At under 15% of GDP, the Union Budget by itself, even after taking into account smaller state budgets, can tackle issues of underemployment or unemployment only on the periphery. The State is neither envisaged nor capable of making a direct, sizeable dent in the generation of jobs, and thereby incomes.
Finance Minister Nirmala Sitharaman broke with the tradition of conservatism to announce an expansionist Union Budget, with an unprecedented planned deficit equivalent to 6.8% of GDP. Despite modest revenue-expectations, she chose to enhance public spending in the next financial year to mitigate the ongoing pandemic’s wide-ranging impact, while laying the groundwork for stepping up economic growth. To return to the pre-Covid growth levels, the Budget’s focus is on extending fiscal and financial support, particularly to the organised segment, a move successfully experimented post the 1991 liberalisation.
The Budget envisages a 13% increase in expenditure over the anticipated spending of the current fiscal. Allocations for creation of physical infrastructure of roads, railways, ports, warehouses, power, gas pipelines and economic corridors have been enhanced by over a third to Rs 5.54 trillion. Total health care expenditure (WASH), which includes drinking water, sanitation, nutrition and the one time spend on Covid vaccinations, is 137% higher at Rs 2.23 trn, though still well under 1% of GDP. Faith in the recently launched Production Linked Incentive (PLI) scheme for the 13 selected champion-industries has been reaffirmed despite its focus on achieving higher output through a few large firms. Defence provisions have, rightly, been enhanced by 20%.
A new Development Finance Institution to provide the much needed long term financing for infrastructure is proposed with a statutory basis. The recently established Indian Infrastructure Finance Co. Ltd (IIFCL), with a capital base of Rs 10,000 cr would get subsumed in it. The insurance industry is to be further opened to FDI; a new asset reconstruction company is to take over the bad debts of banks, and government owned banks would receive another round of recapitalisation of Rs 20,000 cr. Alongside, the Budget lists the complete sale of at least two such banks and the fructification of disinvestments in half a dozen large CPSUs announced in the last budget, so as to raise Rs 1.75 trillion. Listing LIC on the stock exchange also remains on the cards. The expectation is to attain a growth rate of 11% (in real terms), albeit on this year’s smaller base, caused by the near 8% decline in GDP.
As welcome and warranted as the higher economic growth is, the Union Government seems to have adopted, at least temporarily, the tested industry-oriented and consumer sentiment driven, top-down approach to development. In fact, the Economic Survey presented over the weekend preceding the Budget Day, had explicitly indicated a preference for such a high growth strategy with a large multiplier effect and a consequential trickle-down benefit to reach the poor. This is largely along the direction adopted between 2000 and 2010 when the average annual GDP growth was 7% and a noticeable decline in poverty-levels was reported.
Without a renewed emphasis and enhanced allocations for schemes directly benefitting the poor, especially women, small farmers and informal workers, all of whom were severely impacted by Covid 19, the question remains whether the resultant GDP growth will be adequate for such sizeable and vulnerable population. There was widespread loss of jobs—estimated to be 113 mn at the peak in April—that was accompanied by huge reverse migration to villages. Though the economy has gradually found its footing since September, with most people returning to cities, many have preferred to stay on in villages rather than once again face the uncertain vicissitudes of city-life. Consequently, urban employment, which had quickly picked up in Q3, has started to taper off again in recent weeks.
While back at their rural homes for a good part of last year, many of the 400 mn formal and informal workers had sustained themselves primarily by accepting low paid jobs as farm-labour or performing unskilled manual tasks commonly provided under MGNREGA. Though the wages under this employment guarantee scheme are still below the prevalent minimum state wage-rates (despite a 11% increase last year), this program formed the lynchpin of the security net available to returning migrants and their spouses. It benefitted 7 crore households through generating employment of 320 crore person-days, the highest since its inception in 2006-07. With the availability of the workforce exceeding demand for it, rural wages have fallen not just compared to the previous year, but also the preceding five years. Alongside, farmgate prices for agri-produce had crashed during the severe pandemic months. Yet, the Budget makes for it a 35% lower provision of Rs 730 bn, compared to 2020-21’s revised allocation of Rs 1,115 bn, and altogether overlooks another surge in rural demand for work.
The Pradhan Mantri Gramin Sadak Yojana (PMGSY), another successful rural scheme, has a lower earmarking of Rs 15,000 cr versus the current year’s Rs 19,500 cr. However, for rural infrastructure development, especially augmenting the APMC and other mandi-facilities, an additional Rs 10,000 cr has been provided. The estimated expenditure on agricultural schemes is Rs 11,000 cr less, largely because of reduction for PM-KISAN, reportedly due to the poor disbursements during the current year. All this is despite the real investment in agriculture consistently declining in recent years. The significantly higher fertiliser subsidy is primarily accounted by clearing the past dues of the manufacturers.
With the incidence of underweight and malnourished children rising as per the government’s own National Family Health Survey 2019-20, outlays for next year’s “food funds” or nutrition programmes under the Integrated Child Development Services needed augmentation. Given the stoppage since last November of direct cash income support and in kind food transfers from the overflowing godowns of FCI, poor households and the women in them stand to lose the most. The ambitions and the outlays of the newly launched Poshan 2 are rather modest.
While the overall provisions for healthcare have no doubt significantly increased, if we exclude the allocations for drinking water, sanitation, nutrition and one time vaccinations-spend, for the usual health agenda items the funding stands lowered from Rs 78,886 cr to Rs 71,269 cr. The food subsidy budget, though sizeable at Rs 2.43 trn, is much lower than the Rs 4.22 trn in the current year, both on account of the discontinuance of free foodgrain distribution during the pandemic and lower payments to FCI to cover the past subsidy bills.
The government also chose not to create an urban version of the MGNREGA scheme despite the persisting high unemployment in towns and cities (8.9% in January 2021). It is unclear whether the proposed Mega Investments Textile Parks would come to fruition fast enough to create the anticipated new jobs. Such uncertainty persists also in the financial enhancements effected for roads, highways, railways, seaports, airports and housing. It would be worthwhile to explore prescribing a minimum number of jobs per million rupees of public spending, particularly by way of investment and enforce it on implementing agencies and their contractors. As such, several of these activities have a high civil construction content and without materially affecting quality or speed, the prescription should vastly improve their labour- intensity.
According to the CMIE surveys, compared to a year ago in January 2020 (even before the onset of Covid 19), the number of workers in manufacturing was lower by 14.3 mn and in services by 10.1 mn. The just ended month of January 2021 saw manufacturing-employment marginally rise from 29.3 mn in December 2020 to 29.7 mn, while the services-jobs declined. Agriculture and construction industries improved by 4.2 mn (from 144.9 to 149.1mn) and 8.6 mn (from 62.1 mn to 70.7 mn) respectively. An aggregate national increase in employment by 11.9 mn to 400.7 mn, encouraging as it surely is, needs to be sustained in urban settings lest workers throng back to equally scarce and underpaid village-jobs. To improve productivity in farms, it is imperative to keep people from returning to farms, but rather gainfully employed in factories, construction works and tertiary vocations.
Taking a step back, it is also interesting to put the overall numbers in context. The total expenditure in the current year, even after conceding that the Central Government might be able spend a whopping Rs 12 trillion in the last three months of the current financial compared to Rs 22 trillion spent in the first 9 months (including on all the unplanned pandemic related relief and health measures, food and fertiliser subsidies) amounts to only Rs 33,000 cr or 1% of GDP more than in the previous financial year. Coincidentally, despite the larger outlays for capital formation, defence etc, the next budget also envisages the same quantum of increase in overall government spending viz. Rs33,000 cr. Apart from exercising utmost prudence, another requirement of public spending is that it be evenly spread out through the year. That would make for higher job creation and income-sustenance for longer durations.
At under 15% of GDP, the Union Budget by itself, even after taking into account smaller state budgets, can tackle issues of underemployment or unemployment only on the periphery. The State is neither envisaged nor capable of making a direct, sizeable dent in the generation of jobs, and thereby incomes. With 1.4 billion people, and a population soon to exceed that of China, nation-building is the responsibility of more than just the government or the Budget. Various instruments of state policy, including the annual budgets, are however, expected to show the path of progress, lay out national priorities, and catalyse employment creation; the best sine quo non of development in an emerging economy like ours. For it to materialise on a significant scale, and constantly improve to match the societal needs and aspirations, the onus must also remain on the vast business and household sectors.
Dr Ajay Dua, a development economist by training, is a former Union Secretary.