Should the government fire on all cylinders, there is every chance that India would be one of the leading propellers of post-pandemic economic growth
Amidst the relentless and swift shifting sands of time, in a mature economy as India has evolved into, the Budget day in itself is of diminishing importance as the only day when Big Bang economic policies are announced. This can be gauged from the trajectory of NDA-II’s three earlier Budgets: How the finance minister and team Modi maintain a ‘calibrate-as-you-go’ proactive and interactive stance in announcing major reforms almost round the year.
Sure, the Budget day is an important annual economic event where the government lays out a fiscal and policy roadmap for the year and furnishes an account of income and expenditure. But economic reforms have now become a year round phenomenon with the aim of integrating Indian manufacturing speedily with global value chains, increasing economic intensity and job elasticity.
With five states going to polls this month, Uttar Pradesh being the most populous and significant one, and with the Model Code of Conduct in place, I expect the Budget to be a progressive outreach of growth laced with populism. The Budget will have a rural slant, with increased outlays for infrastructure and a transition to the green economy, and with existing welfare schemes being enhanced on a need-based basis, and which are definitely needed, regardless of elections.
Let me explain that when I say a populist Budget, it does not imply freebies just to garner votes, but to the contrary, is very much in continuation with this government’s earlier focus on welfarist schemes like Garib Kalyan Yojna, PM Kisan Yojana, and implementation of social sector reforms like housing for all, Ujjwala, Awas Yojna, Ayushman Bharat, etc.
To that extent, not only would outlays most likely increase for expansion of a social security net, but the idea is to achieve 100 per cent saturation and reach in areas such as health, education and housing for all, water and rural electrification before the 2024 general elections. The vital point is that sectoral allocations provisioned for must be optimally spent by micro-monitoring of delivery of projects, as many allocations of the last year’s Budget have not been fully utilised for implementation, which greatly impacts job creation.
Revenues in direct and indirect taxes have been robust enough to provide the government enough headroom to balance its fiscal goals and spending needs, despite the lower than targeted receipts from privatisation. However, to augment the revenue side, disinvestments and asset monetisation are just the avenues which will need to be accelerated in 2022-23.
As for my expectations from the Budget, importantly, one hopes that the finance minister resists the urge for premature fiscal tightening. I anticipate the government will continue to do the heavy lifting to restart a virtuous cycle of private capex and job creation.
Due to limitations on word count, I will restrict my expectations from the Budget to the following sectors:
Making India a manufacturing hub
With regard to making India a manufacturing hub, top software exporters are being incentivised to gear up for a surge in demand for technology services aimed at entering the Metaverse, which is the next transition of the Internet industry. In order to broaden the product basket for the Production Linked Incentives Scheme and to give scale to the manufacturing of semi-conductors, IT hardware and electronics, the government is likely to come out with more categories where benefits will be extended to create large industrial zones to absorb 40,000 to one lakh jobs and increase the competitiveness in the cost and ease of doing business.
Acquiring ‘green assets’
In order for India to achieve the net-zero target for climate change by 2070, the time to act is now. To hasten consumer adaptation to acquiring ‘green assets’ like solar and electric vehicles, the sector needs early bird incentives to accelerate manufacturing. The PLI schemes must be made more friendly for mid-sized component manufacturers by reducing the minimum investment threshold and revenue criteria so that they are able to avail of its benefits, as also make start-ups eligible for the scheme.
Infrastructure, housing boost
The government needs to give a boost to sectors like infrastructure, construction and housing for both the demand and the supply side, as they hold the maximum employment coefficients and have backward linkages with 250 ancillaries. COVID-19 has exacerbated inequalities and job contraction has increased vulnerabilities, with urban employment at 9.3 per cent in December 2021. In a country with a median age of 30, both the availability and the quality of jobs matter. India needs to revive its growth trajectory to 8-9 per cent in the next few years to catapult to a middle-income economy.
Therefore, in the absence of optimal Capex expansion by the private sector, government expenditure will have to be the prime mover through sectors like infrastructure, housing, education and health.
Job creation
Therefore, three top areas of focus in public expenditure must be employment expansion, education and health. India needs to create 90 million non-farm jobs between now and 2030 to absorb our demographic surplus. The way forward is a National Urban Employment Guarantee Scheme which could cover 20 million workers from the informal sector who can be channelised into urbanisation of cities; enhanced funding for MNREGA on a need-based basis, and incentivising labour-intensive jobs for the under-skilled who want to transition to non-farm jobs.
Education
The allocation for education was brought down by Rs 60,000 crore last year from the previous Rs 99,000 crore. This needs an upward revision to Rs 125,000 crore to universalise education. We cannot aspire to become a $10 trillion economy if 260 million citizens cannot read or write, and 70 per cent of students have been deprived of online education for two years.
To bridge the digital divide for 600 million Indians who use feature phones, “a government sponsored trade-in scheme to upgrade to smartphones as an enabler for education” could be a solution. The Finance Minister must ensure that the costs of hardware essential for learning like tablets and smartphones are within the reach of the poorest, by lowering the cost of gadgets that are enablers for learning.
Health and healthcare
I anticipate increased allocations for non-COVID expenditure, curative and preventive healthcare; elevation of healthcare to a Priority Sector Status; tax-holidays for setting up rural healthcare centres; increase of bed-capacity and health infrastructure, and creation of REITS for investments in healthcare which will help raise funding and extending capital at lower rates to the sector. Reducing GST on health insurance from 18 per cent to five per cent would enable deeper penetration of insurance products in an under-penetrated market.
Second, out of the Rs 88,000 crore allocated to the health sector last year, much less was spent as absorption capacity was lacking. We need to not only double our outlays of 2.5 per cent of GDP on health, but also monitor funds allocated are spent optimally.
Increase CSR spending
We must increase CSR spending from two per cent of the average of three years’ profit to three per cent. This is a fair expectation from profitable companies and helps bridge the growing rich-poor divide, as some of the listed companies have made supernormal gains. It is also a preferable route to tax the rich from new profits as compared to suggestions of reimposition of wealth tax and inheritance tax which is tantamount to double taxation.
Should the government fire on all cylinders, there is every chance that India would be one of the leading propellers of post-COVID economic growth, while intermittent spurts in suppressed consumption will balance out periods of pandemic-triggered stagnation and de-growth.
Bindu Dalmia is former chairperson of NCFIL, Niti Aayog. Views expressed are personal
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