The finance minister delivered a rousing speech trying to match the prime minister’s address at the consecration of Ram Mandir in Ayodhya on January 22. It promises to make India a developed nation by 2047 and a $7-trillion economy by 2030. It is said, the economy has done well in spite of the pandemic and the wars. Echoing the prime minister, she talked of benefiting the four ‘castes’ – poor, farmers, women and the youth.
Nirmala Sitharaman has followed through on the president’s address to the parliament, which listed the many achievements of the government in the last 10 years. But one thought that the budget, following the exhortation of the prime minister, would move towards establishment of Ram Rajya. So, it would chart a different path. It would present an honest picture of the economy and take steps to address the issues of poverty and uncivilised conditions of living of the vast majority of the citizens. Without these steps there can be no Ram Rajya.
So, what should the budget have contained? Big increase in allocations for employment and agriculture. That is what is needed by the youth, women and the farmers. It would have also mitigated poverty. The finance minister while announcing many things in the budget should have announced that henceforth workers will get a ‘living wage’ promised in the Constitution. For the farmers, the announcement should have been the implementation of the Swaminathan Commission promised full cost price MSP for all crops.
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None of these critical steps were announced. Instead, vague promises have been made which cannot be achieved with the presently structured economy and the budget. Unemployment and poverty would persist so that the lot of the young and women is unlikely to improve.
In effect, the budget will not initiate the Ram Rajya promised by the prime minister just a week back. The first thing to do to move towards Ram Rajya is to be honest about data and one’s intentions. Neither of these are evident in the budget.
The macro aspects
If India is to become a $30-trillion economy in real terms by 2030, a real growth rate of 9.55% is required. Currently the average growth rate over the last 10 years has been about 6%. If this persists, India will only reach $14.1 trillion. The per capita income would also be only $9000, not the required $14,000 at which income a country is considered to be rich. So, why promise what is unlikely? It can only be for effect to get votes. That is not what maryada of the rulers should be.
To boost the economy’s average growth rate, there is need to tackle the macro constraints of the economy. The biggest constraint for a while has been the lack of adequate demand due to rising inequality and lack of purchasing power of the vast majority of Indians.
The budget could have been used to boost overall demand and also make it possible for the poor to have higher incomes through robust employment generation. On both these fronts the budget is lacking. Compared to last year, the overall expenditure is going to rise by only 6.1% which is barely above the rate of inflation, so that not much of a boost is going to come from this factor. The increase in expenditure should have been substantial. The primary deficit is also being sharply reduced from 2.3% to 1.5%. This will also reduce demand.
Regarding employment, capital intensive areas are being promoted not labour intensive ones. Even modern construction is highly capital intensive. What was needed was to boost MGNREGA, education, health and rural development spending, which are all big employers. No scheme for urban employment generation has been announced.
Sectoral aspects
The allocation in the last year’s budget for agriculture was Rs.1.44 lakh crore but what is spent is likely to be Rs.1.4 lakh crore. For the next year it is Rs.1.47 lakh crore which is barely 1.5% above the allocation currently. This will not even cover inflation so in real terms it will be less. So, even the inadequate allocation is not spent, so how can the farmers’ incomes improve?
The poor need education and health to upgrade themselves to be able to get better jobs/work. For education the allocation last year was Rs 1.16 lakh crore which was reduced to Rs 1.09 lakh crore and for next year it is slated to get Rs 1.25 lakh crore. For health the allocation last year was Rs 89,000 crore but what is spent is Rs 79,000 crore. For next year, the allocation is Rs 90,000 thousand crore. Not only are these inadequate compared to what is needed but even these allocations are not spent. One would have expected a quantum jump in the allocations to these sectors but this is not in evidence and even if allocations are made they are not fulfilled.
Also read: Budget 2024: How the Modi Government Has Neglected Social Security Pensions Once Again
Corruption and black economy
The finance minister has promised better governance which is so crucial for proper implementation and better outcomes from the schemes announced. In this regard, Transparency International has just released its report, pointing to India slipping in the rankings. Thus, better compliance is not in sight. That is why in India big announcements do not lead to big outcomes and/or improvements in the lot of the common persons.
For instance, a big scheme has been announced for installation of rooftop solar panels. Such a scheme has been ongoing for some time. Talking to those who install these devices, it becomes clear that the scheme is mired in corruption and non-implementation. So, how to get good intentions to fructify. The black economy has to be brought under control.
If the black economy had been checked in the last few years, as often claimed, direct tax to GDP ratio would have sharply risen. It has barely risen in the last 10 years to 6.1% from 5.7%. So, the black economy is not being dented by the steps taken by the government. No wonder there are daily reports of new cases of corruption. If the black economy could have been controlled, there would be more resources for development and the fiscal deficit would be eliminated. The economy would have become more efficient and growth rate would have risen further.
Conclusion
The optics of the budget presented is an election budget with big claims and promises on which the ruling party is going to campaign. Neither its macroeconomics nor the sectoral allocations are such as to help either the poor or the economy to achieve new heights. Is this not a slap on the face of the citizens who have been promised Ram Rajya, which stands for justice and honesty?
Arun Kumar retired as professor of economics, Jawaharlal Nehru University. He is the author of Understanding Black Economy and Black Money in India.
