Annual Budgets are generally meant to present the blueprint of all activities the government plans to undertake in a fiscal, but the Union Budget for 2021-22 was being looked at as a once-in-a-lifetime opportunity that would serve as a roadmap for both the short-term and medium-term. One expected this Budget to to serve as a roadmap for our economy for the next 3-5 years, especially after the engines of the economy were shut for most part of last year. Unfortunately, this turned out to be another annual exercise, one that fails to check the most important boxes.
Let’s start with the second view first. According to the Economic Survey, both industrial and household investments were down. Also, wholesale credit growth has been falling for most part of last year, with customers preferring deposits over investments, and unemployment in both the organised and unorganised sectors at perhaps the highest level in the last few decades.
CMIE data show that more than one crore manufacturing jobs were lost in the third quarter of FY 2020-21 alone. One commendable aspect of the Budget is its focus on capital spending, with an increase in allocation from ₹4.35-lakh crore last year to ₹5.54-lakh crore in FY2021-22. This was much needed and was being called for from all quarters. But the Budget doesn’t offer a lot of headroom for the private sector to invest more and create more jobs.
Consumer demand steers the investments by the private sector and the economy and in India, private consumption expenditure contributes more than 60 per cent to the India’s GDP and the major point of contention is that the Budget hasn’t offered any allocation to provide consumers any direct cash relief. Demand will continue to struggle if there is no direct cash transfer to the consumers. The government could have learnt from countries such as the US and the UK which pushed money into the hands of the people through unemployment benefits schemes and pay-cheques that helped revive demand. The Finance Minister could have come up with either an unemployment benefit scheme or supported the bottom quartile through hard cash.
Banking, an important cog in the economy’s wheel, has been in dire need of capital infusion. The RBI’s Financial Stability Report had pointed out that some of the public sector banks may fail to meet the minimum capital requirement by September 2021 if fresh capital is not infused. With the NPAs of PSBs rising, ₹20,000 crore is the lowest level of capital infused in the last seven years. .Another aspect was the need for a sectoral approach to drive employment generation. The MSME sector, which is a huge employment provider, has unfortunately been offered peanuts. India being home to more than 6.5 crore MSMEs has been allocated a mere ₹15,700 crore, implying just ₹2,415 per MSME.
At a time when MSMEs, especially ones in the unorganised sector, have taken huge hit due to Covid, the Budget has disappointed not only the crores of MSMEs but also the youngsters who could got employment had there been strong direct support.
Rural employment should have been tackled separately. Absorbing rural folks who have been relieved of their agricultural jobs only had the support of MGNREGS to fall back on. Also, as MGNREGS was the only hope even for the government during the tough Covid times, an increase far larger than ₹10,000 crore was expected.
One thing that was quite obvious is that government is struggling to be creative in resource generation. A high fiscal deficit of 9 per cent isn’t helping its cause. Overall, the government would have to pull up its socks to beef up its resource generation and spending promises.
The writer is Congress Spokesperson and a former Professor of Finance, XLRI