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As we step into the third year of the pandemic in the country, the economy continues to show signs of crisis with poor recovery in employment and consumption demand. A recent survey, the ICE 360, shows that the poorest 20% Indians saw a decline in their incomes by 53% in 2021 compared to an increase of 39% in the incomes of the richest 20% of the population.
Data from the CMIE continues to show high unemployment levels of 9.3% in urban areas and 7.3% in rural areas for December 2021. One can expect that the ongoing third wave of the coronavirus infections and associated restrictions on economic activity in different parts of the country will once again affect employment in crucial sectors such as construction. The pandemic and accompanying lockdowns have only exacerbated the structural issues being faced by the Indian economy.
Slowdown in economic growth, stagnant rural wages and high levels of unemployment have characterised the economy since 2015 onwards, especially following demonetisation and the introduction of the goods and services tax (GST)
The trend of increasing inequality has intensified with the recent world inequality report 2022 stating that India is one of the most unequal countries in the world. The top 10% population’s share in the national income is 57%, while the bottom half gets only 13% of the pre-tax national income.
It is imperative that the government plays a role in boosting consumption demand by spending on employment and social protection schemes as well as focuses on efforts towards redistribution in this situation of rising inequality and declining purchasing power for a large mass of the population. In the context of the global economic slowdown, as a result of the pandemic, there is consensus across the world that the situation calls for expansionary budgets by governments to take economies forward on a path towards recovery. Countries across the world have been spending much larger budgets than they usually do, bearing higher fiscal deficits.
The IMF fiscal monitor data show that on an average in advanced economies, 11.7% of GDP has been allocated towards additional spending and revenue forgone since the beginning of the pandemic in January 2020. While the corresponding figure for emerging economies is much lower at 5.67%. India, which is one of the emerging economies, has spent an even lower amount of 4.09%. It must also be noted that even the regular public spending on sectors such as health, education and social protection is amongst the lowest in India compared to other emerging economies. So, the gaps in access to public services are much higher to begin with.
While increasing government spending on capital expenditure gets some support in the media and policy circles, an area where spending at such a time would be critical not only for its direct benefits but also for its contribution towards reviving the economy, the focus also remains on public services. Universal and free provision of public services for health, education and care can contribute to improvements in human development outcomes in an equitable manner. Such a rise in human capital would make our demographic dividend even more valuable and contribute to future growth and increases in productivity.
Schemes such as the Public Distribution System (PDS) and MGNREGA provide a much-needed cushion, especially in times of distress. Many of these services also are labour intensive in nature, creating a large number of jobs, and are known to have significant multiplier effects. Such spending can therefore also contribute towards reviving the demand in the economy.
Inadequate spending on public services
Spending on public services in India has been woefully inadequate for a long time. Recent years have seen a decline in priority to these sectors in budgetary allocations. The pandemic has made a further dent. Schools, for example, have been closed for most of the time beginning March 2020, and the existing digital divide has meant that many have been excluded from education completely over the last two years. The already under-resourced government schools needed a boost in spending to fill vacancies in staff positions, to provide training and resource support to teachers to handle online education and also towards enhancing digital infrastructure and access so that no child is left out.
However, the Budget 2021 saw a decline in the budgetary allocation for education. Further, up to the end of November 2021 (at completion of two-thirds of the financial year) only 43% of the allocated budget for the department of school education and literacy had been spent.
The Ministry of Women and Child Development, which runs a number of critical schemes directed at women and children, also saw a decline in overall allocations in 2021-22 and further has so far spent on 50% of its budget. The spending of the health ministry is better at 64% but the breakup needs to be seen as this could be largely due to the COVID-19 vaccination.
While this is essential, with the kind of pressure that the healthcare system is continuously facing, one needs much higher investments towards all areas for the strengthening of India’s healthcare system . The budget allocation for schemes such as the National Health Mission has been declining in real terms, and overall public spending on health in India at 1.3% of GDP still remains far behind the goal of government spending of at least 3% of GDP on health. Even the Ministry of Jal Shakti which saw a massive increase in budgetary allocation last year towards providing piped drinking water for all has seen an expenditure of only 34%.
In complete negligence to the cause of inclusion, despite all reports showing that this period of the pandemic has only increased social and economic inequalities, the spending of the Ministry of Social Justice and Empowerment has been only 11% of the budget estimates. [All data are based on expenditures up to November 2021 from the website of the Controller General of Accounts, Ministry of Finance, Government of India]
Through the budget, the government can signal its priorities and also start a process of taking the economy onto a path of more equitable development. The pandemic is an opportunity to correct the longstanding gaps in spending on public services in India. As the budget for this year is presented on February 1, one hopes to see the government responding to the current crisis by presenting a recovery plan in which employment generation and provision of universal public services is central.
Dipa Sinha teaches at School of Liberal Studies, Ambedkar University Delhi