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Bharat Jhunjhunwala is a noted Economist and
a freelance columnist.
The commitment of the government to greater investment in
the social sector is welcome. However, the question
remains whether this increase should come from public or
private expenditure because there is a fundamental
difference in their impact on the economy. The delivery
system of public expenditures is in shambles. The PHCs
are without medicines and in public schools teachers
don’t take classes. As far as the public is
concerned, on the one hand the public system fails to
deliver, and on the other it has little protection from
the malpractices of the private providers.Role of Public/Private
Expenditures
Public expenditures have ultimately to be
financed out of taxes. These taxes act as a drag on the
economy. They are salary-heavy or consumption-oriented
and the multiplier effect of these expenditures is low.
They lead to poor economic growth and employment
generation. The lack of such employment generation hits
at the same poor whom the social sector expenditures aim
to benefit. This is the argument that is leading the
industrial countries to dismantle the welfare state. They
have found that the taxes imposed to sustain public
expenditures on social sectors have made their economies
uncompetitive and have hit the same poor whom they are
meant to serve.
Private expenditures have no such ill-effects. The
families invest in health and education from their own
earnings. They do not lead to an increase in the cost of
production. And, these expenditures are made more
judiciously. If the people do not invest in education,
for example, it is because the returns to education are
perceived to be low (a graduate earns 1200 p.m. in a
private job as against 3000 earned by an illiterate
mason). Similarly, charitable social expenditures made by
the business out of its profits do not have such
ill-effects. Unlike taxes, they do not push up the cost
of production. They also lead to spiritual progress of
the individual.
The private expenditures in social sectors are already
preponderant. For example, the private expenditures have
been estimated to account for 78% of total expenditures
on health sector in India (World Development Report 1993,
Table A9). These private providers are routinely
prescribing unnecessary medicines. The savings by
regulation of these private providers are estimated to be
as high as 25%. A WHO study points out that this problem
exists across the globe:
"In the USA, estimates of inappropriate use of
hospital resources are between 6 - 40% of admissions, and
20% of bed days. Much higher potential cash savings are
argued to be available from the elimination of `useless
medical practices’. Overall savings of some $20
billion are thought possible. For the countries of the
Americas as a whole, an estimated 25% of total health
expenditure is wasted". (Creese, A L, User Charges
for Health Care: A Review of Recent Experience, World
Health Organization, Geneva 1990, p. 7-8).
The public expenditures are not reaching the poor either.
In the poorer states - UP, Assam, Kerala, Orissa,
Rajasthan and Himachal Pradesh - the poor had a lower
utilization of public hospitals. On the other hand, the
richer states - Maharashtra, Punjab, Gujarat Andhra
Pradesh, Tamil Nadu, Karnataka and Haryana - the
situation was the reverse
1998-99 UNION
BUDGET
For the social
services sector, the outlay has gone up from Rs
12,115 crore in the previous budget to 16,010
crore in the current budget, with education being
singled out for special mention in the budget.
The outlay for this sector has gone up by nearly
50 per cent to Rs 7047 crore from 4716 crore
previously.
Health and Family Welfare is to receive Rs 3684
crore which is up by 937 crore over last year. In
addition, plan allocation for welfare sector has
gone up for programmes for scheduled tribes
scheduled castes, backward classes and the
handicapped.
But the increase does not amount to much as a
major chunk would go towards salaries. As the
money for sectors like primary education come
from World Bank and its allied agencies, with the
likely sanctions this funds may dry up. The
country’s spending 3.5% of GNP for education
is quite inadequate. Given the present backlog
the need would have been 8 - 10% of the GNP. The
amount allocated for health works out to be 1.37%
of the total outlay, down from 1.8% last year.
There is an increase of about 1000 crore for the
health care sector, this additional amount will
go for the increased salaries of the medical and
non-medical personnel rather than helping upgrade
the health care infrastructure according to the
Indian Medical Association.
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In UP, for example, the
lowest 10% of the population accounted for 13.41% of all
hospitalized cases. One would have expected, therefore,
that the poorest 10% of the people would have accounted
for more than 13.41% of all hospitalization cases in
public hospitals. But, the reality is that these 10%
poorest of the poor only accounted for 10.73% of them.
Thus, the poor had to depend on a greater degrees on
private hospitals.
It would appear that with higher incomes, the demand
pattern of health shifts in favour of private facilities.
This reduces the pressure on the public facilities in the
richer states and enables greater access to the poor. In
other words, the poor are getting less than their share
of the public health facilities.
The Economics of
Social Sector Investments
In this backdrop there are two ways of
increasing social sector expenditure. One, to increase
public expenditures in provision of social sector
services. This is to be avoided because it acts as a drag
on the economy and the benefits are captured by the rich
more than the poor. Two, to improve the returns to
private expenditures so as to encourage the families to
spend more on health and education. This requires better
regulation of providers so that the returns to private
investments are high.
Therefore the
government must adopt the following strategy
- Regulate the social
services providers aggressively, increase the
private rate of return, and thereby encourage
greater private investment in these sectors. This
will help in two ways: i. People will get relief
from the malpractice of private providers; ii.
the taxes on the economy could be reduced leading
to a buoyant economy and job creation.
- The government must
review and expand incentives to private charity
so as to encourage them to spend more in the
social sectors. In this budget, the educational
institutions have been brought into the tax net
with exemption to certain socially-oriented
institutions. This exemption is welcome. The
government should link this exemption to certain
measurable parameters such as number of students
appeared in the exams, etc. This will plug the
misuse of such exemptions. However, this
exemption should not be equated with positive
incentives for the well-off to undertake
charitable works. There is a need to create
positive incentives in this direction.
- Implement the Fifth
Pay Commission recommendations regarding
improving the public delivery system, specially,
the following recommendations must be implemented
forthwith.
- a. Quinquennial
appraisal of Group A officers with remarks about
integrity being allowed (Para 10 of Summary).
- b. Downsizing the
government by 30% in a ten-year period (para 15
of summary).
- c. "Compulsory
retirement of those who are found to be
incompetent or corrupt" (Para 15 of
summary).
- d. The reduction in
government will have to be achieved through,
among others, privatisation and contracting out
of many services that are presently being
performed directly by the government (page 3.23).
- e. "Functions
that involve regulation and control of private
initiatives would have to be hived off to
semi-autonomous independent agencies" (page
4.13).
- f. Six day week and
reduction in the number of holidays (Para 5.17).
- g. At present
"there are no incentives for higher output
and promotions are almost automatic. Therefore,
the Commission recommended ‘on-line
monitoring of performance, performance budgeting,
performance audit, concurrent evaluation,
continuous counselling and feedback at all levels
(page 5.18).
These three steps will
provide some relief to the people. The present increase
in public expenditures, in absence of improvement in the
delivery system, is likely to be of no avail.
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