Sandeep Chachra and Tikender Panwar
On part of the government, such an effort would need substantial capital expenditures to create multiplier effects, instigate private sector energies and promote the generation of jobs on the ground
Workers had been battling a pre-COVID economic slowdown, then they were battered by two waves of COVID-19, and are still struggling with a plateauing third wave. Facing a rapidly climbing joblessness, the expectation from this budget was that it would address the biggest issues ailing our working people – creating employment and putting resources in the hands of people for expanding their abilities beyond minimal survival needs.
While this is an uphill task and can scarcely be accomplished within a year, an emphatic budget push directed towards creating large-scale employment, enhancing social protection, and regenerating rural and urban demand, was expected.
On part of the government, such an effort would need substantial capital expenditures to create multiplier effects, instigate private sector energies and promote the generation of jobs on the ground. This, while ensuring that such allocations are not devoted for imports, but rather for the creation of public assets with small gestation periods, in order to reduce time lags for multiplier effects to unravel quickly.
The Finance Minister’s announcement of an “infra” boost with a 35.4% increase in capital expenditure for a “speedy and sustained economic revival and consolidation through its multiplier effect” in 2022 is a proposal in this direction. This is a welcome step, provided it significantly makes provisions for creating more employment and enhancing demand in the economy.
A critical review of the budget, however, shows that stepping up capital expenditures when compared with 2021-22 figures merely constitutes an increase of 0.3 percentage points on GDP, over last year’s revised estimates.
Also, while the proposed increase in capital expenditure is dominated by defense, railways, roads, and loans to states (and would therefore create jobs to an extent), a part of the proposed CAPEX seem to be towards cleaning up off-balance-sheet borrowings and may not be fresh spending. For example, even in 2021-22 the revised estimates of capital expenditure of Rs 6.03 lakh crore included Rs 51.9 thousand crores of infusion or loans used to settle past guaranteed and sundry liabilities for the privatization of Air India.
In any case, as past years demonstrate, there will be capacity challenges in spending, front-ending and ramping up spending. These will hamper the quick creation of employment.
At a time when demand is low, and private consumption, an indicator of well-being depressed, in persisting with its supply-side push, the budget places too much dependence on the trickle-down impact of capital investment on employment and incomes for those already at margins.
For example, the promised increase of six million jobs to be created over five years, by this additional investment amounts to wages for less than 3,400 workers per day for specific periods of time. In a context where job losses and joblessness are endemic and real wages stagnant, this would be too small a relief or hope.
An estimated 200 million jobs went missing by the year 2022. According to the World Bank modeled ILO estimate, the employment rate during the pandemic was 43 percent in India compared to the global average of 58 percent and India’s employment scenario was worse than that of China, Pakistan and Bangladesh.
The only Middle East and North Africa recorded an employment rate lower than that of India. The urban sector has been seeing growing informalisation making employment even more anti-worker. High levels of pre-pandemic unemployment in towns and cities saw a meteoritic rise post-March 2020, and jobs do not seem to have come back even two years later. The agrarian crisis has haunted our countryside for a long, forcing people to migrate to cities to look for work; the initiative called “Rurban” is almost a non-starter.
Given the manifold hardships that majorities are facing, along with supply-side measures urgent demand-side impetus was needed at this time. The route of substantial infusions for direct employment creation and income support should have been taken.
This would imply a direct stimulus with a mix of strategies such as direct employment generation programmes in urban and rural spheres, social assistance through wage compensation, income support and social protection schemes. It would need cash in the hands of people, enhanced food subsidy to shore up falling private consumption and so on. Private consumption in 2021 stood at pre-covid 2017 levels when the economy was already in a slowdown mode, and unemployment rising.
Instead of choosing to expand revenues and spending by introducing bold and much needed redistributive measures such as wealth tax, super taxes for the super-rich as the circumstances warranted, the budget of 2022 has chosen a footpath of fiscal prudence.
The tried and tested path of MGNREGA does not see any widening. Disregarding loud calls for enhancing the MGNREGA guarantee from the existing 100 to 200 workdays per year and extending the employment guarantee scheme to urban areas, the current Union Budget shows a reduction in financial outlays in this program.
The 2022 Budget has allocated Rs 73,000 crores to MGNREGA, which is a decrease over both 2021-22 revised estimates of Rs 98,000 crores, and 2020-21 actual expenditures of Rs 1,17,000 crores.
Food subsidies are slashed by over 27% in the budget estimates from the revised estimates of 2021-22 on a hasty premise that additional food grains provided in 2021 may not be needed anymore despite well-established facts that over the years the food basket of poor and informal workers has eroded, and the multiplier effect of the pandemic has played havoc with their health, education and food security needs.
Fertiliser subsidies are also reduced by a factor of 25 percent, despite the fact that last year the government had to step in to provide extra resources to meet farmers pressing needs of ensuring incomes. In any case, cutting fertilizer subsidies cannot serve as a stick to ensure a shift to organic agriculture.
Shift to organic agriculture does not happen in one or two cropping cycles and needs transition time for regenerating over-exploited soils and ecosystems. What is needed instead is encouragement through research, extension, and incentive measures such as ecological valuation incentives for climate-resilient sustainable agriculture.
Indian agriculture has long needed higher policy attention and levels of investment. During the lockdown-caused reverse migration, this already stressed sector proved a saviour for not just the economy, but also majorities of population. While the budget idea of promoting organic agriculture is a step in the right direction, even though limited in the first phase to the Ganga corridor, increased budget allocations have been found wanting in agriculture in general and promotion of sustainable agriculture, in particular.
Beyond the needed steps on reduction of taxes on cooperatives, and incentives for start-ups, substantive allocations to rural regeneration have been long needed. We are nowhere near doubling farmer incomes, and while we continue to face the burden of COVID-19, Indian agriculture cries for support.
There is no doubt that a full resolution of the agrarian crisis requires systemic change including land reforms to address inequities, and falls beyond the purview the Union Budget, expected steps such as an income assurance for the tillers of our land and a cover of decent social security could have been taken. But these were not. On the contrary, outlays for guaranteeing minimum support prices for all crops have been also reduced from Rs 2.42 lakh crores in the 2021 Union Budget, to 2.37 lakh crores this year.
A more direct path would also mean spurring the engines of solidarity economy – promotion of collective enterprises and initiatives through co-operatives, producer companies, especially women enterprises, substantial fiscal stimulus to employment-intensive MSME sector, in addition to the proposed expansion and extension of credit lines. These steps could have gone a long way in creating sustained livelihoods and employment.
In attempting to keep fiscal deficit in control and not expand expenditures substantially, the proposed increase in capital expense comes at the cost of spending on welfare measures. In keeping the fiscal deficit at 6.9 percent of Gross Domestic Product with an eye to satisfy rating agencies, the budget of 2022 has made a choice of the path ahead, where addressing precarity and well-being of working people of our country may fall by the wayside.
This article was first published in the Mid-Day as Union Budget and Employment: Belying Hopes and Expectations on 8th February 2022
Read another piece by Sandeep Chachra titled National Employment Policy Should Focus on a Balance Between Reforms in Agricultural Sector and Enshrining of Right to Work in IMPRI Insights
Read more by Tikender Singh Panwar on Democratic Governments titled Need for Democratic and Empowered City Governments in IMPRI Insights
Read more by Tikender Singh Panwar on Budget 2022 titled Budget 2022 – 23: Is an Urban Course Correction Possible?
About the Authors
Sandeep Chachra, Executive Director, ActionAid India
Tikender Singh Panwar is a former deputy mayor of Shimla, adviser Samrudh Bharat and visiting senior fellow with IMPRI