India’s budget expectations highlight the urgent need to address rising unemployment & stagnant manufacturing growth amid declining consumer demand
Prof. Satya Narayan Misra
The budget is like an elephant, every blind man looks at, from his perspective and interest. Rarely does one get a holistic or realistic picture. Two concerns seem to dominate; dipping consumer demand and slowing GDP growth. They all gravitate around the central concern, how to find employment opportunities for about 10 million fresh hands searching for jobs.
A political promise unredeemed. The sector which should predominantly contribute to additional employment remains mired in stagnation. The share of manufacturing was around 14.27%; a far cry from the 25% target pitched by NIMZ Policy in 2011, to be achieved by now. The policy also expected employment generation from the manufacturing sector to be around 10 million. The unemployed youth are Waiting for Godot, la Ache Din.
Ground Situation
The FM in the last budget had thumbnailed employment generation to be the central gravamen of her policy, by unleashing schemes like the Employment Linked Incentive Scheme (ELI), as an anodyne for this impasse. Revamping the IITs was a thrust area to bolster the quality of skilling and employability.
One of the recurrent themes of Nirmala’s budget is to hype up expenditure allocation in different programs, without indicating in subsequent budgets how they have translated into action. To buttress this gripe; the upgradation of 1000 ITI has not taken off. Not a single penny has been spent out of the kitty for ELI, to create more job opportunities in the private sector. Unemployment remains our Achilles heel.
As per the CMIE’s latest report, unemployment has increased from 7.5% in 2022 to 7.8%. The India Unemployment Report (2024) is most distressing as it brings out how the average monthly wage of casuals who constitute 25% of the labor force is a measly Rs. 4712. For those who are in regular pay (33%), the average salary is Rs. 10925. The self-employed who constitute 42% get an average wage of Rs. 6843 per month. No wonder the demand for goods and services is at low ebbs, as the employments are abysmally low paying.
Here are a few suggestions. One of the most potent ways to boost consumption is to cut down on the tax rate of the middle class and upper middle section, as the rich have a low marginal propensity to consume. The revenue loss of 0.2% in GDP would be more than compensated by the revenue collection buoyancy. India has a low Tax/GDP ratio of around 12% which is much less than the collection in China (20.1%), the USA (25.2%), and OECD countries. India has a dubious record of tax evasion.
Employment Generation
Mr Arun Jaitley in his budget speech, post demonetization, had brought out the irony, of how only 1.72 lakh tax returns were received from those earning above 50 lakh, while about 148 lakh had deposited more than 80 lahks during the demonetization drive. An increase in the number of days from 100 to 150 days, and increasing the minimum wage in the MGNREGA program can generate huge additional consumption.
The PLI scheme, introduced in 14 sectors, has witnessed a significant increase in the export of mobile phones from about $7 billion to $12 billion. But as a study by Raghu Rajan has shown, the value addition in manufacturing mobiles is far lower than the subsidy given and reduction in tariffs on components. The key to the scheme is the value addition. The government needs to create more industrial clusters which have a high potential for export and employment generation.
Sectors that need to be encouraged are electronics, pharmaceuticals, auto parts, textiles, and footwear. Presently 40% of factory employment is in three states, Tamil Nadu, Gujarat & Maharashtra. They have to be developed in other regions and suitably incentivized in the budget. While MSMEs are being provided financial incentives through collateral-free loans, the micro-enterprises which constitute 87% of MSMEs are hugely handicapped in terms of access to capital from formal sources and technology. The % of workers who are formally skilled is 7% as against 24% in China and a much higher number in developed countries. Skilling has to give a real big push if India wants to become a global manufacturing hub.
It is universally recognized that human capability development through access to quality education, health care, and nutrition, provided by the government is critically needed for better employability and inclusive growth. Sadly, sectors like Health, School Education, and Rural Development which received 2.355, 2.09%, and 5.74% in 2019 received last year’s much-reduced allocation at 1.85%, 1.5%, and 5.5% respectively.
Distributive Justice
The MGNREGA program received 2.7% in 2017 & an allocation of 1.78% last year. The PM Poshan program, the flagship program to contain malnutrition among children and anemia among women, the allocation has come down from 0.41% to 0.26% in 2024-25. This is reflected in the report published by the Niti Aayog which shows that 31.5% are deficient in nutrition, 34.7% of children are stunted, and 50.4% of women suffer from anemia.
Also, India’s deprivation in terms of sanitation is as high as 30.1% and 43.9% of women do not have access to cooking fuel. While the governmental initiatives have made a definite dent in improving infrastructure like roads, railways, drinking water, and electricity, the tendency to cut down on social sector allocation must be eschewed. Instead, as Prof Musgrave rightly brings out allocational priority to the merit good sector must be the government’s primary remit.
The government must continue its thrust on infra spend and could increase the share of infra from 6.7% of the GDP to 7% in the upcoming budget. It has also done well in continuing with its fiscal discipline, of bringing down the FD to the FRBM target of 3%. But the FM should refrain from a debt-fuelled budget to fund the development and social sectors.
It must have a strategy of fuelling its tax collection, by coming down heavily on tax evasion and even considering a small hike in the tax rate of the super-rich as strongly advocated by Thomas Piketty. Distributive justice should walk hand in hand with allocation priority to economic and social infrastructure. Growth and human capability development are like two wheels of a country’s economic
(The writer is a Professor, Emeritus, KiiT University, Bhubaneswar. Views expressed are personal.)
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