How Modi 3.0’s First Budget is Trying to Address the Election Setback

The government's first initiative is an attempt to get the private sector to hire more people for formal jobs.

Union Finance Minister Nirmala Sitharaman with a red pouch carrying the Budget documents outside the Finance Ministry in North Block before leaving for the Parliament where she will table the Union Budget 2024-25, in New Delhi, Tuesday, July 23, 2024.

(Photo: PTI)

Modi 3.0’s first budget addressed two concerns of the electorate that caused the BJP to fall short of a majority and end up leading a coalition government headed by Narendra Modi.

Although the retail inflation (based on the consumer price index) on average has been hovering between five percent and six percent since the beginning of Modi 2.0, food inflation, which constitutes 50 percent of the CPI inflation, has been relatively much higher. Although retail inflation affects the broad-based middle and low-income groups, which constitute about 80 percent of the income pyramid, the significant rise in prices of vegetables, cooking oil, pulses, or other essential food commodities that are in use on a daily basis, did not go well with the electorate, especially given the setback in income for two years during COVID.

The 2024–2025 budget now tries to dampen the food inflation that has been significantly more than the CPI retail inflation for the last three years.

Due to a shortage of one or more of the major agricultural commodities caused by seasonal shortages, which can be attributed to climate-related problems, natural cycles of higher and lower yields, or spatially uneven agricultural production, food inflation remained high for the majority of the year. In an effort to control inflation, the government banned exports whenever prices surged. This was unpopular with farmers, who had a chance to export at higher prices and earn more money. Even while a ban on exports of this kind lowered prices, its effect was quite moderate.

The solution lies in increasing productivity across various production clusters so that transportation and logistical costs remain low. The Budget wanted to take a comprehensive review of the agriculture research setup to improve productivity and climate-resilient crops. Although substantial progress has been continuously made in producing seed varieties and increasing productivity with modern agriculture practices, a coherent and cogent approach, thereby bringing synergy across various institutions, would bring transformative solutions.

Although the government's efforts to increase the crop area of oil seeds and pulses have partially succeeded over the last ten years, the shortfall is substantial, requiring major imports. Unless the government increases the Minimum Support Price (MSP) of pulses and oil seeds substantially over grains in the coming years to bring more cultivable area under them, it is not possible for the government to rein in the prices of these commodities.

Then there are agricultural commodities, especially vegetables that have been cultivated in one region predominantly as in the case of onions in Maharashtra's Nashik, Ahmednagar, Pune, Solapur, and Aurangabad, that are consumed all across the nation, and climate impact in these districts would have a telling effect on prices. Moreover, the transportation and logistical costs would add up to the prices substantially.

The decision to create large-scale vegetable clusters closer to the consumption centres would go a long way in reducing the cost of vegetables to the end consumers. Extending the Digital Public Infrastructure (DPI) to agriculture that would cover the farmers and their lands would also help in this cause.

According to recent statements made by the prime minister, the administration has created eight crore jobs in the previous three to four years. The significant rise in EPFO enrolment supported his claim that, as a result of significant investments in public infrastructure over the past ten years, more employment has been created in the unofficial sector, where workers are paid on a "remuneration for deliverable" basis rather than a monthly pay.

The youth, however, are not happy since they prioritise government employment above everything else, regardless of the grade of employment. The second choice is to work for an organisation in an official capacity with an appointment letter, regular pay, and benefits like paid time off and gratuity. It would not be fiscally feasible for the federal government or state governments to implement such policies, nor could the DPI offer significantly better services to the populace than ordinary personnel. Neither the central government nor the state governments need to employ such a big workforce.

So, creating formal work in the private sector is the answer. The government endeavoured to integrate the informal economy into the formal economy with the GST, and is encouraging the private sector to create more formal jobs with the three Employment Linked Incentive schemes.

The government's first initiative, which provides Rs 15,000 in three instalments to those starting formal work in the private sector, is an attempt to get the private sector to hire more people for formal jobs. It is unclear how the private sector will react to this plan, despite the Budget's assumption that it will generate 210 lakh employment for people entering the workforce for the first time.

The private sector should be encouraged to use their current capacity to manufacture more and create additional manufacturing capacity with the second scheme, which offers 30 lakh youth entering the manufacturing industry an EPFO contribution for the first four years of employment from both employers and employees. A large portion of low-skill manufacturing work has been done by contract workers.

This program needs to, at the very least, offer formal employment for a workforce with some degree of competence. In the upcoming years, the government may decide to expand the recipients based on how well this program works.

The third scheme of subsidising the EPFO contribution of employers up to Rs 3000 per month for up to two years to those who are newly added to the workforce within the monthly salary of Rs one lakh would enable well-equipped youth to get high-quality jobs.

A multifaceted strategy is needed to increase employment chances because the process can be hindered by a mismatch between what the private sector demands and what candidates can offer. The private sector would be able to find suitable employees from the women's skill development program, the women's hostel program, the up-skilling of ITI students, the Model Skill Loan Scheme, and education loans up to Rs 10 lakh at a subsidised interest rate for 1 lakh students who have not benefited from any scheme or policies.