Thursday, December 25, 2014

Financing Social Sectors

On 2nd December this year over 15000 people from over 150 movements and organizations from across the country descended on Jantar Mantar near the Parliament in Delhi under the banner of Abki Baar Hamara Adhikar (ABHA). They were all demanding the protection of their various constitutional and legal rights, many of which are being threatened by Modi sarkar’s new policies and amendments to existing entitlements and provisions – land and forests, health and education, water and food security, NREGA and worker rights, social security and welfare. ABHA discussed each of these rights in a People’s Assembly over 2 days prior to the rally with experts/activists working on these issues and grassroots activists from each of these movements. At one level the discussions revolved around strategies of how to protect what exists but also on how we can strengthen each of these entitlements. Invariably one of the issues which emerges in such discussions is where will the money come from given that India has one of the lowest Tax:GDP ratios of only 17% amongst group of countries at the same level of development.
Social sector investments like health, education, food security and old age and disability pensions create basic equity amongst citizens and help reduce misery and poverty. With adequate public investments in these sectors and universal access to services and benefits therein the poverty line would be history.  At the minimum for such social security for health we need 3% of GDP, for education 6% of GDP, for Food and Nutrition security 2% of GDP and for pensions 2% of GDP. Thus at today’s prices we need close to Rs. 15 lakh crores for these social sectors. We already spend about Rs. 7 lakh crores by National and subnational governments and the deficit is about Rs. 8 lakh crores. Where will this money come from?
Raising resources or budgets for social sectors and social security is not as difficult a task as it may appear to be given the low level of allocation and spending. What is needed is a small doze of political commitment and will to increase the tax:GDP ratio from the present 17% to atleast 25% so that adequate budgets can be allocated for social sectors. The Modi government seems to be compressing public spending as we see that compared to 2013-14 budget estimates which was 15.7% of GDP, the first budget of Modi sarkar for 2014-15 saw public spending by the national government drop down to a low of 13.9% of GDP. The first casualty of this is the social sector expenditures like health, education and food security where we have already seen some compression in spending.  Jaitley in his first budget speech implied that a lot was being invested in social sectors and these investments were populist and wasteful, harking back to what Modi’s reference to MGNREGA in his election campaign as a dole and a humiliating experience for such beneficiaries. Jaitley pointed out that social sector spending needs to be made more efficient and further increases should happen via the PPP route. The problem in the social sectors is not so much about efficiency as it is about deficiency. It is in fact a shame that in India public resources committed to healthcare amount to only 1.2 per cent of GDP, for education 3.5 per cent of GDP. Social security of the unorganised sector that constitutes over 90 per cent of the workforce accounts for a mere 0.15 per cent of GDP, and the share of the Union government in that being between one-fourth and one-fifth. The global benchmarks are three to five times higher. No wonder India, the third largest economy in the world (in purchasing power parity GDP terms) has a low HDI rank of 136. But this can be changed mostly by mining resources from within the existing kitty, though ultimately new resources will also have to be generated. So here’s where the money can come from:
·         The national government gives  subsidies to the corporate sector of over Rs. 6 lakh crores and atleast  Rs. 4 lakh crores is contestable for any social benefits being accrued.
·         Uncollected taxes because of disputes is Rs. 4 lakh crores and there is no reason why this cannot be first collected and disputes settled later.
·         The daily turnover in speculative markets (shares, commodities, currencies, securities etc) is Rs 5 to 6 lakh crores . This is pure circulation of money and does not create new wealth or value addition and what is worse it is not taxed in any significant way. Even imposing a 0.5% turnover or transaction tax on this would mean Rs. 3000 crores daily as revenues or Rs. 9 lakh crores annually, the precise deficit that exists for social sector budgets
·         Apart from the above there are many other possibilities of raising resources. For instance a small amount like Rs.5 each month as social security cess on mobile connections can raise about Rs. 5000 crores annually; a 2% health  cess on sales turnover of tobacco and alcohol, and personal vehicles can raise Rs. 10000 to 15000 crores; a tax similar to profession tax  from all those working or doing business and not covered by any social security like ESIS or CGHS etc.  could generate substantial contributions etc…
·         Universalizing the ESIS to all employees by removing the salary upper ceiling of Rs. 15000 so that all employees earning higher incomes will also contribute compulsorily and this will raise ESIS revenues manifold. For instance a person like Mukesh Ambani who gets a total remuneration of Rs. 36 crores per year would contribute against his such income Rs.2.34 crores (@6.5% wages)  to the ESIS fund. Today ESIS has reserves of Rs.30000 crores and it is using workers money to start 18 medical colleges, 9 dental colleges and 12 PG medical institutes.  ESIS’s mandate is social security and not medical education. The latter would further destroy the already ailing ESIS health system. ESIS should be merged with general public health services and workers benefits from the scheme should be protected and further strengthened. Also the effort should be to extend the ESIS to as many uncovered or unorganised sector workers who can be federated into occupational groups like beedi workers, miners , plantation workers, headload workers etc. so that there is only a single scheme for social security. It would be very easy to cover even NREGA workers under ESIS where all jobcard holders should automatically be registered with ESIS and the NREGA program should contribute say 1% of the wages as social security on behalf of workers.
·         States could raise the VAT by 2.5% and earmark this for social sectors. Ghana for example does this to raise resources for its National Health Fund. There are many other possibilities provided there is a political commitment to seriously support increased budgets for social sectors.
For social sector services human resource availability for frontline service delivery is a huge problem, especially for health and education. The government invests heavily in professional and higher education, nearly Rs. 2 lakh crore each year, but outturns coming into the public system is very small. Compulsory public service for 3 to 5 years by all professionals like those graduating from medical and nursing schools, management and technology schools (IIMs, IITs, IIIT etc..), agriculture,  education, humanities, sciences and social sciences etc. is the only solution.  All those graduating must serve public systems for 3 to 5 years and only if they do so they would be allowed to do PG (say after 2 years of public service) and get their degree after 3 to 5 years. The rationale is that huge public resources are invested in higher education, which is almost free for the recipients and the people of the country have a right to a social return from such investments.  For instance, to train one MBBS doctor the government spends more than Rs. 20 lakhs. Such compulsory service will solve the problem of availability of doctors and nurses in health institutions, of teachers in schools and colleges, of engineers in infrastructure projects, of managers for public programs etc..
Those working in government get huge pensions and family pensions linked to inflation index which secures their old age for a comfortable living. All those crossing age 60 (55 for women) and not receiving any other pension should be entitled for a social pension which should be atleast equal to the minimum wage – why I am saying minimum wage and not 50% is because the minimum wage definition in India is a survival wage.
Often in public services like health and education or in delivery of welfare benefits the issue of efficiency and absorptive capacity is raised.  This is not correct. The issue is not of efficiency but one of gross deficiencies. Investments in public services are very inadequate (health 1.2% of GDP, education about 3.5% of GDP). As a consequence the approach to these services use targeting and/or  para professionals like para teachers or non-allopathic doctors and this distorts the access to these services. Because of inadequate budgetary allocations there are huge vacancies in frontline positions where services are delivered, shortages in critical supplies and consumables and poor maintenance of infrastructure. This impacts the quality of the service and discredits it in the eyes of the user creating a scenario for users to migrate to private provision. The other issue that is raised by the top bureaucracy is lack of absorptive capacity when they are confronted to raise budgetary allocations.
Absorptive capacity is a myth. The problem is of underfunded budgets, that lead to loss of credibility, poor quality, frustration, sanctioned posts not filled up leading to underspending. This underfunding and underspending viciousness is the root cause of poor service delivery and this can certainly not be termed as lack of absorptive capacity at the service delivery level. The problem therefore is not the absorption capacity but the bureaucracy itself which does not have the capacity to plan and budget in a way that service delivery is appropriately structured and financed so it can meet the demands of the people.


To conclude the question of absorptive capacity is a convenient tool which the bureaucracy uses to circumvent real issues that are a cause of the underfinancing and underspending of social sector budgets. The lack of bottom up planning and budgeting that is based on expressed needs and demands of the community for which services are being provided, and the lack of decision-making power and autonomy to govern and manage the provider institutions are the main causes for poor service delivery. This needs to be remedied immediately if resources invested in public services have to realize the policy goals.

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