Union Budget 2023: Besides Growth, Can the Govt Focus On More Jobs for the Poor?

In one of its longest phases of ‘jobless growth’, India's design long remained ‘urban-service’ sector-biased.

Union Finance Minister Nirmala Sitharaman. 

(Photo: Chetan Bhakuni / The Quint)

What is the current state of the Indian economy? And if we can get a sense of that for the upcoming Union Budget 2023, what is likely the response of the government in prioritising its fiscal roadmap for this financial year?

One may want to answer both these questions in the political economy context of this year (FY23) being observed as the final full Budget year before the 2024 (partial) Budget is presented in the Lok Sabha election cycle (next year).

Thereby, it might seem less realistic to put much faith in what the government does now and see what it might do a few months before the elections in 2024. The recent step to extend the ‘free ration’ scheme for the poor, is already a key electoral move made (as argued here).

How Would the Post-Pandemic Budget Look?

Nevertheless, Union budgets (like any other budgets) are vital as directional/signaling instruments to observe or interpret and study a government’s macro-fiscal condition and its spending outlay focal priority for a given year.

The last few budgets were in principle ‘pandemic budgets’, all set in extraordinary polycrisis situations. The government needed to spend more on immediate expenditure needs like healthcare (to enable Covid-infrastructure, buy vaccines, etc), and increase Capex to take care of growth (seeing most of the private sector was investing or spending less during a pandemic phase).

The nation was not just battling a deep economic contraction in its growth trajectory but also facing chronic issues stemming from high unemployment, a decimation of its unorganised informal sector, a poor performance in the macro-social security landscape (with all schemes focusing on women, children and the malnourished seeing dwindling outlays).

Even MGNREGA, a job-focused social security plan for rural populations, saw decreased outlays in relative comparison to previous budgets. Unfortunately, to what the finance minister offered, most of these issues were blatantly ignored in the government’s fiscal roadmap.

On Growth and Government’s Focus so Far…

Let’s see the annual GDP growth rate and (consumer price index) inflation numbers below:

India GDP Annual Growth Rate, India Consumer Price Index

Image: Chetan Bhakuni/The Quint

Post-2020, Indian growth rate performance collapsed (it was already low or sub-optimal before the pandemic). Though looking at the second quarter of FY23, we did return to pre-pandemic recovery levels, but traces of that have largely been driven by an overall increase in consumption expenditure (mostly by the higher income classes), fuelled by inflation (or, an exponential rise in consumer prices).

At the same time, on other macro-constitutive elements of growth, India’s overall exports and manufacturing growth continue to remain weak; domestic private investment growth hasn’t really picked up (and been stagnant for a decade now), and the hope for increased Foreign Direct Investment(FDI) looks meek given most advanced nations are heading towards a recessionary phase in their own growth trajectories.

This is worrying, given the overall economic situation here puts tremendous pressure on the union government to keep ‘spending more' both: for meeting the gap in capital expenditure (Capex) needs— given the private investment situation isn’t brightening up; and, for the government to spend more on social security scheme, job creation efforts, and other major developmental overheads is glaring (due to increasing inequality and poverty levels).

So far, Nirmala Sitharaman’s budget outlook has remained consistently focused on the former focal objective ie, on increasing government Capex to drive growth. But if the government claims it wants to spend (via increased capex) to drive growth, the results of that aren’t here to see.

As Dr Rathin Roy recently suggested, “If Central government Capex is just a substitute for other public sector Capex, it will have little impact. Some recent analysis suggests the overall capex of the Central (Union) government, states, and public sector put together has gone down this fiscal year. If that is correct, the increase in Central capital expenditure is just substituting the decline in Capex by states and the public sector.”

This is not good news.

What it would mean is that the government which claims to do more on driving ‘growth’, almost at the cost of financing key developmental schemes (for nutrition, child support, MGNREGA, etc) hasn’t clearly been successful in what it was working on.

The private sector too hasn’t followed much on the rope laid out by the government through Production-Linked Incentive(PLI) schemes, corporate tax cuts, massive infrastructural pipelined government spending, etc. (the mixed success of PLI scheme suggests that). Read all of this as: A Classical Case of Government Failure or State Capacity Failure.

My own concern here takes this concern a step further.

Govt Aims To Invest in Growth. But Where’s the Money?

The Union government’s own tax revenue and non-tax revenue situation has been pretty bad for some years now.

While it wants to increase spending on Capex, more than 65% of budgetary requirements are on the revenue expenditure side (due to the high-interest payment costs and government wages/salaries, social welfare needs). This government has compromised on that while projecting the need to ‘spend on growth’. Now, it has less money to even do that.

On other revenue sources, the Modi government across terms, has consistently failed to meet its own set disinvestment targets year after year.

When we see the released budget numbers for 2022-23 more closely, my sense is that we will again see the government not meeting the targets it envisaged in 2022 budget (much like what was seen in 2021 and 2020). That is likely to accentuate the fiscal deficit problem, which has already been a serious concern.

So, assuming the government still wants to spend on Capex for growth, it will either have to borrow internally or externally, to finance its deficit expenditure needs. It may borrow more for capex needs, or for revenue expenditure needs (which is where most government spending already goes).

Borrowing more to meet either of the needs, is likely to worsen the already high inflation problem given the increased supply of money will push prices higher and relatively make the rupee too worse off (it’s already been a very bad year for the Indian currency). So, a higher priced consumption-inflation fuelled cycle will oppress (and financially punish) the poor more, at a time when their needs (through scheme-based transfers) have been compromised.

On Strategies the Govt Must Adopt

But if the government may go ahead at least this year, with a plan to spend more (either on Capex or, on revenue expenditure needs) is uncertain.

An unsolicited two cents on what the Union government may actually do this budget is: It will play safe, prioritise fiscal consolidation for this year, try to create more ways for generating revenue (as it seems to be running out of money), keep borrowings as minimal as possible (for keeping both, the deficit-debt and the inflation-exchange rate situation stable), and keep overall Capex-based spending at par, thus, pushing the domestic private sector to do more on investment and driving consumption demand (which it hasn’t done much).

Is that the right thing to do? Maybe, but one must ask the Union executive a question: Why was all that money over the last few budgets spent on Capex, private investment boosting needs, when the results on efforts at growth weren’t seen?

During a pandemic-induced crisis, there was room to maybe encourage a job-focused social security plan (an urban-designed MGNREGA) or provide higher outlays for rural MGNREGA where the rural job demand has outweighed, by a large margin, the existing scale of spending (both in terms of job creation and payment of wages). This could have complemented Capex spending but didn't.

Schemes like MGNREGA and other job-focused social welfare plans have been critical because of concurrent ‘market’ and ‘government’ failures. India has witnessed one of the longest phases of ‘jobless growth’. India’s growth design has remained ‘urban-service’ sector-biased for too long, working at the cost of the informal sector and a poorly performing manufacturing and agricultural space.

Schemes like these are perhaps, the only mechanisms by which the unemployed (especially in rural and semi urban areas) can find some resourceful avenue to make their ends meet while adding to some degree of labour productivity (it may be suboptimal to say the least but something is better than nothing when it comes to those who are unemployed vs. those partially employed).

But, through supply-side economics, if this is the path the government takes (which I have outlined above), we might see another bad year for overall social sector expenditure for the vulnerable and the poor: with less outlays for women-child-nutrition-based schemes, and even lesser outlays for MGNREGA and other job-focused social welfare plans.

The poor maybe expected to make their living out of the ‘free ration’ promised while the ultra-rich class of the corporate class rake in profits from hyper-optimistic stock market illusions, and through continued government support.

(The author is Associate Professor of Economics, OP Jindal Global University. He is currently Visiting Professor, Department of Economics, Carleton University. He tweets @Deepanshu_1810. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)