Assessing public expenditure efficiency at the subnational level in India: Does governance matter?

• Published date: 01 May 2021
• Author: Ranjan Kumar Mohanty,N. R. Bhanumurthy
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2173

ACADEMIC PAPER

Assessing public expenditure efficiency at the subnational level

in India: Does governance matter?

Ranjan Kumar Mohanty | N. R. Bhanumurthy

National Institute of Public Finance and Policy,

New Delhi, India

Correspondence

Ranjan Kumar Mohanty, National Institute of

Public Finance and Policy, New Delhi, India.

Email: ranjanmohanty85@gmail.com; ranjan.

mohanty@nipfp.org.in

The issue of public expenditure efficiency has drawn the attention of both

policymakersand researchers globally. The paper attemptsto measure the efficiency of

government expenditures on the social sector, especially health and education, among

the major Indian states using various data envelopment analysis. The paper also

attempts to understand what drives public expenditure efficiency. The results suggest

that there is a wide variation in the efficiency of public spending as well as scope for

resource-saving at the subnational level in India. It finds that states are spending their

resources more efficiently on education than on health and the overall social sector

spending. It also finds that quality of governance, economic growth, and mothers'

schooling affectsthe efficiency of education, health,and social sector with governance

to have a larger effect compared to other factors. Overall, the study suggests that

improving governance could yield better outcomes from public expenditure.

Highlights

•The paper looks at understanding the issue of public expenditure of efficiency of edu-

cation, health, and overall social sector over the 15 year period since the year 2000,

broadly covering the millennium development goal period at the subnational level in

India.

•By using data envelopment analysis, the study derives the efficiency scores for

major states for three-time periods for input-oriented, output-oriented, and non-

oriented conditions.

•The results broadly suggest that there is wide divergence in terms of efficiency

levels across the states and also finds some spatial patterns. States in Western

region appear to be more efficient than compared to other regions.

•Overall, the states appear to be spending efficiently on the education compared to

health.

•In terms of what explains such divergences in efficiency levels, the study looks at

broader determinants-overall governance-with conditional variables such as level

of incomes and mothers' schooling.

•The econometric results suggest that it is the level of governance that affects the

efficiency levels at the subnational level in India.

Received: 26 March 2020 Revised: 24 April 2020 Accepted: 1 May 2020

DOI: 10.1002/pa.2173

J Public Affairs. 2021;21:e2173. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of14

https://doi.org/10.1002/pa.2173