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A Budget blueprint for difficult times
Read more on - Polity | Economy | Schemes | S&T | Environment
- Great expectations: As the dark period of pandemic retreats in India, everyone awaits the green shoots of recovery. The livelihoods of Indians have been hit hard by the disease, and to assess that only through headline GDP numbers, stock market indices or IIP would be a mistake. The social fabric has been torn apart, as inequality has risen sharply. It threatens to become a permanent scar of India unless remedied now.
- India could do better: While the whole world was hit hard in 2020, India could have done much better.
- Lockdown should have been planned in a humane manner, allowing the crores of migrant workers time and space to readjust to a new reality. Labour market distress would have been lower.
- A more generous fiscal aid package would have brought joy and food to millions of starving families, and contained inequality somewhat. The liquidity pumped by RBI was a good move, but inadequate.
- A clear sign of desperation of Indian families was the demand for work under MGNREGA. A much-mocked programme has finally proven to the only lifeline for millions of families. (12 cr people asked for work, 53% more than last year, and a historical high)
- If economic recovery is real, then why did 3.5 crore people asked for work in Dec 2020 and Jan 2021 (highest in past 6 months)? Clearly, people want subsistence wage work as nothing else is availabe. (so V-shaped recovery isn't real)
- Stock market story: The massive rise in indices in Indian stock markets saw the top 50 firms experience market wealth rise by Rs.3 lakh crore. Worldwide liquidity pumping by central banks is now reaching Indian markets too. Sadly, benefits are cornered by a very small number of investors, not the general public.
- Inflation: Rising asset prices and breakdown in supply chains led to a faster CPI-inflation rise in India, meaning the RBI needs to raise interest rates soon. So tighter monetary policy will arrive, and private investments may slow down further. So even lower growth and jobs. This means smart handling is a must now. Exporting more is a good way out of this mess.
- Trade policy shifts: The policy direction has been to move towards imports substitution, quantitative restrictions, non-tariff barriers, and moving out of trade alliances (e.g. RCEP). A look at past two decades shows that jobs were created most in labour-intensive exports sectors, something that will now slow down sharply. Low-skilled Indians will struggle hard.
- Fiscal response: The fiscal support package was too small, and many families have become poor once again! Nearly 1.2 crore Indians have dropped out of labour force, in a nation with booming young workers. In addition to informal sector, the formal sector employment too is lacklustre. What is happening is that the supply side measures (well-intentioned) are only being used to raise corporate profits, not generate jobs. [measures - corporate tax cuts, loan moratoriums, guaranteed credit schemes]
- Farm laws: Just like sudden shock moves of demonetisation and hasty-GST, the three farm laws were pushed in a pandemic with no consultations with farmer bodies (as RTI revealed). That has led to huge farmer agitations all over India.
- Need to push public projects: Government does want to spend more on projects, but lacks the revenues to do it. Of the targeted Rs.16 trillion tax revenues for 2020-21, by November 2020, collections were only Rs.7 trillion. But the government has rightly not cut back on its expenditure plan (2020-21), which was nearly Rs.30 trillion. So the fiscal deficit will shoot up. The only caution is that priorities of expenditure must be right.
- Road ahead: Since economic recovery is unequal, and trade policy is inward-oriented, care should be taken for following -
- Raise the healthcare budget from Rs.70000 cr (2% of total expenditure 2020-21 to at least Rs.1 trillion
- Shore up defene expenditure to defend the borders. Raise it from 1.6% of GDP to at least 3% of nominal GDP. (remember the GDP growth constraints too)
- Raise level of investments. The challenge is rising interest rates, high NPAs and weak private consumption. So public investments must provide the right confidence. Target has to be - provide jobs and raise demand. Capital expenditure of GoI must go from Rs.4 tr (14% of total expenditure) to 20-25%.
- Safety net: Investments will help livelihoods with a lag. What about immediate help to people? Provide a six-months income safety net for bottom half of India's households. Provide direct transfers.
- Summary: Ignore international rating agencies. Focus on lives, livelihoods and border defence. Do not make any new laws that bring further disruption.
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