THE CONTEXT: Despite the government’s signals and the Economic Survey 2023-24 highlighting the need for industrial growth and job creation, the Budget’s provisions appear to fall short in addressing core economic challenges such as rural distress, unemployment, and inflation. Furthermore, the Budget’s offerings to key political allies, the Telugu Desam Party (TDP) and the Janata Dal (United) [JD(U)], have also been met with disappointment due to inadequate financial support.
THE ISSUES:
- Employment Initiatives and Subsidies: The Budget’s employment initiatives are designed to address the unemployment crisis through various incentive schemes. However, the effectiveness and sustainability of these measures are debatable.
- Scheme A: Offers one month’s salary support (up to ₹15,000) in three installments to first-time employees earning up to ₹1 lakh per month. This scheme is expected to benefit approximately one crore employees annually for two years.
- Scheme B: This scheme targets job creation in the manufacturing sector by providing wage subsidies to employers who hire at least 50 new employees or 25% of their baseline workforce. The subsidy will be 24% of the salary for the first two years and 16% for the next two years.
- Scheme C: Supports employers by reimbursing EPFO contributions up to ₹ {3,000 per month for two years if they increase employment by at least two employees from the baseline.
Despite these incentives, the share of youth under 25 in formal employment has declined from 68.9% in 2018-19 to 50.2% in 2023-24. Moreover, the Economic Survey highlights that India needs to generate nearly 78.5 lakh non-farm jobs annually until 2030 to cater to the rising workforce, indicating a significant challenge ahead.
- Agricultural Sector Concerns: The Budget’s approach to agriculture focuses on long-term productivity rather than addressing immediate economic viability issues farmers face. Farmers have been demanding procurement at a legally guaranteed minimum support price to make crop production economically viable. The proportion of the workforce engaged in agriculture increased from 44% in 2017-18 to almost 46% in 2022-23, highlighting the sector’s critical role in employment.
- Support for Key Political Allies: The Budget’s promises to key political allies lack significant financial backing, relying instead on borrowing, which could increase the debt burden on states. The JD(U) in Bihar has promised infrastructure development in transport, power, education, sports, and religious tourism. However, these promises are not backed by substantial financial support from the Centre. The TDP in Andhra Pradesh has been offered support to build a new capital at Amravati. Still, this support is expected to be financed through borrowing from multilateral development banks facilitated by the Centre.
- Welfare Schemes: The Budget has not increased allocations for key welfare schemes, indicating a lack of focus on social welfare.
- The National Social Assistance Programme, which covers pensions and disability benefits, has been allocated ₹9,652 crore, the same as the previous year.
- The National Rural Employment Guarantee Programme also has the same allocation as the revised estimate for 2023-24.
- The food subsidy is set to decrease from ₹2,12,332 crore to ₹2,05,250 crore despite the extension of the free foodgrain allocation under the National Food Security Act.
- Only the Pradhan Mantri Awas Yojana (PMAY) saw an increase in allocation.
- Fiscal Consolidation and Capital Expenditure: The Budget emphasizes fiscal consolidation while increasing capital expenditure, but the reliance on dividends and surpluses from public financial institutions raises concerns about sustainability. The fiscal deficit is expected to reduce from 4.9% of GDP in 2023-24 to 4.5% in 2025-26. Capital expenditure is set to rise from ₹9,48,506 crore in 2023-24 to ₹11,11,111 crore in 2024-25. Dividends and surpluses from the Reserve Bank of India and public financial institutions are projected to increase from ₹1,04,407 crore in 2023-24 to ₹2,32,874 crore in 2024-25.
- Economic Strategy and Business Incentives: The Budget prioritizes easing the regulatory burden on businesses and encouraging private sector investment, but this may not address the root causes of unemployment. The underlying perception is that companies find the available labor force either too expensive or lacking necessary skills, which the Budget attempts to address through skill development programs and wage subsidies.
THE WAY FORWARD:
- Enhanced Agricultural Support: According to the National Sample Survey Office (NSSO), 70% of Indian farmers spend more than they earn, leading to high levels of indebtedness and distress. A guaranteed MSP can stabilize farm incomes and reduce distress. The MSP system in states like Punjab and Haryana has been instrumental in ensuring farmers’ stable incomes.
- Comprehensive Employment Programs: According to the Centre for Monitoring the Indian Economy (CMIE), urban unemployment in India reached 10.1% in 2023. The International Labour Organization (ILO) has documented the success of public works programs in reducing unemployment and improving infrastructure in countries like South Africa and Ethiopia. The MGNREGA has been successful in providing employment and reducing rural poverty. A similar program in urban areas can create jobs and address urban infrastructure deficits.
- Increased Welfare Spending: Increase funding for welfare schemes to expand their reach and effectiveness. Introduce new schemes targeting vulnerable populations such as the elderly, disabled, and unemployed youth. The World Bank has shown that well-targeted social protection programs can significantly reduce poverty and inequality. For example, Brazil’s Bolsa Família program has lifted millions from poverty.
- Fiscal Decentralization and State Support: Increase direct financial transfers to states to support their development projects. Additionally, relax borrowing limits for states to allow them to finance critical infrastructure projects. Increased fiscal autonomy for states, arguing that it leads to more efficient and targeted public spending. The success of budgetary decentralization in countries like Germany, where states have significant financial autonomy, demonstrates the benefits of this approach.
- Progressive Taxation and Revenue Mobilization: Introduce a progressive taxation system that taxes excess corporate profits and high-income individuals at higher rates. Use the additional revenue to fund developmental projects and welfare schemes. Progressive taxation in countries like Sweden and Denmark has led to lower income inequality and better social outcomes.
THE CONCLUSION:
The Union Budget 2024-25, while aiming to stimulate private sector-led growth and fiscal consolidation, seems to inadequately address the urgent needs of welfare and support for political allies. The mismatch between the government’s priorities and the actual provisions in the Budget raises concerns about its effectiveness in tackling India’s economic and social challenges.
UPSC PAST YEAR QUESTIONS:
Q.1 Public expenditure management is a challenge to the government of India in the context of budget-making during the post-liberalization period. Clarify it. 2019
Q.2 What is the meaning of the term tax-expenditure? Taking the housing sector as an example, discuss how it influences the government’s budgetary policies. 2013
Q.3 Distinguish between capital budget and revenue budget. Explain the components of both these Budgets.2021
MAINS PRACTICE QUESTION:
Q.1 Discuss the apparent mismatch between the problems faced by India and the solutions offered in the Union Budget 2024-25. Evaluate the effectiveness of these measures in the context of the socio-economic challenges and political dynamics.
SOURCE:
https://www.thehindu.com/opinion/lead/union-budget-2024-25-no-signs-of-learning/article68437231.ece
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