The staggering economic downturn, in India, has largely flattened and an economic rebound has almost set in motion for 2022-23. Consequently, the major economic indicators have picked up and begun to move in the right direction.
The GDP growth has surged and is expected to touch 8.5 percent in the next financial year. While the fiscal deficit shrunk to 6.9 percent against the 6.8 percent budget target of the last financial year.
The agriculture sector is steadily doing well. It has recorded positive growth of 3.4 percent and its share in GDP has moved up to 19.19 percent in 2020-21 against 17.8 percent 2019-20.
Unlike agriculture, industrial growth has remained somewhat abysmal. The household savings have registered a jump from 7 percent to 21.4 percent in 2021-22. The autonomous public investment growth is appreciable, whereas private investment sentiment will still be damp for 2021-22.
Nonetheless, the Foreign Direct Investment (FDI) has recorded the highest ever flow of US $ 81.72 in 2021 which is somewhat 10 percent more than the last year. Similarly, exports have gone up corresponding to imports in many domains.
Adversely, at present the consumer demand is sluggish and consumer purchasing power continues to dwindle failing to upbeat the galloping consumer price inflation which is hovering at present around 5.4 percent.
The National Statistical Office (NSO) advance estimates for the year 2022 show that the Private Final Consumption Expenditure (PFCE) would be around Rs 80.8 lakh crores which may be about 3 percent below Rs 83.20 lakh crores in the pre-pandemic financial year 2020.
Unfortunately, the sluggish consumer demand is an off-shoot of the rising petroleum cost, withdrawal of subsidies on LPG and other essential commodities coupled with the stagnant regular income.
Moreover, the rising unemployment, especially the educated urban unemployment and unemployment evoked by the pandemic has reduced the income-consumption propensity of almost 70 percent of the population in the country.
This has caused a sharp decline in industrial productivity and growth which has pegged down by around 10.4 percent by the close of the second quarter of 2021-22.
Surely, the Indian economy on one side appears stepping in the right direction to emerge as an economic giant shortly, while on the other side, swift economic policy corrections are required to augment the economic rebound and leverage the gains to be unleashed by economic upbeat.
Factually, pushing a holistic economic rebound in India is somewhat an uphill task, especially at a moment when the country has slipped into the third wave of pandemic and elections in some states are round the corner.
Under these circumstances, the top priority of the government should be to unfurl genuine policy discourses for containing inflation, push up employment generation, raise disposable income of the people, excel consumer demand, spurt industrial and agriculture growth, minimize social, economic and human loss caused by the pandemic and place the economy to pr-pandemic level in the immediate future.
Therefore, to address these issues specifically and collectively, the FM in the budget rolled out varied policy discourses that predominantly hovers around the public investment policy model (PIPM) with excessive focus on the creation of infrastructure under its multiple programmes like the Gati Shakti Plan (GSP), affordable housing plan under Indra Awaas Yojna (IAY), extending the interest-free loan of Rs 100 lakh to states for infrastructure development, 400 new generations Vande Bharat Trains, 60 km ropeway project under Parvat Mala Project, Metro system Multi-Model connectivity etc.
Factually, the overwhelming thrust on infrastructure development would raise employment, income levels of people and ultimately lift consumer demand. However, it is to be seen that can government succeed to translate its PIPM operation exactly in the manner it advocated.
The past trends have shown that a wide lag existed between budgetary propositions and actual outlays. Rightly, developing 25000 km of highway in GSP, creation of 80 lakh houses under IAY during 2022-23, and generating 60 lakh jobs seems somewhat a daunting challenge before the government.
Understandably, the presumption of the government about the job creation target appears more unrealistic in the wake of the huge reduction in the financial allocation by 25.51 percent in 2022-23 against 2021-22 for MGNREGA- a flagship program for employment generation.
While on the sectorial front, the thrust on the industrial, agriculture, and service growth is vivid.
The revival of industrial growth is sure to happen in view of the slew of policy announcements including the restriction of 68 percent capital procurement budget for defense orders from domestic industry, coupled with the extension of tax concession period support to startups.
Although the agriculture sector went in the right direction in the past, but in 2022-23, it would no longer have food and fertilizer subsidies for farmers.
However, the farm sector would be encouraged to go for chemical-free natural farming, use Kisan drones for farming and adopt a public-private partnership (PPP) model to push hi-tech agricultural-based technology and services to farmers.
These propositions hopefully would unfold a favorable impact on agriculture growth, despite the fact, the farm sector in the country is relatively far behind when compared to other nations like China where less cultivable land than India produces double the food grains.
There is an urgent need for the engagement of cutting-edge research and infusion of capital-intensive farming mechanisms in the sector.
Unfortunately, the sector has been earmarked with an unrevised outlay of Rs 8500 crores for research and development for 2022-23 which is just 0.4 percent of agriculture gross value added when the same ranges between 1-2 percent of GDP for many other countries.
Similarly, for service sector growth, the government has proposed to set up 75 digital banking units in seventy-five districts of the country to speed up digital banking services.
Moreover, the government intends to connect 1.5 lakh post offices with the core banking system to facilitate the people to push digital transfer of money between post office accounts and bank accounts.
Further to augment the growth in the service sector, the government earmarked additional Rs 81006 lakh crores for investment in the National Highways Authority of India (NHAI). Truly these all measures have the potential to bring pump primed growth through a multiplier effect.
Unlike coordinated sectoral growth thrust, the government appears partially serious to pushing constructive changes in the social sector specifically in education and health.
For the transformation and improvement of the education sector, an extensive hybrid teaching-learning programme is on the agenda of the government.
200 education dissemination channels, 750 virtual labs for science and mathematics, and 75 skill e-labs for stimulating the learning environment would be launched in 2022-23.
Moreover, foreign universities would be allowed to offer courses in financial management, fintech, science, technology, engineering, and mathematics in GIFT City “free from domestic regulations”.
This would certainly lead to a marked change in the education sector. Students from backward pockets and having limited access to formal education will be benefited.
Nevertheless, its success depends largely upon the availability of undisturbed electricity supply, internet connectivity, availability of electronic gadgets, etc. mainly in far-off areas.
Undoubtedly, the move to open foreign universities in India would infuse competition between domestic and foreign universities vis-à-vis brand value, quality education, value addition, capitation fee etc., and of course post placement dividends for degree holders. Rightly, the move has sent the signals to domestic universities to gear up to deal with the emerging challenges.
While, the government appears to have defocused the health sector, as it thinks that pandemic is no longer a threat to life and accordingly allocations to the sector have risen not beyond 0.23 percent.
This has been significantly disliked by the health experts in the country, as the health care infrastructure is still at an abysmal level in the country and pandemic waves are not altogether over, they are repeatedly looming around the globe including in India.
Factually, the effort of the government is to push capital expenditure and restrain unproductive expenditure and spurt the growth.
Nonetheless, a key argument raised by economic think tanks is that government has to do some amount of aggressive homework to ensure the proposed revenue collections from direct and corporate tax don’t fall short to its expectations.
That would definitely shoot up the fiscal deficit and may disorder the whole proposed income-expenditure statement.
In this context, it is laudable to hold, that for 2021-22 the direct tax and GST collections surely would surpass previous budget targets and the scenario would repeat in 2022-23 as well.
Interestingly, on the revenue front, the silver lining is that government certainly will have some additional income to the tune of 30% from investors holding digital assets to fine tune the proposed fiscal deficit.
However, the fact of the matter is that the budget does not spell out a government’s viable policy discourse on how to bring down the fiscal deficit to 6.4% in the ensuing financial year. These all measure if realized would surely speed up the tempo of GDP growth not less than 8.5 percent as projected.
Nevertheless, the government is still fraught with the challenges of pandemic fallout, rising inflation, and massive unemployment. Similarly, no forceful policy option is being pushed to contain rising inflation that unfurls multiplier cost disadvantage for basic consumer non-durables.
The panorama if continued would compel the RBI to exercise contractionary monetary policy measures, which may further restrain private investment leading to disturbance to balanced growth.
Dr Mehraj Ud Din Shah, Associate Professor, Department of Commerce, Central University of Kashmir, Ganderbal
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.