99 (41.56) 3.31 (45.28) 2.89 (39.93) 3.39 (36.64)
Healthcare 1.46 (19.01) 1.32 (18.34) 1.41 (19.32) 1.34 (18.50) 1.51 (16.37)
Rural Development 0.10 (13.06) 1.10 (15.35) 0.77 (10.46) 1.08 (14.95) 1.57 (17.01)
Others 2.7 (23.85) 1.77 (24.75) 1.78 (24.94) 1.8 (26.62) 2.54 (29.98)
Total 7.63 (100) 7.18 (100) 7.27 (100) 7.11 (100) 9.01 (100)
Notes: 1. BE—Budget Estimates.
2. Figures within brackets represent expenditures on the specific head as a percentage of the
total social sector expenditures.
Source: Same as for Table 1.
370 Indian Journal of Human Development

10. Although it was promised in the Common Minimum Programme (CMP) of the
United Progressive Alliance Government (UPA I) that public spending on education
would be raised to 6 per cent of the GDP, the realization of this promise seems to be
a distant dream. Again, as regards healthcare and rural development, while the share
of healthcare remained almost the same over this period, that of rural development
increased significantly from only 0.1 per cent in 1990-91 to 1.57 per cent in 2009-10. In
terms of the allocation of funds for different anti-poverty and employment generation
programmes that fall under the purview of rural development, the Mahatma Gandhi
National Rural Employment Guarantee Act (MGNREGA) received the highest
importance in recent times. Out of the total budget outlay of Rs. 66,100 crore provided
for rural development, around 60.66 per cent was allocated for MGNREGA alone in
2010-11. The allocation for items under ‘Others’4 has also increased in recent times.
On the other hand, as regards the percentage of total social sector expenditures, the
share of education increased from 44.08 per cent in 1990-91 to 45.28 per cent in 2000-
01 while that on healthcare improved from 19.01 per cent to 19.32 per cent during the
above period. However, in recent times, while the shares of education and healthcare
in the total social sector expenditures declined, there was an increase in the allocations
for rural development (from 13.06 per cent in 1990-91 to 17.01 per cent in 2009-10) and
items under ‘Others’ increased.

Trends in Social Sector Expenditures at the State Level

Table 3 reflects the efforts made by the states in the social sector relative to the sizes of
their economies or budgets. It is interesting to note that among the general category
states, while the economically backward states like Bihar, Madhya Pradesh, Rajasthan
and Uttar Pradesh have shown an increasing trend in social sector expenditures,
the relatively richer states like Goa, Gujarat, Haryana, Tamil Nadu and Punjab have
shown a declining trend. In fact, Punjab, Haryana and Gujarat have been consistently
spending relatively less as far as social sector is concerned. Maharashtra and West
Bengal are the two other states that have spent relatively less amounts on this sector.
Kerala is another state that has shown a declining trend. However, the case of
Kerala is different and cannot be compared with others. Through appropriate state
interventions, Kerala spent more in earlier times and attained a higher level of human
development. The indicators of human development in Kerala exceeded those of the
other Indian states way back in the 1950s and 1960s (Veron, 2001). Hence, the state
may not need to spend more on the state now. There are also certain other states like
Andhra Pradesh, Orissa and Karnataka which have been spending more on the social
sector though they had spent more on this sector during the period 1985-95 than they
are spending now. As compared to the general category states, all states except Assam
and Himachal Pradesh, in the special category, have devoted comparatively higher
shares of their domestic products to the social sector.
Although Table 3 provides a broad idea about the trend in social sector
expenditures of various states, it may not reveal the real picture. This may be because
of two reasons. Firstly, if the size of the economy of a state is small and/or secondly, if
 Social Sector Expenditures and their Impact on Human Development 371

Table 3
State-wise Social Sector Expenditure as a Percentage of the GSDP

State 1980-85 1985-90 1990-95 1995-2000 2000-05 2005-10

Andhra Pradesh 6.8 8.9 7.1 7.1 6.8 7.9
Bihar 6.1 8.1 8.9 9.5 10.4 13.6
Chhattisgarh – – – – 7.5 11.2
Goa – 8.7 9.9 7.3 7.5 7.2
Gujarat 5.3 7.1 6.0 5.7 6.5 5.1
Haryana 4.4 5.5 4.9 5.1 4.5 4.9
Jharkhand – – – – 10.9 11.9
Karnataka 5.4 7.8 7.3 6.8 6.5 7.4
Kerala 7.6 9.2 7.9 7.8 6.7 5.8
Madhya Pradesh 5.5 7.9 7.4 7.5 7.5 9.3
Maharashtra 4.9 6.6 5.7 5.3 5.6 5.8
Orissa 7.2 8.5 9.2 9.2 8.0 8.4
Punjab 4.8 5.7 4.7 4.3 4.3 4.4
Rajasthan 6.5 8.7 7.9 7.8 8.6 9.3
Tamil Nadu 6.4 7.8 7.8 6.7 6.4 6.7
Uttar Pradesh 4.8 6.5 6.7 6.1 6.4 9.0
West Bengal 5.6 6.3 6.4 5.9 5.4 5.7
Arunachal Pradesh – 23.6 23.2 23.7 21.8 26.5
Assam 6.5 8.9 8.8 8.4 8.1 10.1
Himachal Pradesh 11.4 15.1 13.2 13.3 11.1 11.7
Jammu and Kashmir 8.8 12.8 15.2 14.1 12.3 16.0
Manipur 17.4 21.1 17.7 18.6 16.2 20.4
Meghalaya 14.0 15.7 15.1 13.9 12.8 15.1
Mizoram – 30.3 33.4 30.9 27.5 30.3
Nagaland 24.1 29.0 20.5 17.6 13.2 14.7
Sikkim 17.5 27.3 25.3 28.9 27.8 30.4
Tripura 11.2 19.0 19.1 17.8 14.4 30.5
Uttarakhand – – – – 8.0 10.6
Source: Study of State Finances (RBI).
the state has a large population, a higher percentage of the state domestic products for
the social sector need not necessarily mean a higher amount spent in per capita terms.
This is evident from Table 4, which represents the comparative magnitude of the
states’ efforts in the social sector in terms of the per capita social sector expenditures.
Bihar, Madhya Pradesh and Uttar Pradesh are some of the states that have shown
a higher and ever-increasing percentage of the State Domestic Product devoted to
the social sector but in per capita terms, they have always spent much less. Besides
these states, Punjab, Rajasthan and West Bengal have also spent less than the average
of the social sector expenditures of the general category states in per capita terms.
The case of these three states is, however, consistent with the broad trends shown
in Table 3. Orissa is another state wherein the per capita social sector expenditures
have been consistently low across all the time points considered. Goa, Maharashtra
372 Indian Journal of Human Development

Table 4
State-wise Trends in Per Capita Social Sector Expenditure

State 1980-85 1985-90 1990-95 1995-2000 2000-05 2005-10

General Category
Andhra Pradesh 145 308 516 988 1,516 3,155
Bihar 115 258 455 663 761 1,597
Chhattisgarh – – – – 1,207 3,396
Goa – 770 1,612 2,745 4,555 7,933
Gujarat 170 364 595 1,115 1,756 2,773
Haryana 156 330 561 1,029 1,473 3,257
Jharkhand – – – – 1,283 2,756
Karnataka 124 304 565 1,029 1,504 3,081
Kerala 185 367 627 1,301 1,835 2,821
Madhya Pradesh 141 330 606 1,038 777 1,252
Maharashtra 161 361 648 1,142 2,537 5,219
Orissa 128 248 459 870 1,134 2,348
Punjab 178 369 568 947 1,429 2,348
Rajasthan 133 290 529 953 1,427 2,472
Tamil Nadu 152 335 668 1,156 1,687 3,219
Uttar Pradesh 92 205 373 579 778 1,685
West Bengal 142 258 437 785 1,129 2,066
General Category Mean 144.43 339.8 614.6 1,089 1,576 3,022
Special Category
Arunachal Pradesh – 1,034 1,857 3,141 4,356 8,294
Assam 134 306 524 802 1,294 2,503
Himachal Pradesh 287 636 1,069 2,184 3,374 5,838
Jammu and Kashmir 251 558 998 1,575 2,380 4,557
Manipur 341 713 1,015 1,941 2,699 4,965
Meghalaya 298 591 1,059 1,691 2,597 4,689
Mizoram – 1,435 2,668 4,416 6,369 9,812
Nagaland 574 1,243 1,673 2,251 2,906 4,943
Sikkim 397 1,231 1,869 3,989 6,489 12,526
Tripura 242 671 1,065 1,942 2,996 4,451
Uttarakhand – – – – 1,745 3,969
Special Category Mean 315.5 842 1,380 2,393 3,382 6,050
CV* 0.554 0.650 0.635 .634 .670 0.625
Note: *Coefficient of variations for all states; all figures are in Rupees.
Source: Study of State Finances (RBI).

and Tamil Nadu are only three states in the general category wherein the per capita
social sector expenditures have constantly been higher than the average social sector
expenditures in this category. The case of Kerala in per capita terms has been the same
as in aggregate terms. The expenditures incurred by the rest of the states in the general
category on the social sector have been at par with the average of the social sector
expenditures of the general category states in per capita terms.
 Social Sector Expenditures and their Impact on Human Development 373

Among the special category states, Sikkim, Arunachal Pradesh and Mizoram
have continuously incurred very high per capita expenditures in the social sector as
compared to the average of the states within that category. However, the opposite
is the case for all the other states in the special category. In the case of Assam, this
expenditure has always been strikingly very low. It may be worthwhile to mention
here that except for Assam, all the states in the special category have higher per
capita social sector expenditures as compared to most of the states in the general
category. Most states in the special category are also hilly states. Due to their peculiar
topography, the cost of providing social services in these states is very high. This may
partly be the reason as to why the per capita social sector expenditure in these states
is higher than in other states. There may, however, be some state-specific reasons also.
It should be mentioned here that for all the states in the general and special category,
the per capita social sector expenditure has improved in nominal terms over time.
However, there is a high degree of variability among the Indian states insofar as the
per capita social sector expenditure is concerned, as reflected in the higher value of
the coefficient of variation. The variability increased by the end of the 1980s and has
remained high since then.
Although the per capita social sector expenditure increased in all the Indian states
over the given time period, it may still, however, be worthwhile to ask whether we
are spending enough, especially in the crucial areas like health and education. An
international comparison in this regard presented in Table 5 reveals a dismal picture.
India is spending well below the other countries. Even Bangladesh, which stands at
a lower position in terms of HDI, spends a fairly higher amount on education and
healthcare as compared to India.
Thus, from the above discussion, it can be inferred that recently, there has been
a reversal in the declining trend of the combined social sector expenditures incurred
by the Central and state governments in India. Within the social sector, education,
healthcare and rural development have remained the major heads of expenditure.
Table 5
India’s Position in Terms of Public Expenditure on Health and
Education vis-à-vis Some Developed and Developing Countries

Country HDI Rank Percentage of Total Government Expenditures

On Health On Education
Australia 2 17.2 13.3
Canada 4 17.9 12.5
Japan 10 17.7 9.5
USA 13 19.1 13.7
Thailand 87 11.3 25
China 92 9.9 -
Bhutan 132 7.3 17.2
Bangladesh 146 7.4 14.2
India 134 3.4 10.7
Source: Human Development Report, 2009, UNDP.
374 Indian Journal of Human Development

While the allocation for education as a percentage of the GDP has improved over
time, the share of healthcare has remained almost the same. At the state level, though
the per capita social sector expenditure has increased in all the states over time, there
is a high degree of variation among them in this respect. Again, though the per capita
social sector expenditure has increased over time, an international comparison reveals
that India’s social sector spending is far below that of even many developing countries.

PROFILE OF HUMAN DEVELOPMENT IN INDIA

Attainment in Education
Tables 6A and 6B show India’s achievements with respect to education—an important
dimension included in the HDI— in terms of certain basic indicators.
During the years 1950-51 and 2004, the literacy rate (Table 6A) in India increased
by 48.97 percentage point, that is, from 18.33 per cent in 1950-51 to 67.30 per cent
in 2004. Although this is an impressive achievement, the other side of the story is

Table 6A
Trends in Literacy Rate in India (in %)

Year* Overall Males Females Male–Female Literacy

Gap
1951 18.33 27.20 8.90 18.30
1961 28.30 40.40 15.40 25.10
1971 34.45 46.00 22.00 24.00
1981 43.57 56.40 29.80 26.60
1991 52.21 64.10 39.30 24.80
2001 64.80 75.30 53.70 21.80
2004 67.30 77.00 57.00 20.00
Note: *1951-71: Aged 5 +, 1981-2004: Aged 7+.
Source: 1951-2001, Census of India; 2004—as per NSS 61 st Round Report.

Table 6B
Some Indicators of the State of Primary Education in India

Year GPER*(in %) Dropout Rate** (in %) Pupil–Teacher Ratio**

1950-51 42.60 - 24
1960-61 62.40 64.90 36
1970-71 78.60 67.00 39
1980-81 80.50 58.70 38
1990-91 100.10 42.60 43
2004-05 107.805 29.00 46

Note: *GPER: Gross Primary Enrolment Ratio.

** In classes I–V.
Source: Educational Statistics at a Glance, 2005-06, Mi nistry of Human Resource Development,
Government of India.
 Social Sector Expenditures and their Impact on Human Development 375

that more than 30 per cent of the population is still illiterate. Besides, what is more
disappointing is the high male–female gap in the literacy rate, implying that women
continue to be in a disadvantageous position vis-à-vis men. The gap in the male and
female literacy rates widened till 1981 but has been declining since then. Yet in 2004,
the gap was still higher than what it was in 1951.
The Gross Enrolment Ratio (GER)5 in primary (Table 6B) education increased
from 42.60 in 1950-51 to 107.80 in 2004-05. This improvement in the GER in primary
education may be attributed to the execution of the Sarva Shiksha Abhiyan (SSA) since
2000. Enrolment, however, is only the first step. Retaining the enrolled children in
school continues to pose a major challenge. Although the dropout rate declined from
64.90 in 1960-61 to 29 in 2004-05, it is still very high. Moreover, the pupil–teacher ratio
has also increased over time. In 1950-51, there were 24 students as against one teacher,
which increased to 46 in 2004-05, which was higher than the norm6 set in the ‘Right to
Education Act, 2009’. This indicates that while the GER has increased over time, the
recruitment of teachers has not kept pace with that. Thus, it can be said that India’s
achievement with respect to education has so far been mixed, and there is urgent need
for improvement in many dimensions.

Attainment in Health
Another crucial dimension included in HDI pertains to attainments in healthcare.
Table 7 gives an idea about India’s attainment with respect to this indicator of human
development.
While the infant mortality (IMR) rate declined from 146 per thousand live births in
1951 to 53 in 2008, the crude death rate (CDR) fell from 22.80 in 1951-61 to 7.40 in 2007.
Insofar as an improvement in IMR is concerned, though there is not much difference
in terms of sex, the gap is quite evident between rural and urban areas. In the case of
CDR also, the rate has always been higher in the rural areas than in the urban areas.
The rural–urban gap in IMR and CDR implies that people who live in rural areas
have consistently been at a relative disadvantage in terms of access to healthcare and
related services.
As far as life expectancy at birth is concerned, there was an improvement for
both males and females over the period 1961 to 2008. However the life expectancy
for females increased faster than that for males. While the expectancy for female
was lower at the beginning of the period, it surpassed the expectancy for males by
1991.
The narrowing male–female gap in the literacy rate (refer to Table 6A) and the
female life expectancy rate surpassing that of males indicate that various government
programs for improving women’s health and removing the disadvantages faced by
girl children and the discrimination against them have had desires results, at least to
some extent.
376 Indian Journal of Human Development

Table 7
Trends in Some Indicators of Health-related Attainments in India

Indicators Year
1951 1961 1971 1981 1991 2001 2007 2008
1. Infant Mortality Rate 146 146 129 110 80 66 - 53
(per 1000 Live Births)
1.1 Male 153 130 130 104 81 64 - -
1.2 Female 138 128.8 135 104 80 68 - -
1.a Rural - - 138 119 87 72 - 58
1.b Urban - - 82 62 53 42 - 36
2. Crude Death Rate 22.80 14.90 12.50 9.80 8.40 7.40 -
(per 1000 of Population)
2.a Rural - - 16.4 13.7 10.6 9.1 8 -
2.b Urban - - 9.7 7.8 7.1 6.3 6
3. Life Expectancy at Birth (in years) - 43.06 49.48 55.53 58.47 61.59 63.40 63.72
3.1 Male - 43.89 50.12 55.58 58.13 60.55 61.98 62.26
3.2 Female - 42.18 48.81 55.47 58.83 62.69 64.88 65.24
Source: Ministry of Health and Family Welfare, Government of India; Economic Survey, 2009-10,
Ministry of Finance, Government of India and World Data Bank, World Bank.

Adding the Sources of Disadvantage

The discussions in the above two sub-sections indicate that certain sections of the
population are in a disadvantageous position or more deprived as compared to others
insofar as attainments with respect to education and healthcare are concerned. For
example, while the high male–female gap in the literacy rate implies that the women
constitute the deprived section, the high rural–urban gap in the IMR and CDR shows the
disadvantages of the rural population. The situation would be worse if we were to add
the various sources of disadvantage. This point is further elaborated in Figures 1 and 2.
Figure 1 shows the literacy rate in India in 2001 in terms of sex and social groups.
The overall literacy rates and those for males and females among the SCs and STs are
far below the respective literacy rates of all the social groups put together. This implies
that if one belongs to an SC or ST, there is a higher probability that he/she would be

Figure 1
Literacy Rate in India in 2001 in Terms of Sex and Social Groups (in %)
 Social Sector Expenditures and their Impact on Human Development 377

Figure 2

in a disadvantageous position. Again, in terms of sex, the female literacy rate in all
social groups is lower than the male literacy rate, which again highlights the adverse
conditions faced by women. When these two sources of disadvantages (for instance,
women belonging to the social group ST) are added, the literacy rate (34.8 per cent)
gets reduced to a little more than half of the overall literacy rate (64.8 per cent) for all
social groups.
Figure 2 shows that the literacy rate in rural areas has been lower than that in
urban areas and highlights the huge difference between male and female literacy rates.
When these two sources of disadvantages are added, that is, women in rural areas, the
literacy rate (47 per cent) falls far below the overall literacy rate (64.8 per cent, Figure 1)
of all social groups. Thus, if we keep on adding the sources of disadvantage, the level
of deprivation of that particular section of the population would keep on worsening.

Variations in the Level of Attainment of Human Development across States

Indian states have achieved different levels of human development. Bihar, Assam,
Madhya Pradesh, Uttar Pradesh, Orissa and Rajasthan are the states that always get
lower ranks among the Indian states in terms of HDI (see Appendix A, Table A-1).
Although the HDI values have gone up over time for these states, and indeed for all
the states, the rankings of these states in the list have not improved. This implies that
the other states have performed better in comparison to these states. Incidentally, the
per capita social sector spending in these states has consistently been very low.
Kerala and Punjab are the only states which have maintained their positions
consistently at the top of the rankings. Kerala’s case is well known and has been
attributed to sincere efforts made by the state government to implement the human
development programme. Some other states which have performed consistently well
are Tamil Nadu, Maharashtra, Gujarat and Haryana. Apart from Tamil Nadu and
Maharashtra, the per capita social sector spending in Punjab, Gujarat and Haryana
378 Indian Journal of Human Development

has not been very high. The relatively better status of human development in these
comparatively high-income states in spite of their low per capita spending in the social
sector suggests that the improvement in human development in these states might
have been driven by an increase in the per capita income.
What follows from the differences in the HDI values of different states is the large
degree of variations in attainment with respect to the indicators of human development.
This is reflected in the higher values of coefficient of variations, especially in the case
of dropout rates, the pupil–teacher ratio and the percentage of population that does
not have access to safe drinking water (see Appendix A, Table A-2). While the dropout
rate is zero in Kerala and Tamil Nadu, it is as high as 47.78 per cent in Assam.

International Comparison
India’s achievement in the sphere of human development has been mixed. As
mentioned above, while in terms of certain indicators, India has not performed well,
some other indicators show that India’s performance has been good. The HDI value
for India increased from 0.427 in 1980 to 0.612 in 2007, whereas it went down in the
list at the same time. This implies that India’s achievement in the field of human
development has not been as significant or notable as compared to other countries.
This can also be seen in Table 8. In terms of all the indicators, India is at the bottom
of the table. Thus, while the improvement in the HDI value is heartening, there is no
room for complacency as India is still in the Medium Human Development category,
and even countries like China, Sri Lanka and Indonesia have better rankings. The
existing gap between the indicators of healthcare and education in India and those in

Table 8
India’s Position in Terms of Some Indicators of Human Development vis-à-vis
Other Developing Countries as Reported in the Human Development Report

Country HDI GDP Per Life Expectancy Adult Combined GER

Capita, (PPP $) at Birth Literacy Rate in Education (%)
Poland 0.880(41) 15,987 75.5 99.3 87.7
Brazil 0.813(75) 9,567 72.2 90.0 87.2
Russia 0.817(71) 14,690 66.2 99.5 81.9
Turkey 0.806 (79) 12,955 71.7 88.7 71.1
Thailand 0.783(87) 8,135 68.7 94.1 78.0
China 0.772(92) 5,383 72.9 93.3 68.7
Sri Lanka 0.759(102) 4,243 74.0 90.8 68.7
Indonesia 0.734(111) 3,712 70.5 92.0 68.2
Vietnam 0.725(116) 2,600 74.3 90.3 62.3
Egypt 0.703(123) 5,349 69.9 66.4 76.4
India 0.612(134) 2,753 63.4 66.0 61.0
Notes: 1. Data in this table except on the adult literacy rate relate to the year 2007. Adult literacy rate
relates to 1999-2007.
2. Figures within brackets represent the HDI ranks of the respective countries.
Source: Human Development Report, 2009, UNDP.
 Social Sector Expenditures and their Impact on Human Development 379

the developed world and even in many developing countries needs to be bridged at a
much faster pace.

FACTORS IMPACTING HUMAN DEVELOPMENT IN INDIA

It has been observed in the section on ‘Variations in the Level of Attainment/Human
Development across States’ above that the economically backward states like Bihar,
Orissa, Uttar Pradesh, Madhya Pradesh, Rajasthan and Assam have always got bottom
ranks in terms of HDI. Incidentally, the per capita social sector spending in these states
has consistently been very low. On the other hand, in spite of not being economically
very vibrant, Kerala has remarkable achievements to its credit in terms of human
development, which is generally attributed to higher social sector spending through
appropriate state interventions since the 1950s and 1960s. In contrast to Kerala, the
economically richer state of Punjab has always maintained its second rank in terms of
HDI in spite of its low per capita social sector spending. The relatively better status of
human development in Punjab in spite of its continually low spending in the social
sector indicates that human development in the state may have been powered by
its higher per capita income. Besides these states, in some other states like Goa and
Maharashtra, the better status of human development goes together with higher per
capita income and higher per capita social sector spending.
In view of the above findings, we have constructed a regression model in order to
verify the relative influence of social sector spending and per capita income on human
development in the Indian states. We have regressed the HDI values for 15 major
Indian states in 2001 on the basis of the per capita income during the year and the
cumulative per capita social sector expenditure7 expressed in 1993-94 prices, incurred
during the years 1990-91 and 1999-2000 in those states. We expect the coefficient of the
variable cumulative per capita social sector expenditure to bear a positive sign, which would
mean that the higher the per capita social sector expenditure, the higher would be the value of
HDI. Naturally, the coefficient of PCI should also have a positive sign.
The nature of the dependent variable is such that it takes values between 0 and 1.
The linear functional form is not appropriate for the present purpose, as the predicted
value of the dependent variable from a linear regression model would not necessarily
be confined between 0 and 1. Hence the following logistic function has been specified
as the basic model.

where, Y = value of the human development index in 2001 of the states,

Z = b0 + b1CPCSSE + b2PCI + u,
in which
CPCSSE = cumulative per capita social sector expenditure and
380 Indian Journal of Human Development

PCI = per capita income in 2001

u= random disturbance term
It may be noted that as Z goes from – ∞ to + ∞, Y goes from 0 to 1. Moreover, in
spite of the basic model being inherently non-linear, its parameters can be estimated
by the linear regression technique by using Z as the repressor. For running the
regression, the values of Z can be constructed from those of Y by using the following
transformation formula (see Appendix B):

In{Y/(1-Y)} = Z

The estimates obtained as per the above-mentioned procedure are summarized in

Table 9.
Table 9
Results of Regression Analysis for Explaining Variations in the
Human Development Index 2001 across Major Indian State

Variables/Terms Estimated Standardized t Values Level of

Coefficients/Values Coefficients (d.f. = 12) Significance
CPCSSE (Rs thousand) 0.0099 0.284 1.457 0.171
PCI (Rs thousand) 0.0349 0.642 3.293 0.006*
Constant -1.173 -4.657 0.001*
R2 0.719
F (n1=2, n2=12) 25.389 0.000*
Note: * indicates significance at the 0.01 level.
Source: Computed by the authors by using basic data from the National Human Development Report,
2001; Handbook of Statistics on Indian Economy and State Finances: A Study of Budgets
published by the Reserve Bank of India.

The result of the regression analysis stated in Table 9 shows that while the PCI
has a highly significant (significant at 1 per cent level of significance) and positive
coefficient, the coefficient of CPCSSE is statistically insignificant. However, the f
statistics are significant at a 1 per cent level of significance. This implies that both PCI
and CPCSSE are jointly significant. The model also has a fairly higher R2 (0.719) value.
These results indicate that the variations in attainments of human development within
India, which are linked to the attainments of per capita income, and the differences
in the per capita social sector expenditures cannot account for much of this variation.
This leads to the inference that most of India’s attainment in the field of human
development has come from income growth. Public expenditure on the social sectors
has not played its due role in expediting the process of human development in the
country, which indeed could be a major factor in keeping India’s record in improving
human development rather ordinary.
The following could be the reasons as to why the influence of social sector
expenditures on human development in India has been insignificant. Firstly, the size
 Social Sector Expenditures and their Impact on Human Development 381

of the expenditure may itself be insufficient. It has already been explained above (refer
to Table 1) that there was a sharp decline in social sector expenditures after 1991 and
that this trend has shown a reversal only in recent times. Secondly, the expenditures
that have been made may not have been quite effective in sufficiently improving the
healthcare and educational attainments of the masses in all the states. In other words,
the delivery of the social services may not have been satisfactory.

CONCLUSION WITH IMPLICATIONS FOR POLICY

In this paper, an attempt has been made to assess the impacts of expenditures made
in the social sector on human development in India. A recent reversal in the declining
trend of the combined social sector expenditures of the Central and state governments
has been observed. The recent revamp in public expenditure may partly be due to the
fiscal stimulus given to the economy to enable it to emerge out of the global economic
recession or a manifestation of the attempts made to realize the objective of inclusive
growth. Within the social sector, education, healthcare and rural development have
remained as the major heads of expenditure. At the state level, the per capita social sector
expenditure has increased in all the states over time. There is, however, a high degree
of variations among the states in this respect. Although the per capita expenditure
has increased over time, by international standards, India’s social sector spending in
crucial areas like healthcare and education is far below that of even many developing
countries. Hence, it is not surprising that despite a continuous improvement in India’s
HDI value, her rank in human development has not improved at a rate that would be
in keeping with her rise in status as an emerging economy in the international arena.
Our econometric analysis shows that the improvement in human development
across India has been broadly driven by the increase in per capita income. This makes
a strong case for the deepening and broadening of a growth-promoting policy not
just for strengthening India’s position as an emerging economic power in the world
but also for contributing to the enhancement of human development in the country.
The fact that the contribution of social sector expenditure has not been found to be
significant does not allow us to recommend growth promotion as an alternative
policy option to aggressive public intervention in the provision of social services.
With the inherent limitation8 of higher income levels in proportionately improving
human development, the task of accelerating the pace of human development without
ensuring the public provision of critical social services like healthcare and education
would be arduous. As has already been argued above, there is a case for stepping up
India’s efforts in this regard in terms of allocating a higher percentage of the GDP for
social sector expenditure. However, in view of the fact that such expenditures have
not resulted in a significant outcome in terms of contributing to human development
in several parts of the country, one cannot ignore the necessity of streamlining the
delivery mechanism of services while allocating an enhanced share of government
expenditure for the social sectors. Ahluwalia’s (2010) exposition even for a relatively
developed state like Punjab corroborates this point (Ahluwalia, 2010).
382 Indian Journal of Human Development

With the shift in focus of our social sector policy from a ‘government providing
approach’ to an ‘entitlement-based approach’, manifested for example in the National
Rural Employment Guarantee Act (NREGA) and the Right to Education (RTE) Act, it
can be expected that the delivery mechanism of public services would improve. The
empowerment of grassroot level institutions and the use of technology may contribute
significantly to that end. Local governments in consultation with civil society can take
cognizance of the demand for a particular service and users’ expectations with regard
to the quality of that service, and can accordingly supply the service. Since the work
of local governments is more visible than that of the Central Government, the user’s
accessibility to services and trust in the government can be expected to improve. This
also brings in transparency and accountability in the delivery mechanism. On the other
hand, the use of information technology, by making information readily available,
can also make the process of delivery of public services simpler, less costly and
transparent. It is envisaged that the assignment of the Unique Identification Number
(Aadhar) to every Indian citizen would promote the use of information technology
while providing services to the people. By authenticating the identity of an individual,
Aadhar would help in overcoming many of the existing problems such as difficulty
in identification of proper target groups, errors of inclusion and exclusion, leakages,
lack of effective monitoring and accountability, and huge transaction costs, among
other things, faced by the target-related benefit programmes in the country (Unique
Identification Authority of India, 2010).

NOTES
1. Economic theory suggests that private activities guided by market signals are often inadequate
for making widespread and equal provision of certain services, especially basic education.
The key theoretical considerations include, among others, pervasive positive externalities in
educational achievement, and long-term investment in education, among other things. One can
see Dreze and Saran (1995) for a detailed discussion on this aspect.
2. We have considered trends in only combined social sector expenditures (revenue and capital)
at the state level, as we do not have access to recent data on revenue and capital expenditures
for different states. However, it can be mentioned that since in the combined social sector
expenditures of the states and the Centre, the states’ shares constitute the major part, the trends
insofar as revenue and capital expenditures in the social sector are concerned can be expected to
be the same at the state level as at the level of the state and Centre combined.
3. An indication of rolling back the fiscal stimulus has already been given in the latest budget of
the Central Government (Union Budget Document, 2010-11).
4. Housing, urban development, welfare of Schedule Tribes (STs), Schedule Castes (SCs) and Other
Backward Classes (OBCs), labour and labour welfare, social security and welfare, nutrition and
relief on account of natural calamities are the items included under ‘Others’.
5. GER is defined as the total enrolment in a specific level of education, regardless of age, expressed
as a percentage of the official school-age population corresponding to the same level of education
in given school year. The GER can be over 100 per cent due to the inclusion of over-aged and
under-aged pupils/students because of early or late entrants and grade repetition.
6. As per the norm set in the Right of Children to Free and Compulsory Education Act, 2009, the
pupil–teacher ratio, excluding the headmaster, for the first class to the fifth class with more than
200 students should not exceed 40.
 Social Sector Expenditures and their Impact on Human Development 383

7. For each of the 15 major Indian states, the expenditures incurred in the social sector in
each year during the period 1990-91 to 1999-2000 have been first deflated at 1993-94
prices by using the NSDP deflator and then added. Finally, the cumulated expenditures
have been divided by the total population of the respective states in 2001to arrive at the
per capita social sector expenditure of the states. This exercise has been done keeping
in mind that the expenditure incurred today will not produce the desired result, that
is, an improvement in human development immediately. In other words, there will be
a lag between the expenditures made and benefits realized.
8. The contribution of any incremental income to human development becomes
progressively smaller with higher levels of income. For instance, suppose individuals
A and B have incomes of Rs. 2000 and Rs.50,000 per month, respectively. If their
incomes increase by Rs. 1000, the contribution of that increased income to the human
development can be quite significant for A but can at best be marginal for B. This is the
reason as to why in the method of construction of HDI, the role of income is structured
with a diminishing return formulation.

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384 Indian Journal of Human Development

Appendix A
Table A1
State-wise Human Development Index

States 1981 1991 2001

Value Rank Value Rank Value Rank
Andhra Pradesh 0.298 9 0.377 9 0.416 10
Assam 0.272 10 0.348 10 0.386 14
Bihar 0.237 15 0.308 15 0.367 15
Gujarat 0.36 4 0.431 6 0.479 6
Haryana 0.36 5 0.443 5 0.509 5
Karnataka 0.346 6 0.412 7 0.478 7
Kerala 0.5 1 0.591 1 0.638 1
Madhya Pradesh 0.245 14 0.328 13 0.394 12
Maharashtra 0.363 3 0.452 4 0.523 4
Orissa 0.267 11 0.345 12 0.404 11
Punjab 0.411 2 0.475 2 0.537 2
Rajasthan 0.256 12 0.347 11 0.424 9
Tamil Nadu 0.343 7 0.466 3 0.531 3
Uttar Pradesh 0.255 13 0.314 14 0.388 13
West Bengal 0.305 8 0.404 8 0.472 8
Source: Rajya Sabha Unstarred Question No. 5459, dated 17.05.2002.

Table A2
State-wise Variations in Various Indicators of Human Development

States GPER DR PTR Malnutrition ADR

Andhra Pradesh 94.87 24.75 32 36.5 44.92
Tamil Nadu 120.07 0 34 33.2 -
Kerala 93.85 0 27 28.8 -
Karnataka 106.09 15.5 26 41.1 18.03
Maharashtra 112.34 5.14 37 39.7 31.51
Gujarat 119.44 31.58 34 47.4 30.22
Haryana 79.61 5.4 42 41.9 14.28
Punjab 77.46 23.66 44 27 7.26
Rajasthan 121.69 52.84 47 44 41.14
Orissa 118.15 41.2 42 44 60.93
Bihar 87.2 46.55 104 58.4 41.24
Uttar Pradesh 110.57 9.76 57 47.3 37.76
West Bengal 104.91 38.67 50 43.5 18.02
Assam 107.11 47.78 45 40.4 54.14
Goa 107.74 .37 32 29.3 -
CV 0.138747 0.837713 0.432793 0.206475 0.558091
Notes: GPER—Gross Primary Enrolment Ratio, DR—Dropout Rates in primary school, PTR—
Pupil–Teacher Ratio in primary school, Malnutrition—% of children below 3 years who are
underweight, ADR—% of population not having access to safe drinking water.
Source: States’ Profiles, 2005-06, Ministry of Human Resource Development, Government of India,
NFHS-III, 2005-2006 and Census 2001.
 Social Sector Expenditures and their Impact on Human Development 385

Appendix B
Modification of the regression model:
The original form of the model is:

where, Z = b0 + b1CPCSSE + b2PCI + u

Now, Z z

Y
 ez
1 Y

Hence,

Thus, we have the final model to be estimated as:

= b0 + b1CPCSSE + b2PCI + u

Here, is the modified form of the dependent variable, which is not

necessarily bounded between 0 and 1. When Y®0, ®-∞ & Y®1, ®∞.