Transfer of resources and social sector expenditure with special reference to human development in India An empirical analysis

Abstract

This study analyses the interrelationships between Fiscal Federalism, Intergovernmental Transfers, Social Sector Expenditure (SSE), Social Sector Development (SSD), and Human Development across Indian states. Using a multidimensional framework that combines theoretical, descriptive, and empirical analyses, it examines how fiscal structures and public spending shape state-level development. India’s vertical fiscal imbalance, where states bear primary responsibility for social sectors while revenue powers remain concentrated at the Union level, makes intergovernmental transfers central to sustaining social investment. The study finds a sustained rise in SSE during 2004-2021, alongside persistent inter-state disparities. Southern and western states consistently allocate higher resources to social sectors, while several central and eastern states exhibit lower and more volatile spending. Education and health dominate SSE, though expenditure on social security, housing, nutrition, and livelihoods has expanded. SSD, assessed using the Social Progress Index (SPI) for 2015-16, 2017, ang 2022, reveals strong regional patterns, with southern and some north-eastern states performing better than central and eastern regions. Human development, as measured by the Human Development Index from 2004 to 2021, improved across all states but remains uneven. Panel analysis shows that SSE, Capital Formation (CF), Corruption Perceptions Index (CPI), Pension Expenditure (PE), and State-Wise Power Availability (SWPA) positively influence human development. In contrast, Gross Fiscal Deficit (GFD) negatively affect it. Interpreted through the Capability Approach, the findings underscore the central role of effective fiscal transfers and social sector investment in expanding human capabilities and reducing regional disparities in India.