India�s new economic policy has been quite successful in creating a favourable environment for rapid economic growth, but it has been argued that attention has not been paid adequately to development of social sector- like basic education; health care etc. It is important to investigate whether insufficient social sector expenditure has hampered India�s human capital formation. Theories of endogenous growth, state that apart from physical capital and labour, human capital (health and education) is another important input for production growth. Therefore, developing countries should invest a significant portion of their resources in the health and education.
However, in India where a large segment of population depends greatly on public provision of health and education, public investment is not only crucial but also expected to be high in this respect. However, in India, situation is different. According to WHR 2005, per capita health expenditure in India (Rs. 96) is much lower than that of others countries like China, US (Rs. 261 and Rs. 5274 respectively) and others. In fact, share of expenditure on health and education in total social sector expenditure by all states fell from 16% and 52.2% during 1990-91, to 11.7% and 45.8% in 2006-07 respectively. (Reserve Bank�s report of State Finances: A Study of Budgets of 2007-08). Interstate analysis shows that there exists an inequality among the states also in terms of per capita social sector expenditure. Per capita expenditure of Kerala, Tamil Nadu and Maharashtra are much higher than that of Bihar, MP and UP. .

Source: Own calculation based on Budget Documents of State Governments, CSO
Note: Social sector expenditure includes expenditure on social services, rural development and food storage and warehousing under revenue expenditure, capital outlay and loans and advances by the State Governments
However, since the latter states depend mostly on public sector for their provision of health and education, variation in per capita expenditure has not only reduced their access to health and education and but also increased interstate inequality. For example Infant mortality rate in Maharashtra, Tamil Nadu is much lower (35) than that of Uttar Pradesh and Madhya Pradesh (>70).  According to census 2001, literacy rate in Maharashtra and Tamil Nadu are 76 and 73 respectively and in Bihar it is 47.
There is a visible red alert in the social sector of India. If the insufficiency and inequality in expenditure continues to persist, it will not only hamper India�s human capital formation but also its economic growth in long run. However, only increase in social sector expenditure will not serve our purpose. Policy makers should also pay attention towards efficient allocation of resources to target the actual needy section of population, so that benefits of increased expenditure can trickle down to the lower mass of population. In addition, there is also a need for creation of general awareness among people. Civil societies like different NGOs can make people aware of their general health and educational status through mass education programs or awareness generation camps. If people are more aware, their demand for better health and education will increase, creating a pressure on government to invest more for social sector promotion in India.