Efficiency of social sector expenditure in India: a case of health and education in selected Indian states

Social sector expenditure in India captures a number of important aspects including health, nutrition, education, water supply, sanitation, housing and welfare, among others. Over a period of time, besides budgetary outlay on this sector, private sector has also played a considerable role. Thus, efficiency of expenditure in this sector by state government has to be reckoned both in terms of relative levels of various aspects across the states and in terms of comparable benchmarks for different aspects of the sector. This paper attempts an analysis of social sector efficiency focusing on two major aspects: health and education. Unlike other studies on the Indian context, this analysis focusing on major states in India uses both non-parametric and parametric approaches. Although both approaches provide benchmarks to judge relative efficiency across states, the former provides a yardstick more at an aggregative level without parametric restrictions, whereas the latter is used for major focus on health care aspects. Results of free disposal hull analysis are suggestive of a considerably more scope for improvement in efficiency of public expenditure in health relative to education. Our results of stochastic frontier analysis indicate considerable state level disparities which could be reduced through a mix of strategies involving reallocation of factors (namely, manpower and supply of consumables) within the sector, mobilizing additional resources possibly through enhanced budgetary emphasis, or encouraging more private sector participation. Based on our results, this may enhance efficiency by nearly 20% in health care sector and increase availability and equity across low performing and poorer states like Madhya Pradesh and Uttar Pradesh.