When the 14th finance commission recommendations on greater transfers to states were accepted by the Union government—which decided to cut its own social sector spending and instead transfer untied funds to states—there was widespread skepticism over how states would utilize this windfall, and whether they would fritter away the extra resources. While these are still early days under the new institutional arrangement, the trends over the last few budgets (including the latest budgets for major states) suggest that state governments seem to have behaved responsibly when it comes to social sector spending, raising their expenditure on education and health even as central allocations to these sectors have declined. Generally it is the richer states that spend more on education and health (per capita). Encouragingly, many of the poorer states are raising their education budget at similar pace to their richer counterparts. Similarly, many of the poorer states like Bihar, Jharkhand, Chhattisgarh increased their spending on health in FY17. Poorer states have budgeted for greater increase in irrigation spending, but no such trend visible in roads spending. Overall expenditure by state governments now significantly exceeds that by the Centre.

(Live Mint)