Budgets in pre-election years are technically a vote on account. However, they are important politically as most governments use the opportunity to state their achievements and also outline the challenges for future government. While Finance Minister Nirmala Sitharaman has used this opportunity to highlight her government’s achievements, however contested they are, the budget has failed to offer clarity on the spending priorities to deal with these challenges. More so, when the Indian economy is facing severe issues, especially a sagging rural economy leading to subdued demand.
Unlike the previous vote on account budget in 2019 when the then finance minister announced several expenditure schemes including PM-KISAN with retrospective effect, this budget stayed away from making any major announcements. The spending priorities of the government suggest a conservative outlook as far as major social welfare spending is concerned. This has certainly helped the finance ministry to reduce the fiscal deficit. But has it done enough to address some of the glaring issues facing the Indian economy?
Notwithstanding the grand claims of 25 crore persons moving out of poverty and an economy rebounding from the crisis of slowdown and the pandemic, the reality is that the Indian economy is facing its worst crisis of rural distress, decelerating private investment and the challenge of providing decent employment. Although the reality of what happened to poverty after 2011-12 is clouded by a deliberate attempt to hide crucial data on consumption expenditure, the general consensus suggests a deceleration in pace of poverty reduction, if not an increase.
The most important indicator of deepening rural distress is the data on real wages from the labour bureau which suggests that in the last five years, agricultural wages in real terms have grown at only 0.2 per cent per annum (until November 2023), and non-farm wages have declined at 0.9 per cent per year. Compared with the level of real wages in May 2014 when this government took over, non-farm wages have declined at 0.4 per cent per year with agricultural wages rising at a modest 0.5 per cent per year.
Even regular workers, the backbone of the middle class, have seen real wages decline since 2011-12. While real earnings of regular workers in rural areas declined at 0.3 per cent per year between 2011-12 and 2017-18, it declined faster at 1.7 per cent per annum for urban workers. This trend continues after 2017-18. Real wages of regular workers in rural areas declined by 0.5 per cent per year between 2017-18 and 2022-23, whereas it remained the same for urban regular workers.
Perhaps a better indicator of the distress in the rural economy is the reversal of the structural transformation in the workforce after 2017-18. While Sitharaman was quick to take credit for the rise in female employment, a close look at the data would have also shown an increase in self-employment, worsening employment quality and declining earnings for women workers. Similarly, the fact that employment in agriculture has increased at a faster pace after 2017-18, compared to the rate of decline after 2004-05, would have also pointed out the seriousness of the employment challenge. With 42 million workers moving back to agriculture between 2017-18 and 2022-23, the number of workers is higher than the level in 2011-12. With agriculture becoming the refuge for those unable to find employment elsewhere, it has also meant declining cultivation income per worker. Forget about the promise of doubling farmer incomes, the Indian farmer is facing a stagnation in farm incomes.
Withdrawal of essential spending at a time when the rural economy is yet to recover, incomes of the majority of wage earners and the self-employed declining in real terms, and the threat of inflation looming large, is a double whammy for the majority of the population.
Budget estimates for major heads such as agriculture, rural development, nutrition, education and health have either remained stagnant or declined in real terms. But even for existing expenditures, a larger part goes for cash transfers or subsidies with virtually no increase in real investment in the last five years. While agriculture is a good example, the situation is no better in case of rural development, education and health. At a time when the agricultural sector faces multiple challenges of uncertain prices, rising input costs and equally uncertain weather shocks, the need was to raise expenditure on investment in agriculture with focus on insulating the farmers from price as well as weather shocks. Similarly, existing social sector schemes such as NREGA have proven to be a lifeline during the slowdown and pandemic but needed to be boosted to contribute to increasing rural wages.
Despite an increase in government transfers during the last five years, direct as well as indirect, consumption demand has failed to respond with real incomes staying lower than levels in 2018-19. The worry of sluggish consumption growth is obvious even from national accounts. But even in investments and exports, the Indian economy faces challenges. While private investment is yet to pick up and export growth remains uncertain due to global uncertainties, the government fillip to capital expenditure and export promotion is likely to remain crucial for sustaining the growth momentum. On both these fronts, spending priorities appear to be more of long-term promises than actual provisioning in the budget.
These budget estimates are vote on account and are likely to be revised when a full-scale budget is presented by the new government. But, the broader political message appears to be an acceptance of the limitations of public expenditure. The cutback in social-welfare spending, including on agriculture and rural development, is likely to push the rural economy back into distress. These are as crucial in reviving demand in the economy as they are for pushing private sector investment. Similarly, investment in human capital is necessary for the economy to create jobs. Unfortunately, this budget is neither a true reflection of the real state of the economy nor does it provide any idea of the future agenda of governance.
The writer is associate professor, Jawaharlal Nehru University
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This budget is neither a true reflection of the real state of the economy nor does it provide any idea of the future agenda of governance
20
1
03.02.2024
Budgets in pre-election years are technically a vote on account. However, they are important politically as most governments use the opportunity to state their achievements and also outline the challenges for future government. While Finance Minister Nirmala Sitharaman has used this opportunity to highlight her government’s achievements, however contested they are, the budget has failed to offer clarity on the spending priorities to deal with these challenges. More so, when the Indian economy is facing severe issues, especially a sagging rural economy leading to subdued demand.
Unlike the previous vote on account budget in 2019 when the then finance minister announced several expenditure schemes including PM-KISAN with retrospective effect, this budget stayed away from making any major announcements. The spending priorities of the government suggest a conservative outlook as far as major social welfare spending is concerned. This has certainly helped the finance ministry to reduce the fiscal deficit. But has it done enough to address some of the glaring issues facing the Indian economy?
Notwithstanding the grand claims of 25 crore persons moving out of poverty and an economy rebounding from the crisis of slowdown and the pandemic, the reality is that the Indian economy is facing its worst crisis of rural distress, decelerating private investment and the challenge of providing decent employment. Although the reality of what happened to poverty after 2011-12 is clouded by a deliberate attempt to hide crucial data on consumption expenditure, the general consensus suggests a deceleration in pace of poverty reduction, if not an increase.
The most important indicator of deepening rural distress is the data on real........
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