A broad-based Budget

Central theme must be low-skilled job creation

Multiple surveys, as well as the evidence provided by the performance of sectors such as two-wheelers, strongly suggest that distress at the lower ends of the income distribution in India is widespread. Each individual piece of evidence — such as the surveys conducted by the Centre for Monitoring Indian Economy or the estimates of rural demand provided by consumer goods companies in the earnings seasons — might not be conclusive in isolation. But taken together, the conclusion is inescapable. Three consecutive years of declining volumes of two-wheeler sales domestically is a particularly startling indicator, demonstrating that an informal and rural economy already weak before the pandemic was further damaged by the effects of successive waves of the virus and associated containment measures.

The question is, as the Union finance ministry finalises the Budget for the forthcoming financial year, what can be done in terms of a policy response. There are many constraints facing the finance minister. Receipts have suffered from an inability to push through the disinvestment programme in a timely fashion, for example. The fiscal deficit is already high and debt has soared to worrying levels. The temptation might be to continue as before, and rely on easy monetary policy to drive up growth. Yet monetary policy’s distributional implications must be of concern to the political decision-makers as well. There are signs of a “K-shaped recovery”, in which certain sectors of the economy and the population are left out of any post-pandemic surge in growth and livelihoods —and loose, accommodative monetary policy might only exacerbate any such phenomenon by pushing up both asset and consumer price inflation.
 

In the end, ensuring that recovery is broad-based, with livelihoods at the bottom of the pyramid receiving particular attention, is the province of fiscal and not monetary policy. Thus, the central theme of this Budget will have to be support for low-skilled job creation. The government’s ongoing infrastructure build-out is undoubtedly an important component of this. Yet the fact that there has been no solid growth in good jobs suggests that the bottleneck is elsewhere. Capital, labour, and land continue to be problems, as does regulatory red tape. The Budget must make a start therefore on jobs-first reform programme — one which privileges the structural constraints that continue to bedevil labour-intensive sectors. In the absence of support for labour-intensive businesses, which can create jobs at scale for a low-skilled workforce, both the extent and quality of economic growth would suffer in the medium term.

The Budget must also recognise that, given the tightness of government finances in the post-pandemic era, the lion’s share of its planned infrastructure build-out will have to be financed from private sources. Domestic private capital is not easily available. Thus, global capital must be tapped. The government in the recent past set up both the National Investment and Infrastructure Fund and the last Budget announced the creation of a development finance institution. The government must ask why the NIIF cannot scale up in size to provide the boost. This would effectively take the pressure off the expenditure budget of the finance ministry and free up some fiscal space for other direct support of those communities and sections most hurt by the pandemic.