This Union Budget is a true ideological budget. Some are calling it bold and praising the government for not succumbing to populist tendencies. The praise is unwarranted as this government has never been populist or welfare-oriented. The last full budget of this government is in line with its policies over the years and its effects will be the same. The government has repeatedly bet on making grand announcements devoid of good economic sense that ultimately yield nothing for the people.
The biggest macroeconomic challenges facing us today are sluggish growth, high inflation, high unemployment and an unsustainable debt burden. The Budget, unsurprisingly, has no roadmap for facing any of them.
The Economic Survey confirmed that under the present dispensation, India can forget the days when 7-8% GDP growth was the norm. About 6-6.5% sub-par growth must now be celebrated. Inflation has remained above the RBI’s tolerance level of 6% for almost a year. The numbers do not reveal how bad the situation is for common people. It is so bad that the finance minister omitted the terms ‘inflation’ and ‘price rise’ from the speech altogether.
In December 2022, unemployment touched a 16-month high of 8.3%. 2022 will also be remembered as the year when job riots broke out, first over the cancellation of a railway recruitment exam and second, when the Agnipath scheme was announced. The youth are frustrated and expected some answers in the Budget. Like ‘inflation’, there is no mention of ‘unemployment’ in the speech. ‘Jobs’ are mentioned, but with no concrete promises.
The fiscal deficit has been budgeted at 5.9%. This government has repeatedly breached the 3% limit mandated by the Fiscal Responsibility and Budget Management Act, 2003. Such a high deficit is sensible if expenditure is productive. The interest expenditure is budgeted to increase by nearly 15% at 10.8 lakh crores. The government is incurring a huge debt without any apparent benefit to the economy.
We must then ask: Where does the public’s money go? In huge increases to capital expenditure.
The effective capital expenditure is budgeted at Rs 13.7 lakh crore. The minister is hopeful that this expenditure will “enhance growth potential and job creation, crowd-in private investments, and provide a cushion against global headwinds.” It is now a practice with the government to announce massive capital expenditure as the remedy for the ailing economy. If last year’s 35% increase in capital expenditure led to nothing substantial, why must we hope that this year’s increase will be useful?
Mahesh Vyas of CMIE wrote in November 2022, “India’s capex cycle, we believe, continues to remain elusive. The two most powerful indicators of a revival in the capex cycle are acceleration in the completion of investment projects and in the increase in net fixed assets of non-finance companies. As of the first half of 2022-23, both were underwhelming.” We must also not forget that large capital expenditure is at the cost of welfare. There have been significant cuts in major schemes and no investment in key sectors like healthcare and education.
When the fog of grand announcements settles, we must look at what the budget does for the common people.
The food subsidy has been reduced by Rs 90,000 crore. The Global Hunger Index places India at 107 out of 121 countries. A vast majority does not have access to nutritious food. The PM POSHAN scheme’s outlay has also been reduced. The Budget should have been a sobering moment to address the hunger crisis, yet we see a massive cut.
Reduction in food subsidy will translate to lower procurement, with a direct impact on farmer incomes. The Budget gives farmers enough to worry about. The fertiliser subsidy has been slashed by Rs 50,000 crores. Both urea and nutrient-based subsidies are cut. This year, farmers can expect lower procurement and high input costs. Outlay under the PM Kisan Samman Nidhi has remained the same. Unless food prices increase, farmers can expect real incomes to go down.
The Budget has been consistent in its yearly neglect of the rural economy. The budget for rural development has been reduced and the MGNREGA budget has been cut by one-third. This financial year, over 8 crore people took employment under MGNREGA. This reflects the acute crisis in the rural economy. In the absence of alternate avenues of income, lakhs will be left impoverished after the budget cut.
The Budget ignores prevailing global headwinds. During the Covid pandemic, there were loud proclamations of India emerging as an alternative to China. Since then, our import dependence on China has increased and our manufacturing sector is left without support. The first advance estimates for 2022-23 peg manufacturing growth at 1.6%. The government must have looked within and offered solutions and opportunities to the people and the industry. The income tax rebate, albeit paltry, is welcome. However, it is GST that needs attention, both from the point of consumers and businesses.
This Budget was a moment to shun the usual and adopt welfare policies that could provide some succour to those hurting. However, the finance minister has once again decided to ignore economics and adhere to her government’s ideology of ignoring welfare to enrich the richest. We can make an educated guess on how the economy will respond.
Akash Satyawali is National Coordinator at the research department, All India Congress Committee.