Every budgeting exercise is about making choices vis-à-vis a set of necessities and ambition and Union Budget 2025-26 would be no different. In a way, this would be the first ‘normal’ Budget in a decade — if the financial year doesn’t get hit by any nasty surprise: A Budget that doesn’t get truncated by an election year or one that doesn’t have to deal with shocks like demonetization, the rolling-out of a GST or a pandemic.
At the same time, Nirmala Sitharaman has to steer the economy amid slowing GDP growth prospects, a shaky job market and niggling inflation. The equities market remains choppy and analysts are not too sure of India Inc’s ability to shore up bottom lines. Globally, uncertainties tied to new regimes (especially in the US) will add to existing causes of concern.
The finance minister, as well as other key policymakers, must keep in mind that India’s household debt has ballooned to a worrisome 43% of GDP. Nearly half of the total borrowings are for consumption — not for productive purposes or creating assets. This resonates strongly among subprime borrowers.
Clearly, the Aam Aadmi is falling into a trap and needs prompt government’s intervention to prevent a drag on the economy, which can eventually become a vicious cycle. The Budget must extend a helping hand to where the masses are. Here are some targeted actions that should help:
1.
Ensure that the poor and the lower-middle class do not need to borrow (from institutional or non-institutional lenders) to take care of basic living expenses. The rural Indian still has to earmark nearly half of her monthly consumption spending for food. And no, at Rs 1,939 a month, they are not splurging. The situation is only marginally better for urban India.
Increase allocation for PMGKAY (Rs 11.8 lakh crore for five years through 2028) so that the 81.35 crore beneficiaries can avail of necessary items other than the rice / wheat / millets. Food inflation affects this segment more when they need to purchase pulses or cooking oil, more than the staples. This can also be seen as an opportunity to institutionalize a more nutritious food regimen for citizens, building on India’s Right to Food.
2.
Generating more jobs is a priority to prevent only a handful having to shoulder the task of rolling the economy on. These jobs also need to be of a better quality than the current thrust on gig work that a) pay poorly and b) lack certainty.
The Budget now needs to evaluate measures taken in earlier years like corporate tax cuts and the PM Internship Scheme. If the response indicates they have helped, further strengthening measures need to be planned; but if the returns are not commensurate or corporate investments remain tepid , these should be dropped and we need to move on.
Special care needs to be taken of the informal and unorganised sectors, which employ the lion’s share of Indians. These include agriculture as well as micro, small and medium enterprises. Protecting these sectors through a wider MSP net, ease of borrowing and buying insurance and resolving GST barriers will let them keep people employed, rather than adding on to the list of those who are unemployed or underemployed.
Public sector hiring needs to be relooked at in the medium-term. The timeline of doing away with lower-level government jobs in favour of contractors has run parallel to rising unemployment and stagnating purchasing power. The Agniveer scheme in the Defence sector threatens to deepen that damage. It is time for a relook at those moves. Taking on more people in sectors like the railways also has the power to improve wages in general, thereby putting more steam in domestic demand — which can be a ticket to safety in a volatile world where exports can be seriously hit.
The interest in spending on infrastructure shown in recent years should now be directed towards a more labour-intensive form, so that those budgetary allocations can also lead to increases in incomes, which would again get spent on the economy.
The government also needs to understand that MGNREGA is not antithetical to its development goals; rather it is an aid in creating jobs as well as rural infrastructure that can also be utilized for imperative green goals. MGNREGA allocation should be boosted by 20% from last Budget’s Rs 86,000 crore so that it can be pushed above the Rs 1.11 lakh crore level seen in FY 21.
3.
Put more money into people’s pocket in the interim so that they can spend and generate demand in the economy as long as the job market doesn’t firm up. This must be done in conjunction with the states. Devolution must transcend political barriers in a federal set-up like that of India as states often understand the local context better.
Recent election results have shown that there is a pent-up demand for direct transfer of small amounts to women, students and the youth who can use this to meet various needs, leading to more economic transactions. While Universal Basic Income may or may not be down the road, such support schemes can now be better designed, albeit in a flexible manner keeping in mind one size doesn’t fit all.
Along with that, the Centre needs to work with the states to map migration patterns from human resource-rich states to capital-intensive ones. Instead of treating such patterns as truisms, this Budget must work to identify and prevent distress migration by spurring employment opportunities in the eastern states.
4.
Medical expenses form at least a tenth of expenses, if not more, even as government expenditure on health has consistently failed to touch even the 2.5% target set by its own NHP 2017. This trend continues in states as well. Going by an estimated real GDP of Rs 184.88 lakh crore for the current year, the desired Rs 4.6 lakh crore would be the desired allocation — way above the Rs 0.9 lakh crore in the last Budget.
5.
Expenses on conveyance have crept up to 14% of the MPCE pie both in urban and rural India. While the Smart Cities project doesn’t seem to have helped much, JNNURM is now two-decades old and nobody has given much of a thought to the increasing mobility needs away from the cities. The Budget should kick-start an integrated mobility plan, covering different modes of transport that can boost India’s green economy and reduce the drain on the monthly household budget.
Cover Photograph Courtesy Reuters