- GS-3: Indian Economy & challenges
- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Budget & Economic Recovery
Context: The last two quarters have seen a substantive recovery in the Indian economy.
- Corporate profitability of our largest firms has hit a new record this year.
- GST collections now has an average monthly collection of Rs 1.2 trillion in the second and third quarters.
- The budget deficit is expected to be well under what we forecasted last year.
What are the major concerns in reviving growth?
- The informal economy was particularly badly hit by Covid and its associated lockdowns.
- Small enterprises, retail, hospitality, and construction were all adversely impacted
- Agricultural employment has risen in the last year-and-a-half, while manufacturing and services employment has fallen — this is the opposite of development.
- Both earnings and employment fell for those at the bottom of the urban employment pyramid
What can the upcoming budget do to aid economic recovery process?
- Create good jobs for the unskilled: The way it can do so directly is through accelerating spending on infrastructure. A credible time-bound implementation plan is what is required in the budget.
- Promote labour-intensive manufacturing which can employ millions of the unskilled and less-educated youth.
- Foxconn’s largest factory in China, making iPhones among other products, reportedly employs 4,00,000 people.
- Samsung employs 1,00,000 people in its largest phone assembly plant in Vietnam.
- Enhance Female Labour Force participation: A large garment factory in Bangladesh employs 30,000-50,000 people — 10 times what we find in India. As 80 per cent of those employed in garment factories are women, Bangladesh has twice the female labour force participation ratio of India.
- Continue with Labour Reforms: In June and September 2020, the government passed four labour laws but have been left dormant since then. The budget should announce a time frame for implementation, notification by the Union government and then by the states.
- Investments in skilling: Under 5% of India’s workforce is formally skilled, compared to 96% in South Korea, 75% in Germany and 52% in the US. Budget must specify how National Skills Development Corporation will be empowered to function to achieve the goals of skilling.
- Investments in Education: With schools closed for the last year-and-a-half in most states, education outcomes have fallen further. School education is a state subject, so the Union budget can at best incentivise states to do the right things for ex: linking the flow of additional funds to learning outcomes.
- Economic inclusion: Government policies for economic inclusion must go beyond social inclusion. These include measures like reducing tariffs to benefit millions of consumers instead of thousands of firms. Industrial policies that help all firms such as the ease of doing business, instead of incentivising a selected few.
Connecting the dots: