Editorial 1: Three key takeaways from RBI’s report on state govt Budgets
Recent Context:
- Much of the public discussion in India tends to focus on the Union government’s budget. However, state governments account for a lion’s share of general government spending (central government and states), with capital expenditure by states exceeding that of the central government.
- Thus, state budgets are of critical importance. More so when economic growth heavily hinges on the public sector driving investment activity in the economy.
- Recently, the Reserve Bank of India released its report on state government budgets for 2022-23.
- The report outlines how state government finances, which had come under severe stress in 2020-21 because of the slowdown in the economy due to the pandemic, have improved in the years thereafter. However, there are several areas of concern.
The areas of Concern which are highlighted in the report:
1. Debt-to-GDP
- The state debt-to-GDP ratio remains uncomfortably high. As per the report, the debt-to-GDP ratio has fallen from 31.1 per cent in 2020-21 a year when states had struggled to manage the economic fallout of the pandemic to 29.5 per cent in 2022-23.
- It is higher than the Fiscal Responsibility and Budget Management review committee, headed by N K Singh, had recommended a debt-to-GDP ratio of 20 per cent for states.
- A high debt-deficit burden leaves little room for states to manoeuvre when faced with the next economic shock.
- A high debt burden may also imply that states may have to pay more to service their obligations.
- As per the report, interest payments by states rose to 2 per cent of GDP in 2020-21, up from 1.7 per cent in 2017-18. States expect this to come down to 1.8 per cent in 2022-23.
- However, there is marked variation across states. Punjab, Tamil Nadu, Haryana and West Bengal have the highest interest payments to revenue receipts ratio.
- This implies that in these states, interest payments account for a sizable portion of the states’ revenues, leaving them with less room to spend on other areas of priority such as health or education.
2. Contingent liabilities
- State governments have also seen a significant expansion in their contingent liabilities.
- Contingent liabilities refer to the obligations of a state government to repay the principal and interest payments in case a state-owned entity defaults on a loan.
- As per the report, the guarantees issued by state governments have risen from Rs 3.12 lakh crore or 2 per cent of GDP in 2017 to Rs 7.4 lakh crore or 3.7 per cent of GDP.
- The disaggregated data shows that the states of Andhra Pradesh, Telangana and Uttar Pradesh have the most guarantees outstanding at the end of March 2021.
- The perilous state of state-owned power distribution companies or discoms also has adverse implications for state finances.
- Over the past few decades, multiple attempts have been made to turn around the financial and operational position of state discoms.
- However, on various metrics, their performance is well short of expectations, leading to continuing losses
- Each time, the sums involved have only risen. Another rescue package will impose considerable financial burden on states. For the 18 major states, an RBI study had pegged the cost of a bailout at 2.3 per cent of GDP.
3. Old Pension Scheme
- new risks have emerged with some states now opting to return to the old pension scheme.
- In the early 2000s, there was a growing realisation that financing the old pension scheme would prove to be challenging.
- RBI said that “The annual saving in fiscal resources that this move entails is short-lived. By postponing the current expenses, states risk the accumulation of unfunded pension liabilities in the coming years
- Thus, a new pension framework was ushered in which would limit the financial burden of the state. While most states had then signed on to the new pension scheme, some states such as Rajasthan and Chhattisgarh have now chosen to revert.
Conclusion:
- State governments need to take austerity measures to reduce the debt to GDP burden which will help in reducing the interest payment of budget deficit and better programme implementation,
- Along with it, steps need to be taken for DISCOM reform such as
- Set up regulatory mechanism for Power Finance Corporation/Rural Electrification Corporation (PFC/REC):
- Financial regulatory reform:
- Need to discourage freebee culture
- Brining transparency in DISCOM
- Apart from above given technical and economic reform there is need for the political will in order to better implementation of reform in power sector and DISCOM.
Editorial 2: Allowing foreign universities to open campuses in India may not bring the expected transformation
Recent Context:
- Recently, The University Grants Commission has released a set of draft rules to facilitate foreign universities in setting up campuses in India.
- It is expected that it “could herald long overdue transformations in the country’s higher educational milieu.”
- It needs to be seen in larger policy framework on higher education that it is set in from the point of equity and inclusiveness.
Background: National Education Policy 2020 (NEP)
- The government came up with the National Education Policy 2020 (NEP), 35 years after the last policy in 1986.
- The NEP 2020 envisions a complete overhaul of the education system. The focus is on “making high-quality higher education opportunities available to all individuals”, combining the goal of quality and equity.
- However, while the measures for quality improvement are clearly specified, those related to equity are left to the state governments and education institutions with a long advisory.
- Further, while the follow-up regulations for quality improvement have been issued at an unusually high speed by the UGC, the foreign university regulations being the latest, the regulations for ensuring equal access are not forthcoming with the same eagerness.
Potential challenges related to allowing foreign university to set up campus in India
- The implementation of quality measures alone is likely to further reduce the access of weaker sections to higher education, as these measures possess elements which may enhance unequal access, unless the government comes with corresponding measures to safeguard them.
- The main measures proposed for quality improvement include creating unitary universities in place of affiliating universities, dual duration Bachelor’s/Master’s/BEd degree, National Entrance Test for admission, promotion of private education and foreign university campuses.
The following are possible challenges in current NEP which compromise affordable and equitable higher education: (As per the author)
- The first policy suggestion for quality improvement is the switchover from the affiliating university system to the unitary university system with large multi discipline campuses.
- Unitary universities are recognised as being better than affiliating universities, as the same pool of teachers teach all courses, including at the undergraduate level.
- The affiliating state university system, however, offers easy and cost-effective access to students from weaker sections of society due to their physical proximity to colleges in small/medium towns and even large villages
- Therefore, The NEP should have searched for a middle path to ensure both quality and equal access. The way out is to create cluster unitary universities by de-affiliating colleges, keeping the present decentralised geographic location intact to ensure both quality and equity.
- The second measure relates to the dual duration Bachelor’s (three and four years), Master’s (one and two years) and B.Ed (two and four years) degrees.
- The new feature is multiple entry and exit. Students who discontinue their studies get a certificate or diploma, with the provision to return and complete their degree and the earlier credit deposited in credit bank.
- While this seems like a good idea, it may push poor students to go for a Bachelor’s degree of three years’ duration rather than four, because that would be cheaper.
- This could create a hierarchy, as those with degrees of longer duration might get preference in employment.
- The third measure is holding national entrance tests for admissions. These tests are invariably biased against students from weaker sections.
- The Rajan Committee Report from Tamil Nadu clearly indicates that after the entrance test was introduced, some students who scored more at the higher secondary level, did not find a place on the admissions lists, but those with lower marks who could afford private coaching, did
- For instance, in 2017-18, the Gross Enrolment Rate (GER) was 13 per cent for the bottom income group, 16 per cent for STs, 21 per cent for SCs and 16 per cent for Muslims. In fact, the GER of the bottom income group from STs and SCs was 7 per cent and 12 per cent respectively.
Conclusion:
- Allowing foreign universities to open campuses in India will have a similar impact on access. The best alternative is to have institution-to-institution collaborations which would improve access for students from weaker sections, and also lead to improvement in the capabilities of the domestic collaborating institutions.
- The best of our institutes, such as the IITS and IIMs, were set up in collaboration with the best institutes from the US, Russia and Germany in the 1970’s, and not by opening foreign university campuses
- It is clear that measures for quality improvement alone will further restrict the access of students from weaker sections to higher education, unless accompanying regulations for ensuring equal access are also issued. This calls for equal emphasis on measures for quality and equity.