States contribute disproportionately more to welfare schemes, Pg7

Key Highlights:

• States bear a disproportionately higher financial burden for welfare schemes compared to the Union government.
• Combined expenditure on selected welfare schemes for FY 2025-26 is projected at ₹24.20 lakh crore, constituting 6.77% of GDP.
• The Union government's contribution to this welfare spending is only 1.89% of GDP, with its share remaining largely stagnant.
• The 16th Finance Commission reported that states collectively spent ₹4.14 lakh crore on unconditional cash transfers.
• Centrally sponsored schemes like Maternity Entitlements scheme (PMMVY) and Integrated Child Development Services (ICDS) follow a 60:40 Centre-State funding ratio.
• The proposed VB-GRAM G Act, replacing the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), is expected to further increase states' financial contribution.

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Detailed Insights:

• India's welfare regime has seen a shift from a rights-based approach to one increasingly focused on cash transfers.
• Despite a comparable tax-to-GDP ratio with middle-income countries, India lags in social security spending as a share of its GDP.
• The Union government, with higher tax revenues, places a significant financial onus on states, leading to their budget constraints.
• States are estimated to cover 75.2% of school education spending and a substantial portion of health expenditure.
• Economic research suggests that human development and growth are mutually reinforcing, advocating for increased Union fiscal commitment to the social sector.
• The current funding imbalance challenges the constitutional vision of a robust and equitable welfare state.

Key Concepts Involved:

• Fiscal Burden: The financial strain or cost imposed on a government or economy by certain expenditures.
• Rights-based Welfare Regime: A system where welfare provisions are legally guaranteed entitlements rather than discretionary benefits.
• Centrally Sponsored Schemes: Schemes implemented by state governments but largely funded by the central government, often with a defined sharing pattern.
• Cash Transfers: Direct payments of money from the government to individuals or households, often replacing in-kind benefits.
• Tax-to-GDP Ratio: The ratio of a country's total tax revenue to its Gross Domestic Product, indicating the government's tax collection efficiency.