Listen to this article:
As another Union Budget rolls around, there is a palpable air of disenchantment and disinterest. Last year was meant to be the ‘make or break’ speech from Union finance minister Nirmala Sitharaman. Notable for its acknowledgement of the dire fiscal situation, little else stands out from the event.
This year, even the pre-budget energy one usually sees in the stock market is missing. While there is intense chatter and focus on the current market slide, on the Budget itself, the market has wisened up – divestment targets will not be met, big-bang announcements will not be made and a GST 2.0 seems very unlikely.
The outtake then would be that the Budget doesn’t matter. Policy is a running treadmill of course. But here’s why and for whom this event does matter, a whole lot. Two areas need urgent and intensive attention, money and solutions.
No jobs, no plan: A blunt Brahmastra
Data from the Centre for Monitoring Indian Economy shows India’s unemployment rate hit a four-month high of 7.9% in December 2021. January 22 is already pointing to a figure upwards of 8%. Urban unemployment rate rose to 9.3% in December from 8.2% in the previous month while the rural unemployment rate was up 7.3% from 6.4%, data showed.
While monthly numbers can be erratic, two crucial areas need special mention within a growing and frankly, alarming jobs crisis.
Firstly, unemployment is hitting the urban educated youth the hardest.
Managing director and CEO of CMIE, Mahesh Vyas, explains in his note:
“While youngsters in the age group of 20-24 years reported an unemployment rate of 37%, graduates among them reported a much higher unemployment rate of over 60%. 2019 was the worst year for these young graduates. The average unemployment rate for them during 2019 was 63.4%. This is much higher than the unemployment rate they faced in any of the preceding three years. An overall unemployment rate of around 7.5% does not reflect the real challenges faced by India. Graduates between 20 and 29 years of age, face a much higher unemployment rate of 42.8%. This is India’s real challenge. An equally important challenge is that graduates of all ages put together also have a very high unemployment rate of 18.5%.”
In other words, the ‘demographic dividend’ that India is supposed to be reaping is eating away at its own ‘brahmastra’, or its most potent weapon.
There is a second problem. A bulk of jobs and work has been provided by the services industry.
After all it accounts for over 54% of the economy. Even before the third wave hit us, contact-intensive services were trailing pre-pandemic levels. This is reflected in ‘trade, hotels, transport, communication and services related to broadcasting’ segments, which still remain 8.5% below fiscal 2020 levels. With rising Omicron cases, localised restrictions and city-level curfews, jobs in the services sector will certainly collapse through January and February.
In sectors like trade, hotels and transportation sector close to 64% of the workforce is unorganised, in sectors like construction even more so. With no support for the services sector and what it holds within it, jobs are slowly and surely drying up.
In 2020-21, the first year of the pandemic, 11.19 crore individuals worked under the Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGA) scheme, up from 7.88 crore in 2019-20. In the ongoing financial year, 9.52 crore individuals have already been registered as beneficiaries. This safety net for rural India needs to be extended and the time is now for an urban version of the same.
Violent attacks against job aspirants protesting the selection process of the Railways’ recruitment exams and the demonstrations that have followed are a stark reality of the jobs crisis we face. The government may choose to wish away this ticking time bomb, but it is vital that the Union Budget increase outlay for the MGNREGA scheme across rural India and lay out a plan and intent to tackle urban unemployment across our cities.
Households: Strengthen the nucleus
Households serve two roles in an economy: as consumers they contribute to demand; as savers they contribute to the level of investment that can be domestically financed.
Obviously, a healthy mix of both is ideal but during recessions and slowdowns, consumption assumes more significance. Let’s examine what the reality is.
Automobile sales, particularly for two-wheelers, have ground to a decade’s low. Motorcycles and scooters, once seen as the barometer of a better life for many lower income households, are now languishing with sales extremely low right now. This, despite the fact that interest rates for vehicle loans are between 7%-10%
For many quarters now, the RBI has termed rising inflation as ‘transitory’ in nature. Every COVID-19 wave brought with it supply chain disruptions for both logistics and labour, and with that higher mark-ups between retail and wholesale prices. As we battle through the third wave, we have a situation where oil prices are rising, input cost pressures are building and households are struggling to meet the rising prices of fruits and vegetables.
In the words of HUL chairman and managing director Sanjiv Mehta, “We haven’t seen this kind of inflation for many years.”
Brokerage house Nomura warns, “The key concern, in our view, is that the rise in price levels triggered by past pandemic waves does not fully correct when the wave ends, leading to higher price levels after each pandemic wave, even though the subsequent month-on-month price increase normalises. Consequently, we believe January and February will bear the brunt of the inflationary impact of the third wave. We expect headline inflation to rise from 5.6% y-o-y in December to 6.0-6.5% in January, with core inflation rising from 6.0% to 6.5%. Overall, we raised our projection for Q1 2022 headline inflation by 0.2pp to ~6.4% and 2022 by 0.3pp to 5.9%.”
Why does inflation matter so much?
I asked Nobel laureate Dr Amartya Sen about inflation and its impact in a recent conversation. Here’s what he said to me: “We have a somewhat analogous situation from the Bengal Famine when inflation was very high. What is common is a shared disregard of the interests of the poor and that was as strong in the 1940s as it is today. So, we have to look at the similarities and differences between the Bengal Famine and the hunger challenges today and explore solutions. There are many very good Indian economists thinking about this but there is a need to concentrate on this more particularly by the ruling establishment.”
The Budget must create breathing space and opportunity to boost demand amongst households. Not for the affluent upper middle class for whom nothing has changed, but for homes and families that are clamping down on spending, as they struggle to make ends meet.
A deepening K, an escalating crisis
What is new India looking like? On the one hand, corporate India is reporting fairly stable earnings and manufacturing displaying a tepid but consistent turnaround. On the other, households are struggling to feed their members, job losses are a lived reality and across the board women are falling further back the line, with opportunity and access. This seems counterintuitive. In the face of clear evidence of economic suffering that individual citizens and families in India are living through, why does this matter so little to those who run the country, why does the refrain remain ‘all is well’ ?
The answer lies here. The Oxfam report, “Inequality Kills’’, released ahead of the World Economic Forum’s Davos Agenda says that in 2021, the collective wealth of India’s 100 richest people hit a record high of Rs 57.3 lakh crore.
In the same year, the share of the bottom 50% of the population in national wealth was a minuscule
6%. During the pandemic (since March 2020, through to November 30, 2021), the report says, the wealth of Indian billionaires increased from Rs 23.14 lakh crore to Rs 53.16 lakh crore. More than 4.6 crore Indians, meanwhile, are estimated to have fallen into extreme poverty in 2020. Nearly half of the global new poor according to the United Nations.
More proof of the same conclusion came through in a recent ICE360 Survey 2021, conducted by People’s Research on India’s Consumer Economy (PRICE), a Mumbai- based think-tank. They write, “In a trend unprecedented since economic liberalisation, the annual income of the poorest 20% of Indian households, constantly rising since 1995, plunged 53% in the pandemic year 2020-21 from their levels in 2015-16. In the same five-year period, the richest 20% saw their annual household income grow 39% reflecting the sharp contrast COVID’s economic impact has had on the bottom of the pyramid and the top.”
The same country where people are struggling to buy a bottle of mustard oil is also the country where iPhone maker Apple posted its best year in India in 2021, shipping a record six million units plus. Which India do you want to look at? And which India should the finance minister’s Budget speech address? If this event is to be at all meaningful in impact, it must address the plight and economic suffering that a majority of India is feeling today.