Budget should address inflation, job loss and demand slump
Hyderabad: India’s approach to budget making has several fault lines. Budget making is about optimal resource allocation, and this allocation must be treated both as a fuel and instrument for holistic development. The system must create checks and balances to develop a robust framework and ensure allotment is translated into impact. However, there is a widening impact-allotment gap. India has over 1,000 poorly designed, badly implemented welfare schemes, and majority of them can be easily replaced by a more effective direct benefit transfer, says Dr Vikas Singh, professor of economics, policy and governance at IPE, and founder Crux Management in an interview with Y V Phani Raj. Excerpts-
Fragile economy
Despite green shoots, the downside risks continue, establishing that the major constituents and the growth engines are less than resilient. Our economy is fragile because the 80 per cent of the job creators (MSMEs) are frail. The surge in infection has brought back uncertainties weighing particularly the leisure, travel, and entertainment sectors. They are big employers. The budget may be a good indicator on how the government seeks to address the larger issues resulting from ‘formalisation’ of the economy. India’s job growth lagged, and GDP growth rate is impacted. Automation is accelerating. Distress in the MSME is real; so is the agrarian crisis. These issues are economic and social, with political overtones.
Infrastructure push
The budget must provide for frontloading strategic expenditure in the next few quarters, necessitating higher capital spending. India must focus on infrastructure, particularly ‘unlocking’ stuck projects and implementing delayed projects. It will strengthen the pace of growth. The FM must outline how and what can be ‘monetised’ from the asset monetisation programme.
Missing middle
India is years away from becoming the ‘factory’ of the world. However, it can capitalise on the ‘assemble and hub’ opportunity. This high-productivity, growth booster has the potential to value-add a $1 trillion, create 100 million related & tributary jobs in 10 years. For this to happen, the nation should free the MSMEs from the unfair taxation regime, value depreciating regulatory filings, and energy sapping inspections. Similarly, impose a framework that ensures these MSMEs are paid by the government and its institutions in time. Why should these small businesses have to pay taxes in advance?
Farm crisis
The government’s intent of doubling farmers’ income hinges on value migration. Agriculture cannot be a viable occupation under the present ecosystem. The finance minister must provide resources and create ecosystem to move people from ‘farm to factories’. Infrastructure creation, linking farm to the economic hubs, and investment in rural development kicks in a virtuous growth cycle. All this make agriculture sustainable and has a multiplier effect.
Rural & urban poor
In the prevailing conditions, migrant labour will find it difficult to recover from the financial crisis. A fifth of the micro enterprises have lost their business. One in ten has lost livelihood. Demand creation churns the virtuous growth cycle and should be a priority for the FM. India needs to draft a more inclusive social contract, supported, and funded by public investment. Despite the criticism she may receive, for ‘election’ budget, the country owes it to the deprived section a wide and inclusive ‘care’ economy. The FM needs to resize, reshape, and weave a stronger safety net with education, health, and equal opportunity. It is good economics too. Basic income must get a second look.
Salaried class
The FM should optimise, even trim GST rates, reduce income taxes, especially for the middle class (demand drivers). Encourage more women participation in labour force. She must keep an eye on inflation. History is a witness to most governments voted out in an inflationary regime, even if they have managed growth. A ‘growth’ budget induces consumer hope, builds entrepreneur’s confidence, and incentivises investment. This combination has the potential to trigger a virtuous cycle, promote sustainable growth, and even prosperity.
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