Dhurjati Mukherjee
With the arrival of the New Year, there are obvious challenges considering the not-so-favourable global geo-political situation as well as problems such as concerns over growing protectionism, subdued investment climate, low consumption and a large public debt. Recently, Prime Minister Modi held a high-level meeting with leading economists and experts to formulate the government’s strategy for maintaining the growth momentum. He underscored the need for a fundamental shift in mindset to achieve ‘Viksit Bharat’ (developed India), emphasising structural reforms and inclusive growth as essential pillars of this transformation.
These are often talked about, and the word structural reforms has become more of a jargon while inclusive growth is often heard being said by political leaders, which may not be anything tangible.Several economists do not trust that the present government has been following a strategy of inclusive growth as policies and programmes are by and large tilted towards the upper echelons of society.
It is understood, the meeting decided that specific measures to support sectors such as MSMEs, agriculture and manufacturing were discussed with an emphasis on addressing global challenges and domestic structural issues. However, the Prime Minister Office (PMO) release stated the need for attracting private investment and mobilising public funds for infrastructure projects to boost growth and create jobs and promoting financial inclusion.
Meanwhile, keeping in view Donald Trump’s rhetoric on tariffs, India can benefit so long as it is prepared to play the game by the American President’s terms. This means offering some trade or political concessions in return for favourable policies towards India. In the political front, a sharpening of caste and religious tensions is expected to prevail as both Modi and the Opposition seek to gain at the other’s expense. With Delhi and Bihar Assembly elections due in 2025, the BJP will go all out to woo the voter though the loss in the latter’s neighbouring Jharkhand may have an effect and dethroning the AAP in the national Capital is going to be a tough order.
Most expect the Union budget to follow the same pro-business focus with expansion of physical infrastructure to favour the industry. Stock markets will mirror global trends though there is a possibility of the nifty moving up. However, there is very little possibility of a shift towards the rural sector as also the struggling unorganised working class and this will result in widening the disparity. The upper echelons of society, including a section of the middle class. may continue to prosper while the marginalised and backward sections will have to struggle for a dignified existence.
It is, however, significant to mention that the finance ministry recently told Parliament that the Centre’s thrust is on improving the quality of public spending while strengthening the social security net for the poor and the needy. In the statement on deviation from the Fiscal Responsibility & Budget Management (FRBM) Act targets, the ministry also pointed out that the government remained committed to pursue the path for fiscal consolidation and lower fiscal deficit under 4.5 percent by the next financial year.
If spending is increased, which obviously is a necessity and without higher taxation or a wealth tax of the super-rich, keeping the fiscal deficit below 5 percent may be rather difficult. More allocations are obviously necessary in the rural sector, both for social and physical infrastructure development, exceeding the fiscal deficit may not be much of a problem, which is the opinion of most economists. But the expenditure would have to be productive and help the marginalised and backward sections.
It’s worth mentioning here the Reserve Bank of India’s ‘State of the Economy’ report (published in December) stated that the slowdown in domestic economic activity bottomed out in the second quarter of the current fiscal and has “since recovered aided by strong festive demand and a pick-up in rural activities.” Co-authored by Michael Patra, RBI Deputy Governor, the report urged the need to excoriate inflation and revive investment with bright prospects for private consumption. The report rightly expressed concern about the slowdown in government capital expenditure and suggested that fiscal spending, including on capital expenditure, could be hindered by the slowing rate of nominal GDP.
In this connection, also refer to the latest report of Ernest & Young (EY) which suggested recasting the National Infrastructure Pipeline (NIP) with revised targets for priority sectors such as roads, railways, smart cities, renewable energy and power. Plus, the report believed there is need to achieve a combined capital expenditure allocation of at least 6 percent of GDP annually for infrastructure over the next five years. Finally, it called for major reforms in India’s Fiscal Responsibility and Budget Management (FRBM) Act to align fiscal policy with the country’s ambitious growth goals.
It would be better if the government reoriented its development strategy towards the unorganised sector, the small trader and the small farmer and evolve some way of ensuring a regular incomefor them. Added to this, there is a need for encouraging labour-intensive sectors in a big way and giving incentives to business units, so that employment is created, which is imperative at this stage. Various studies have confirmed that at least one million jobs need to be created per month or at least 12 million per annum.
Amidst this, what comes as a major surprise is that the government is planning to reduce the allocation for the three Employment-Linked Incentive (ELI) scheme by 30 percent for the current financial year, as per data of the Union Labour Ministry to a parliamentary panel. The government plans to spend around Rs 6800 crore in 2024-25 on ELI scheme against the finance ministry’s allocation of Rs 10,000 crore. It is understood that the inability to spend the amount is due to limited availability of time. However, the total budgetary allocation in the next six-and-a-half years would be Rs 1.07 lakh crore.
As a result, the rupee is under great pressure, hitting a record low of over Rs 85 per dollar with global economic uncertainties and domestic macro-economic challenges very much evident. In such a situation, investment must be geared up, specially from the private sector. Moreover, with wages not increasing significantly for a major section of the middle class, not to speak of the low-income groups, compared to inflationary conditions, consumption is down as affordable surplus is not available to these sections. These need to be thoroughly examined before presentation of the Budget and remedial action taken by government planners and economists, close to the powers that be, to redress the critical situation from getting worse. (INFA)
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