India’s annual budget, announced amidst much anticipation, focused on health as one of its key pillars. The fact that health and “inclusive growth” found their way into the buzzwords of the central government’s main statement-of-intent exercise reveals the enormity of the unprecedented economic and health crisis precipitated by COVID-19.
Is it a “good” budget? The stock market is certainly buoyant as the dreaded “COVID Cess” or a “Billionaire/Wealth Tax” did not materialise; in fact, there are no major tax changes, other than simplification in the direct tax regime. Additionally, there is a reiteration of the privatisation goal, always music to the stock market’s ears.
As we saw with several mini-budgets in 2020, it is not unlikely that today’s announcements will get modified subsequently, thereby rendering a lot of the early responses redundant. We would need to reassess the changes as and when these happen. One of the key issues in the last two budgets has been that the actual expenditure was below the estimated expenditure, at a time when the need of the hour was a strong fiscal stimulus to boost growth which has been falling even before the COVID-19 pandemic hit. Thus, the current budgetary estimates will have to be compared with last year’s actuals, which will have to be compared with this year’s actuals later on.
The second related question is that the aggregate numbers look very different when these are unpacked. For instance, last year the government announced a stimulus of Rs 20 lakh crore, which, at first glance, appeared to be a strong fiscal boost, until it turned out that a large component of it was not a fiscal stimulus but additional liquidity. Some estimates place the actual outflow at less than 1 per cent of GDP in dismal contrast to the planned 10 per cent of GDP.
Just how resolute was the government’s intent to bring these issues to the forefront of economic policy, along with other key problems of declining employment, especially of women, precarious livelihoods, falling demand, and rising inequality? In other words, we need to dispassionately separate declaration of intent of the motherhood-and-apple-pie, what’s-not-to-like variety (“inclusive growth, focus on health infrastructure, minimum wages for workers without stable salaried jobs, etc.”) from the question of whether these objectives are backed by the requisite monetary allocation.
Take, for example, the expenditure on MGNREGA, the main safety net provision in rural India. The need of the hour would be to increase allocations to this as it provides some succour for the rural unemployed workers. Yet, there is no increase in expenditure on MGNREGA. An announcement in the budget increasing the currently pitifully low minimum wage for ASHA, anganwadi and ANM (auxiliary nurse midwife) workers would have been an excellent and much-needed tribute to the sterling role played by frontline health workers, who worked long hours, under hazardous and arduous conditions, risking personal attacks due to the stigma associated with COVID-19.
Month-on-previous-month changes in total employment in 2020 based on CMIE data reveal that total employment had started to decline by February, but the biggest fall was in April 2020 when more than 113 million workers were rendered jobless as a result of the sudden and stringent lockdown. Employment recovered till September as the economy unlocked but has been falling subsequently. Women’s employment declined by 2.7 million between November and December, compared to a decline of 2 million for men. Given that total employment for men is much higher, in proportionate terms, the decline was larger for women.
There was no clear statement in the budget on boosting employment, especially female employment, which has been falling over the last several years. Infrastructure spending (which, not unsurprisingly, was targeted towards poll-bound states) might boost employment to a certain extent, but it is not clear that the increased outlay is sufficient to meet the massive employment challenge.
Medium, small and micro enterprises (MSMEs) employ a very large part of the non-agrarian workforce. These enterprises, several already precarious, have been struggling to survive during the economic recession. The budget would have been the right forum to announce big-bang support and revival policies for this sector.
Finally, among the most harrowing images from 2020 have to be those of the thousands of migrant workers trudging back to their villages, as their workplaces in the cities shut down with no warning. Their exodus not only made this section of workers visible, but also brought home, with sharp urgency, the pitiful state of housing and the complete lack of income or food security for this section of workers. The budget should have shown how serious it was about inclusive growth by announcing direct cash support to informal workers, circular migrants, agricultural labour, in addition to steady in-kind food transfers from the overflowing coffers of the FCI by making PDS universal.
Can we afford this given the rise in the fiscal deficit? We should note that a part of the rise is due to lower tax revenues because of lower growth. The government’s priority has to be boosting jobs, especially of women; improving primary healthcare in addition to the vaccine, and providing direct cash support to the bottom 30 per cent of India’s population.
In May 2020, the Finance Minister had announced a stimulus of 10 per cent of GDP, which did not materialise as expected. India needs to stick to that target this year if a strong economic recovery with “inclusive growth”, is the objective.
This article first appeared in the print edition on February 2, 2021 under the title ‘Missing in Budget: Push for jobs, welfare ’. The writer is professor of economics and the founding director of the Centre for Economic Data and Analysis (CEDA) at Ashoka University