Distributional Effects of Public Spending on Economic Services in Kerala,India: A Study of Select Sectors/Programmes

Abstract

In the context of a distressed fiscal position that the state holds in terms of lower capacity to source funds through taxation and restrictions on borrowing funds, it is imperative for Kerala to ensure distributional efficiency of its funds. The state has largely used public expenditure as its major channel of redistribution. However, cases of exclusion from these achievements are not far from reality in Kerala, notwithstanding its development achievements. This study uses the benefit incidence analysis (BIA) on two separate rounds of the National Sample Survey data to assess the distributional effects of public spending on crop insurance and rural housing schemes in India, with special reference to Kerala. We find that the Crop Insurance Scheme shows a pro-rich trend. Agricultural development policies are effective only with adequate safety nets for small and marginal farmers; otherwise, in agriculture-distressed states like Kerala, regressive expenditure distribution may lead to negative impacts that overshadow positive outcomes. While rural housing demonstrates a pro-poor trend, with a heavy capturing of benefits by the high-income deciles, a strong decentralised government and private sector, and the self-selective nature of the scheme can be identified as some of the reasons for this trend. However, a higher elite capture in the case of a highly targeted scheme, such as rural housing, raises concerns about the state’s fiscal management.

JEL Codes: H4, H5, H530, I13, I380