Being the year of a general election, 2024 has now witnessed two Union budgets, the interim one in February and the final one in July. The election result, which led to a significant decline in the majority enjoyed by the Modi government, did have an impact on the text and tenor of the final Union budget and the preceding economic survey, but the change is more in terms of rhetoric than substance.
Joblessness and growing socio-economic inequalities were the salient themes in the opposition INDIA bloc’s campaign, which resonated with significant sections of the electorate. How has the Union budget addressed these issues?
Even as the revenue receipts of the Union government in 2023-24 surpassed the budget estimates by Rs 96,131 crore on account of a rise in non-tax revenues (mainly dividend and profits), the finance minister has prioritised fiscal deficit reduction over expenditure expansion.
As a result, the fiscal deficit for 2023-24 is around 5.6% of GDP, Rs 1.33 lakh crore lower than what was budgeted last year. In the process, even capital expenditure, which was budgeted at over Rs 10 lakh crore last year, has been slashed by over Rs 50,000 crore in 2023-24. The fiscal deficit for 2024-25 is projected to fall further to 4.9% of GDP.
While embarking on this path of fiscal consolidation, the Union budget has presumed that a virtuous cycle of private sector investment would be unleashed simultaneously, maintaining the post-pandemic momentum in overall economic growth. Relying on that presumption, a “Package for Employment and Skilling” has been announced with central outlay of Rs 2 lakh crore for five years. The package is a combination of wage subsidies for newly recruited employees based on EPFO enrolment and skill development initiatives involving the upgradation of 1,000 ITIs.
Additionally, the announced package includes a government-funded internship programme in the “top 500” Indian companies. The Union budget has projected that 4.1 crore youth would benefit from this employment package in the next five years.
There are serious doubts over the actualisation of the projected job or internship generation of this package. Whatever incentivisation occurs through these schemes, the jobs created under them in the short run are unlikely to last beyond the subsidy period. Large-scale job shedding in the medium run can further complicate the employment situation. The incentive schemes based on EPFO enrolment can also turn out to be conduits for siphoning off public funds by fudging payrolls and misreporting wages.
If the Union government can spare Rs 2 lakh crore from the national exchequer to create employment opportunities, why is it not attempting to generate employment directly by expanding the rural employment guarantee to urban areas and increasing its entitlement beyond 100 days? Why not expand capital expenditure by the profit-making Central PSEs in labour-intensive sectors of the economy? The government needs to explain why these alternatives are not being explored.
The fundamental flaw with this supply-side incentive-based employment generation strategy lies in the presumption that labour demand in India’s non-agriculture sector is already sufficient to absorb around 80 lakh first-time employees annually, and only wage subsidies and the skill development of labour would nudge small and large businesses to expand payroll employment without any concern for market conditions and profitability.
The absence of dynamism in private consumption and investment, especially in the post-pandemic period, has been vividly described in the economic survey itself.
Economic recovery in the past few years has been largely caused by fiscal stimulus, which has resulted in a significant rise in the public debt-GDP ratio. In the backdrop of the economic recovery, fiscal deficit reduction needed to be undertaken through additional revenue mobilisation by taxing super-profits, wealth and capital gains, and not through expenditure compression, which is likely to have a contractionary impact on the economy, impairing employment generation.
The deep corporate tax cut in 2019-20, while sharply increasing corporate profits and fuelling an unprecedented stock market boom in the post-pandemic period, did little to enhance the capital expenditure of the non-financial private corporate sector. Yet, the Union budget relies on a similar supply-side strategy of incentivising private sector employment through wage subsidies and skill development in order to solve India’s employment crisis. This is unlikely to succeed.
Rigorous data analysis by the World Inequality Lab has already exposed the ugly realities of growing income and wealth inequality in India. While the share of the bottom 50% of India’s adult population (estimated at 92 crore) in national income stood at 15% in 2022-23, the top 1% had a share of over 22%. Wealth inequality is even more stark, with the bottom 50% having a 6.4% share of total national wealth, while the top 1% owning over 40%.
Demands for imposing wealth and inheritance tax on the Indian billionaire class to redress such skewed income and wealth distribution have been raised from academic as well as political quarters.
The Union budget has not only stonewalled any such redistributive measure, but the continuing trend of gross income tax collections surpassing corporate tax collections in the Union budget needs to be seen as a contributory factor to the rising inequality phenomenon.
Income tax collections in 2023-24 at Rs 10.2 lakh crore was Rs 1 lakh crore more than total corporate tax collections. Even after the income tax reliefs announced in the present budget, the government projects Rs 11.5 lakh crore in income tax collections in 2024-25, against corporate tax revenues of Rs 10.4 lakh crore.
There is a cut of Rs 24,894 crore in fertiliser subsidy and Rs 7,000 crore in food subsidy in the budget estimates for 2024-25 from the revised estimates of 2023-24. Such subsidy cuts in the backdrop of falling agricultural growth and high food inflation can only squeeze the real incomes of farmers as well as the poor and food-insecure sections, thereby exacerbating inequalities.
Overall, while the general election result has forced the government to address the jobless growth problem in the Union budget, the manner in which it has done so betrays its adherence to supply-side economic dogmatism – an unalloyed faith in the virtues of making the rich richer, and expecting incomes, wealth and prosperity to slowly trickle down. The election result, however, also suggests that the electorate’s patience vis-a-vis livelihood concerns may also be running out.
Prasenjit Bose is an economist and activist based in Kolkata.
