We are in the season when Finance Minister Nirmala Sitharaman and her team are engaged in the careful balancing act that is required to meet multiple objectives of the Union Budget.
This Budget is more difficult than most because of the prolonged pandemic, though the robust tax collections of late have allowed her some elbow room. But even then, she needs to ensure that economic growth remains high, the social sector spending is not cut, and all this is done without compromising on fiscal prudence.
At its core, any Union Budget is just the government’s revenue projections and its expenditure plans for the year. In India though, the Union Budget and even more, the finance minister’s Budget speech and the expenditure allocations, are accorded far greater importance because they signal policy intentions and priorities.
By now, the finance minister would also have received the wish list from various ministries, chambers of commerce and sundry associations. These mostly focus on the ministry or interest group’s specific needs while the FM has to look at the big picture. And there are three things in that picture that are particularly important.
One, the growth sans jobs problem: Evidence of the K-shaped nature of the recovery is piling up. Big listed corporations have been the large gainers in the growth bounceback. Analysis of listed companies over the last two years has shown that as a group, they have registered sharp gains in revenue and profit growth while also reducing debt burden. Billionaires have become even richer.
On the other hand, the middle-income group and the poor have suffered. Research by different bodies—Centre for Monitoring Indian Economy (CMIE), Pew Research Center, the Azim Premji University’s Centre for Sustainable Employment and others—have pointed out that unemployment has grown, incomes of the middle class and the poor have shrunk, and many more people have been pushed into poverty.
While jobs are being created, it is not fast enough or not in adequate numbers. Low-job-creating growth is not a new trend. The economic growth to job creation equation has been weakening for over a decade now. And, the problem has been aggravated by the pandemic.
Meanwhile, the debt profile of poor people is getting worse and their savings are coming down because of the pandemic-induced medical expenses and loans taken. This would be an issue for any country. For India, with its demographic profile, it is far worse.
High unemployment is also bad for the government finances in multiple ways—from the point of view of tax collection prospects, private consumption growth and finally the amount it needs to earmark for social sector spending. That is why it is particularly important for the FM to see if the Budget can address some of these.
Two, the medical and healthcare Issues: The pandemic brought to the fore the weaknesses of the healthcare systems in every country. India is no exception. From the number of doctors to the availability of beds per thousand patients, the shortage of oxygen and drugs, and the problems with vaccination, we need to learn from our mistakes. Offering insurance coverage to the poor does not help if the basic capacities are not augmented.
There is a limited role the Union government can play in healthcare, with much of the responsibility actually lying with the states. But in the past, the Centre has often used the Budget and other policy interventions to kick off schemes that are jointly implemented and accounted for. This Budget provides an ideal opportunity to at least get the conversation going and introduce long-term policies to fix the weaknesses.
Three, the right Atmanirbharta: The Modi government’s initial Make in India announcement and its pandemic-induced Atmanirbharta thrust have a consistent and welcome directional vision. The problem has always been in the specifics. The government has tried to cover a huge range of sectors and attempted to offer something to everyone.
Given the government’s limited resources, a focus on a few things that are either crucial to the larger manufacturing sector or particularly important to protect our citizens would perhaps be wiser. The pandemic and the broken global supply chain have brought two particular problems to the fore.
We have been found wanting in APIs in pharmaceuticals, for which we are still dependent on China, and we have found ourselves grappling (as have other countries) with the global chip shortage, which affects every manufacturing sector today.
In APIs, there is evidence that we can reduce our dependence with proper interventions. In chips, it will be far more difficult despite the recent incentives that the government has offered. Those are things the FM needs to keep in mind.
Of course, in conclusion, the most important thing to keep in mind for the government is that despite our sharp 9% plus growth this year, we will barely be where we were as an economy at the end of FY20. We have lost two years. And therefore it is important to ensure that we keep growing at 8% plus annually for a couple of decades. And that is the biggest picture for the government today.
Prosenjit Datta (prosaicview@gmail.com)
Senior business journalist