Budget 2026–27 is unusual for what it does not do. For the first time in several years, there are no new flagship social sector schemes. While this may signal a move away from announcement-heavy budgeting, it also draws attention to a more persistent issue: the continued neglect of social sector spending in both allocations and actual expenditure.
No new schemes, but old neglect persists
The absence of new flagships might suggest consolidation, but the underlying trend of low and stagnating allocations to core welfare schemes continues. Programmes targeting the most vulnerable—children, pregnant women, the elderly, single women, and persons with disabilities—remain underfunded, often seeing real-term declines.
Key schemes such as the National Social Assistance Programme (social pensions), SAMARTHYA (maternity entitlements), PALNA (crèches), PM POSHAN (mid-day meals), and Saksham Anganwadi have seen nominal increases ranging from just 0.2% to 5.2%. These increments barely cover inflation, let alone expanding coverage or improving quality.
Budgeted versus spent: the credibility gap
A more serious concern lies in the persistent gap between Budget Estimates (BE) and Revised Estimates (RE). For almost all major social sector schemes, 2025–26 REs are lower than the original allocations, indicating that even modest budgetary promises are not fully honoured.
This pattern extends to larger sectors. Health and education allocations in 2026–27 rise by only 6.4% and 8.3% respectively over the previous year’s BE. Yet, these increases lose significance when seen against the fact that 2025–26 REs for health and education were already 3.7% and 5.2% below their BEs. Underspending, not just under-allocation, has become systemic.
Sharp cuts in development-oriented ministries
The steepest expenditure compressions in 2025–26 REs occurred in sectors critical to human development. Urban Development saw a 41% decline, Rural Development 20%, Development of the North-East 24%, and Social Welfare 17%. These are not marginal adjustments but deep cuts with long-term consequences for livelihoods, regional balance, and social protection.
Schemes that once featured prominently in Budget speeches also show weak follow-through. The Jal Jeevan Mission’s allocation fell from ₹67,000 crore (BE) to just ₹17,000 crore (RE). Similarly, housing schemes under PMAY-Grameen and PMAY-Urban saw large downward revisions, even though Budget 2026–27 once again allocates amounts similar to earlier, unrealised targets.
Centrally Sponsored Schemes and chronic underspending
The broader picture across Centrally Sponsored Schemes (CSS) is equally revealing. Total CSS allocations declined from ₹5.42 lakh crore in the 2025–26 BE to ₹4.20 lakh crore in the RE. Although Budget 2026–27 restores allocations on paper, past trends raise doubts about actual utilisation.
As a share of total expenditure, social sector spending has remained broadly stagnant. This suggests that the issue is not fiscal capacity alone but a conscious deprioritisation of welfare and human development.
Capex dominance and the blind spot on human capital
Budget 2026–27 continues to privilege capital expenditure, with over ₹12 lakh crore allocated for infrastructure. While public capex is often justified as a growth stimulant, there has been little rigorous assessment of its effectiveness in generating employment or crowding in private investment.
India’s core economic challenges—weak job creation, especially for educated youth, low productivity, stagnant wages, and subdued purchasing power—are closely linked to deficits in education, nutrition, health, and social security. Yet, these sectors remain peripheral in fiscal prioritisation, reflecting a narrow supply-side view of growth.
Welfare spending shifts decisively to States
A structural shift reinforced by Budget 2026–27 is the growing transfer of welfare responsibilities to State governments. Since the 2015 restructuring of CSS, cost-sharing norms have increasingly burdened States. Even schemes that were once fully centrally funded are now subject to shared financing.
With changes following the dilution of MGNREGA and the introduction of VB-G RAM G, this trend has deepened. The ₹96,000 crore allocation for VB-G RAM G, for instance, will translate into actual spending only if States contribute around ₹56,000 crore under the 60:40 cost-sharing formula.
Do States have the fiscal space?
This shift raises a fundamental question: do States have the resources to shoulder this responsibility? States currently receive only about 34% of total tax revenues, far below the 41% recommended by the Finance Commission. The growing reliance on cesses and surcharges—retained entirely by the Centre—has eroded States’ fiscal space.
Compounding this, Finance Commission grants to States have marginally declined in Budget 2026–27 compared to the previous year. The result is a mismatch: States are expected to spend more on welfare even as their revenue autonomy weakens.
Why this matters for access to social services
The Centre increasingly sets the policy agenda through legislation and scheme design, while financial responsibility is devolved to States with uneven capacities. This raises concerns about inter-State disparities in access to social services and the dilution of welfare entitlements in fiscally weaker States.
Understanding the true state of social sector spending in India now requires careful scrutiny of State budgets, not just the Union Budget. The key question going forward is whether this fiscal architecture can ensure equitable access to education, health, nutrition, and social security—or whether it will deepen existing inequalities.
What to note for Prelims?
- Difference between Budget Estimates (BE) and Revised Estimates (RE)
- Trends in Centrally Sponsored Schemes (CSS)
- Cost-sharing norms between Centre and States
- Role of cesses and surcharges in Centre–State finances
What to note for Mains?
- Implications of underfunding and underspending in the social sector
- Shift of welfare responsibility from Centre to States
- Trade-offs between capital expenditure and human development spending
- Fiscal federalism concerns arising from reduced State revenue share
- Impact of social sector spending on employment, productivity, and long-term growth