Selling family silver not sustainable way to fund Budget
At the heart of this slowdown was an acute demand crunch, caused by the growing levels of unemployment and steeply declining levels of labour force participation.
The 2021-22 Union Budget, the third presented by Finance Minister Nirmala Sitharaman, had to be an unprecedented exercise as the Indian economy has been beset with a downturn that predates the Covid pandemic by more than two years. For nine straight quarters until the end of the previous financial year, India’s GDP had declined. At the heart of this slowdown was an acute demand crunch, caused by
the growing levels of unemployment and steeply declining levels of labour force participation.
It was eminently clear to any student of economics that for the economy to revive, the government needs to turn its attention towards creating additional consumption demand through improvement in the condition of the wage earners. The government needed to respond to this situation immediately, which it did, according to the Budget presented by the finance minister. There was a steep increase in the spending on the Mahatma Gandhi National Rural Employment Guarantee Programme (MGNREGA) during the 2020-21 fiscal: Against the budgeted Rs 61,500 crore for the year, the revised estimate of spending was Rs 1,11,500 crore, an increase of about 72%.
However, for the fiscal year 2021-22, the expenditure of MGNREGA has been reduced to Rs 73,000 crore, or a decline of more than a third from the revised estimate. These numbers clearly reflect the viewpoint of the government that it does not consider the problems facing the country to be of a structural nature that require sustained support to the migrant workers, who have been severely affected by the crisis. By doing so, the government has also signalled that it does not think a revival of domestic demand is part of the solution to the ongoing woes of the economy. India’s economic revival critically hinges on adequate availability of vaccines, which the government seems to have ensured by rolling out the largest vaccine programme.
However, at the same time, it is vitally important to ensure that not only is this programme able to reach everyone in the shortest possible period, but the vaccines are also made affordable. The prerequisite for doing so is an effective public health system, but over the decades, our health infrastructure has faced systematic neglect. In response to the Covid pandemic, most countries have been focusing on beefing up the health infrastructure, especially through government spending, and therefore there was considerable interest in the moves that the Government of India would make. However, the numbers available from the new Budget present a dismal picture. The total spending on health, which is expected to be around Rs 80,000 crore in 2020-21, is projected to decline to just above Rs 71,000 crore in 2021-22. This raises questions over the ability of the government to deliver on the promises to make Covid vaccines available for all.
The Budget for 2021-22 was important, above all, for testing the government commitment to fiscal policies going forward, since, according to the International Monetary Fund (IMF), fiscal measures used by India were among the lowest among G20 countries. The IMF has been emphasising on the use of fiscal policies and also reminding governments about the increasing role that public sector enterprises (PSEs) have been playing in advanced countries, especially in the aftermath of the global financial crisis of 2008.
Contrary to this advice, the Government of India has been increasing the pace of privatisation of PSEs and this Budget is no exception, with the finance minister making the big announcement of divestment of government shareholding in the Life Insurance Corporation. The question that arises here is whether the government has explored all the avenues of garnering resources for financing the Budget. The question is in the negative, given the spate of tax concessions that have been handed out to the corporates, especially when there is evidence that the past concessions have not helped in reviving the economy. A second and more important aspect that the government needed to take cognisance of is that selling public assets, which are like family silver, is not a sustainable way of funding the Budget.
Biswajit Dhar (firstname.lastname@example.org)
Professor, Centre for Economic Studies & Planning, School of Social Sciences, JNU