Dr Krishna Raj
The Economic Survey 2023-24, presented on Monday before the Union Budget 2024-25 presented on Tuesday, has a distinct outlook in terms of reality and expectations.
For the first time in the last 10 years, the Government of India showed the courage to accept the economic reality of India: an awful level of income and wealth inequality, youth unemployment, persistent inflation, and enormous climate risks that threaten India’s growth potential.
The finance minister tried to reform the direct tax regime timidly without considering the cost of living and inflation, addressing the widening income inequality by slightly tweaking the income tax structure while trying not to lose revenue.
However, this new tax regime continues to be opted out of by most salaried individuals with incomes above 10 lakhs due to the non-availability of tax rebates under 80C. The Indian economy is fundamentally driven by an endogenous growth model where savings facilitate investment and capital formation.
However, compelling direct taxpayers to save and invest in capital markets may not work, as most of the salaried class is averse to the risks of the stock market.
The government should have considered reintroducing the wealth tax in the form of a green wealth tax on wealthy corporations and the affluent, who are “swimming in excess profit” and producing more “ecological footprints.”
This approach could achieve three goals simultaneously: reducing income inequality, garnering revenue for the exchequer, and addressing climate change by reducing the ecological footprints of the rich.
The budget also highlights the growing unemployment among young people, despite India’s demographic advantage of a large working population. It attempts to address the education, skill development, and employment gap by training 20 lakh young people.
However, many of the youths who received skill enhancement training failed to secure jobs within six months. Therefore, the government should have introduced policies to grant potential employment-generating industries to provide apprenticeship-cum-employment opportunities.
Political considerations also influenced this year’s union budget, with Bihar and Andhra Pradesh receiving significant financial support, whereas Karnataka received limited support for building Bangalore’s infrastructure and irrigation projects, despite the state being the second highest in GST collection.
However, credit guarantee and support schemes for MSMEs, enhancement of Mudra Loans to Rs 20 lakh for young entrepreneurs, development of 12 industrial parks under the National Industrial Corridor Development Programme, and construction of houses for 1 crore urban poor will create more jobs.
The government should have given the highest priority to social sector expenditures such as education, health, and environmental protection.
The budget attempts to address macroeconomic issues through supply-side management but pays little attention to demand-side management, which is crucial for addressing poverty, unemployment, inflation, income inequality, poor infrastructure, low private investment, and capital formation.
Dr Krishna Raj is a Professor at the Institute for Social and Economic Change (ISEC), Bengaluru.
The article was first published in NewsTrail as Budget reflects gap between promises & reality on 24 July, 2024.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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Acknowledgment: This article was posted by Aashnaa Mehta, a research intern at IMPRI.
