Federalism and India’s human capital
NEWS A decentralised approach and strong local governments can enhance developmental outcomes.
- India’s human capital indicators remain low.
- In the World Bank’s Human Capital Index, India is ranked 116th.
- 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.
- Further, these statistics could worsen due to the COVID19 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 scheme aims at improving nutritional outcomes for children, pregnant women and lactating mothers.The latest Union Budget has announced a ‘Mission Poshan 2.0’.
- The Samagra Shiksha Abhiyan has been the Centre’s flagship education scheme since 2018. It is an overarching programme for the school education sector extending from pre-school to class 12, with the broader goal of improving school effectiveness
WHY THESE INTERVENTIONS ARE NOT LEADING TO BETTER OUTCOMES?
- Lack of funding: 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.
- Poor Decentralization: studies demonstrate 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.
- But, while the Constitution assigns the bulk of expenditure responsibilities to States, major revenue sources have been assigned to the centre. This creates vertical imbalance which hinders effective decentralisation.
- 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.
- But, the Constitution lets States determine how they are empowered, resulting in vast disparities in the roles played by third-tier governments.
- Hence, 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 sizable chunk of intergovernmental fiscal transfers over the years, comprising almost 23% of transfers to States in 2021-22.
- Constitutional provisions: 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’.
- 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.
- To begin with, the Centre needs to rethink the nature of its actions.
- It 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 rationalize 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 vertical transfers should be effectuated in spirit.
- Following the Supreme Court direction from Bhim Singh vs. Union of India, where it had observed that Article 282 is normally meant for special, temporary or ad hoc schemes.
- Leveraging the true potential of our multi-level federal system represents the best way forward towards developing human capital.
Investing in human capital through interventions in nutrition, health, and education is critical for sustainable growth of the country. A decentralised approach and strong local governments can enhance developmental outcomes is prerequisite for such investments.
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