This Budget, the Government Must Focus on Those Who Are Hurting
In 2019, weeks after Union finance minister Nirmala Sitharaman had tabled the Union budget, the Modi government announced a massive tax cut for corporations with the aim to boost growth and investments. It slashed the corporate tax rate from 30 to 22%, foregoing revenue of at least Rs. 1.45 lakh crore annually. In FY23, share of corporate investments as a proportion of overall investments fell to its lowest levels in 19 years. While corporate titans effusively praise the government, their lack of investments show that they have little faith in the government or India’s economic story.
Given the lesser revenues, the government, over the next five years, chipped away at the welfare state. Health budget as a proportion to total budget has gone down from 2.46% in FY20 to only 2.08% in FY24. Despite New Education Policy 2020 recommending education budget to be 6% of GDP, it stands at 0.36%.
Budget allocation to food subsidies as a share of GDP fell drastically. Share of food subsidies in total budget went from 6.61% in FY20 to 4.4% in FY24. In doing so, the government ensured that GDP growth was cornered by the wealthy and the economy inflicted with a generational income crisis.
In 2024, voters responded by cutting the government to size. This budget will demonstrate whether the BJP continues on its beaten path or course corrects to address the genuine concerns of the people.
An entire generation faces bleak income prospects. In FY23, youth unemployment touched 45%. The headline world-leading GDP growth rate of 8.2% conceals how the fruits of growth are unevenly distributed. A World Inequality Lab paper observes that inequality in India is worse than a century ago when the exploitative British Raj prevailed. Today, the average income of people in the top 1% group is almost 75 times the income of a person in the bottom 50% income group.
This wide disparity is reflected in everyday economic activity. Luxury goods are flying off the shelves even as domestic two-wheeler demand is below the 2017 levels. Analysing household consumption data, Ishan Anand, writing in the India Forum, estimates that 80% of Indians spend less than Rs 200 per day, while almost 34% people spend less than Rs 100 per day.
In FY24, private consumption (household spending) growth fell to a 20-year low, barring the fall induced by COVID-19 pandemic. The Reserve Bank of India estimates that household savings have fallen to 47-year low as net financial savings fell to 5.1% of the GDP.
The government has gone out of its way to claim that it turned bureaucratic red tape into a red carpet for investors, yet there has been no major success story. The share of manufacturing in GDP has stagnated and remains under 16%. Production Linked Incentives are on their way to becoming another failed scheme. Since 2014, the Index of Industrial Production has grown at a yearly average of 3.2%. Unfortunately, the job creating sectors like textile, apparel, and electrical equipment have registered negative growth since 2013-14.
The signs of distress are all around us, it is for the government to focus its gaze on those hurting. The last decade saw the government slowly and steadily withdrawing from its welfare functions. The argument that the ruling party acts unconstitutionally extends not just to the political and social but also the economic sphere.
Since losing majority in the Lok Sabha, the ruling party has doubled down on propaganda. A recent report by Citigroup highlighting the persistent job crisis has spooked the government and the central bank. RBI has released data that estimates that approximately 109 million jobs (10.9 crore) were created between 2019-20 and 2023-24. These mind-boggling numbers are as true a reflection of reality as 8.2% GDP growth.
It turns out that the bulk of the job creation is from people moving into agriculture and self-employment. Almost 46% of the workers are ‘employed’ in agriculture. In attempting to paint a rosy picture, the public relations agents perhaps missed a trick in not looking at the MGNREGS data. In 2024-25, 24.8 lakh new persons have been included in the job cards. Overall, 5.8 crore people have demanded jobs already. Because MGNREGS is a self-selecting social safety net, an increase in demand signals that workers are in distress and have no other job options Somehow, these MGNREGS workers have missed out on the 10.9 crore jobs that have supposedly been created since 2019-20.
The government’s modus operandi towards every crisis has been deny, deflect, deceive. This three-pronged approach is failing repeatedly now, as the loss of majority in the Lok Sabha would have made clear. This brings us to the question of what to expect in the upcoming budget?
Reuters, citing economic analysts, reports that the government will prioritise jobs and incomes. A noble sentiment but the past must make us wary. BJP’s economic thinking has been focused on providing entitlements for sustenance while leaving important functions like education and healthcare to the private sector. This flawed thinking is the root of several problems.
If the government is serious of salvaging its reputation and helping people, it must commit to a long-term investment plan in essential public services like education, healthcare, transport, and urban governance. A thrust toward green jobs can have multi-pronged benefits. Addressing the deficiency in services will have a massive impact on the quality of life, will help generate a productive workforce, and create jobs. The sustenance amounts for pensions for elderly and persons with disabilities must be revised upwards to factor for rising cost of living. To address the consumption issue in the short run, the personal income tax rates must be revised. More money in the hands of people will spur demand.
In the UPA, GDP growth averaged 7.6%, wages grew impressively, as did salaried incomes. Stock markets grew handsomely, investments and FDI reached record highs, and quality infrastructure became a norm. At the same time, the welfare state expanded to assist those falling behind, using an empowering rights-based approach. The 2024 results and the generational income crisis we find ourselves in point to the need to return to such policies that worked for all Indians.
Professor M.V. Rajeev Gowda heads the Congress party’s research department. Akash Satyawali is its national coordinator.
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