Nirmala Sitharaman presented her seventh budget which seems to have focused more on nursing the BJP’s election blues. Therefore, it was not an unexpected budget as the FM has taken note of all those critics who showed the fissures in the BJP’s policy frame.
The four fronts that the opposition chose to pull down the 400 paar dream of the ruling party crawled in the initial few minutes of the budget speech, namely Unemployment, Inflation, Poverty, Mahila (females) Yuwa (youth) and Farmers. Thus, this budget seems to have been drafted to undo the opinion formed about the lagging sectors and the economic pitfalls experienced in the second spell of BJP. The allocations are, therefore, spread thinly over many schemes plugging these vulnerabilities.
Actually, the challenges confronted by the finance minister involved sustaining the GDP growth of 7.5 per cent that had slid down, and reigning high food inflation. Placating the unsatisfied youth by creating 7 to 8 million jobs per year is certainly a herculean task and so also doubling the farmers’ income. This is to be achieved in the face of private consumption expenditure growth dropping down to 4% from 6.6% last fiscal; savings and domestic capital formation are sliding down along with increasing trade gap with huge debt/GDP ratio.
The macro picture of the budget is quite lucrative with good fiscal targeting and pegging revenue receipts at Rs 27 lakh crore in the provisional actuals of 2023-24 budget and stepping it up to Rs 31.29 lakh crore in this budget, an increase of about 14.68 per cent. This is mainly out of the tax revenue (net to the centre). On capital receipts, the FM is not very aggressive and stepped it down to Rs 16.91 lakh crore as against Rs 18.09 lakh crore during the last budget.
Allocation for effective capital expenditure is put at Rs 15 lakh crore, which is about Rs 3 lakh crore higher than the provisional actuals. The FM has been able to show low revenue deficit of about Rs 5.8 lakh crore as against Rs 10.6 lakh crore last budget. The revenue deficit as percent of total revenue works out to be 18 54% and the expenditure on many schemes will have to be met. With all this, the fiscal deficit is pegged at 4.9 percent of GDP, but 51.55 per cent of the total revenue in this fiscal.
On the employment front, it has been estimated that India in 2022-23, had about 56.5 crore workforce. Out of these, over 45% are engaged in agriculture, 11.4% in manufacturing, 28.9% in services and 13% in construction. Therefore, the three themes intended to focus on creating employment and skilling for the youth and females were quite expected. Certainly, this is the major issue with unemployment rates rising continuously, reaching 9.3 percent in June this year.
The urban unemployment rate is 8.9 per cent. Given the near stagnancy in manufacturing, creation of jobs is likely to be difficult. The provision of Rs 11 lakh crore for infrastructure is expected to generate employment, but a large portion of that will be from the same labour force that has been working on the earlier infrastructure projects and hence incremental employment will be negligible. Three schemes are put forward, namely one-month wage to the new entrants in all formal sectors; government to reimburse the EPFO contribution up to Rs15,000 for the first-time employee; and his/her employer will get incentives.
The FM expects 30 lakh youth to take advantage of this. But will industries open their gates for employment when the sector is facing declining domestic capital formation? In the skilling programme, 1,000 ITIs are to be upgraded to train them.
In this pursuit, she has also provided a new succour to the MSME sector where an internship programme is announced with Rs 6,000 to the interns through CSR funds. Again, the assumption is that this will be acceptable to CSR donors as well as the host MSMEs. It is well known that many MSMEs are closed down during COVID and are waiting for revival. This path of employment creation will not meet the requirements.
Farmer is another weak link, but with a significant political force. The rollback of the farm laws can be taken as an indicator of the political weight that this group exerts. MSP has increased, but leaving a few states, this policy tool has lost its sheen and in many states, the procurement under MSP is negligible. The allocation for the agricultural sector is put at Rs 1.51 lakh crore and that for rural development at Rs 2.65 lakh crore. The increase for these two sectors is about Rs 11,000 crore and Rs 27,000 crore for agriculture and rural development, respectively.
In the agricultural sector, transforming the agricultural research setup is the priority and it is not clear what can be achieved in farm income, if there are no reforms in marketing. The density of agricultural markets is so thin that the farmer has to travel half-a-day on an average to reach and with 86% small and marginal farmers, how can the FM expect to vitalise the sector? Any number of crop varieties will not solve their problems, unless the factor endowment is attended to. Is it not true that a member of Parliament got zero income out of 45 acres of irrigated land?
One cannot forget that the budget is prepared after the bitter experience of the last election and hence needed a thin spread across schemes. Farmers, youth, females and employment are all tagged to the wider concept of Vikas; but probably to win the hearts of those who lost faith during the last general election. Certainly, a fiscally prudent budget, but the expectations of the FM may not be realised in the pursuit of high GDP growth, masking the real ground-level issues.
Prof R S Deshpande
Visiting Professor, ISEC
