The finance minister’s budget speech, although unfinished, broke her own record of last year. Couched in an elegant framework of aspirational India, caring society, and economic development, it probably goes some way in alleviating apprehensions on the criminalisation of civil offences and the excesses of tax enforcement.
But it is a moot point whether it acknowledged the seriousness of the current crisis, underlying factors, and the measures needed to nurse the economy back to health. Quarterly gross domestic product (GDP) growth data shows a consistent downward trend since Q1 of 2018-19, combined with a significant slowdown in private investment and consumption growth. Manufacturing growth has decelerated and indicators like profitability and capacity utilisation remain grim. Power consumption to has fallen for several straight months.
Budget 2020 Verdict: Welcome tax breaks but growth stimulus missing
The genesis of the current slowdown, it is now amply clear, goes back several years. This was made much worse by the policy shocks of 2016 and 2017, the worsening health of financial institutions, and the excesses of enforcement agencies. Former Chief Economic Advisor Arvind Subramaniam’s recent papers clearly establish that growth was already tepid between 2012-13 and 2016-17.
Direct survey results show that between 2011-12 and 2017-18, labour force participation declined and unemployment shot up, particularly among educated youth described in the budget as “aspirational”. Youth unemployment rates for graduates rose from 19.2 per cent in 2011-12 to an extraordinary 35.5 per cent in 2017-18. The un-released consumption survey of 2017-18 shows that average per capita per month consumption expenditure fell by 3.7 per cent in real terms between 2011-12 and 2017-18.
Further, our own work based on the National Statistical Office (NSO) employment surveys shows that wage growth plummeted between 2011-12 and 2017-18. Wages of all workers grew 5.5 per cent annually during 2004-05 to 2011-12, but only 1 per cent a year during 2011-12 and 2017-18. This deceleration was even more significant for regular waged workers, urban workers, and those in higher deciles. These figures only underscore the serious nature of the crisis already faced by 2017-18.
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It is clear that the 2020-21 budget neither acknowledges the nature of crisis nor offers a road map to deal with it. Budgeted spending is set to increase from 27.86 lakh crore to 30.42 lakh crore, but most will be absorbed by higher revenue expenditure. Although the fiscal deficit is targeted to decline from 3.8 per cent this year to 3.5 per cent next year, the revenue deficit is set to rise from 2.3 per cent to 2.7 per cent. Most sectors have also seen declining and stagnant outlays. Outlays for the agricultural sector, for instance, is set to rise by only three per cent in nominal terms, mostly on account of allocations for interest subvention and crop insurance.
The social sector, rural and urban low-income housing, public employment programmes, and income transfer programmes could boost income and demand. But, a look at the budget shows how little has been done here. In fact, other than the health sector, all other major sectors and schemes have been allocated lower amounts in real terms compared to the previous year. For instance, the allocation for MGNREGA has been cut from a budgeted Rs 66,000 crore, and an actual expenditure of Rs 71,000 crore, in the previous year to only Rs 61,500 crore. All major social security schemes have also seen unchanged or decreased allocations.
Concessions have been given to the lower middle classes with taxable income up to Rs 15 lakh, if they give up tax exemption schemes, but these could affect decisions to invest in housing since the exemptions are unlikely to have a long shelf life. In the absence of any significant measure to boost demand, it is highly unlikely that the business as usual scenario painted by the finance minister and the sectoral measures announced will be sufficient to dispel the gloom and re-initiate a virtuous cycle of growth.