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Union budget 2023 gave a short shrift to welfare schemes while staying aspirational: Biswajit Dhar

He was delivering the 24th Manorama Budget Lecture


The Union budget 2023 underlines the vision of the Union government for 'amrit kal'—technology-driven, knowledge-based economy with a robust financial sector, said Biswajit Dhar, professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Speaking at the 24th Manorama Budget Lecture in Kochi on Monday, he said the focus of the budget to facilitate ample opportunities for youth, provide enough support for job creation, and strengthen macroeconomic stability are praiseworthy medium-term goals.

The major task before Finance Minister Nirmala Sitharaman, who tabled her fifth budget on February 1, was to ensure that the Indian economy was able to sustain at least seven per cent growth while being inclusive in nature, Dhar said. Sustaining the growth target of seven per cent has been one of the main targets of the Modi govt for making India a five trillion economy.

While the IMF's growth prediction for India has been below seven per cent, India has had reasons to be upbeat as the Russia-Ukraine conflict hasn't really affected India, the slowing down of the world's second-largest economy left little impact on India and the global economic slowdown too has not affected the country, he observed.

However, there have been a few challenges before the government. Even before the Narendra Modi-led BJP government came to power in 2014, consumer demand has been tepid, and with the pandemic, it suffered a heavy blow, especially owing to job losses. Although there has been some sort of recovery in consumer demand post pandemic, this hasn't been happening in a sustained manner.

Consumer demand is expected to decline in the near future, owing to unemployment and significantly lower export growth in the current financial year. The reduced export demand is reflected in the manufacturing sector which is likely to register a lesser-than-desirable growth.

Owing to such challenges, it was logical to expect that the focus of the finance minister would be a combination of short terms reliefs and medium-term measures to support critical sectors of the economy. This would have involved providing adequate support for Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA) and the National Food Security Act (NFSA). The govt was also expected to invest both in human and physical capital, which involved support to the agriculture and manufacturing sector. These would have ensured sustained inclusive economic growth. However, according to Dhar, the government failed to focus on these areas.

Ever since Modi government came to power for the second term, there has been a consistent effort to increase capital expenditure. This was reflected in the budgets in the previous years. The focus continued in this budget as well, as this would inevitably lead to growth and employment, attract investment and act as a cushion against global headwinds as pointed out by the finance minister. However, there is a counterargument that says that when the government increases capital expenditure, private players may tend to step back. The claim that public investment may bring in private investment was not backed by facts, Dhar pointed out.

Nonetheless, public investment is essential for supplying public goods and vital for improving efficiencies in critical sectors like agriculture, which lack private investment.

The government's focus on capital expenditure in previous years, even as government revenues were impacted by the pandemic, leading to an increase in fiscal deficit, forced the finance minister to undertake fiscal consolidation. One of the measures to rein in on fiscal deficit was to limit social spending.

The fiscal consolidation measures undertaken by the government impacted MGNREGA, which is a critical welfare scheme in the face of severe underemployment and disguised unemployment, Dhar said, and added that in the past four years, the government has been extremely conservative when it came to spending on MGNREGA. This, despite the fact that labour disruptions caused by the pandemic continue unabated. The government should reverse this trend of declining spending on MGNREGA “for, the existing levels of allocations can do little to ameliorate the conditions of the distressed,” he said.

Dhar further observed that the ever since Modi government came to power for the second time, the budgeted allocations for NFSA—benefiting two-thirds of the population of the country—have been systematically lower than the actual spending. "The welfare schemes are in the doldrums. We don't see a very promising future for welfare schemes at a time when the distress is extremely high."

The earnestness with which the government has been investing to develop physical capital hasn't reflected in the social sector spending, except in the case of establishing 167 nursing colleges, Dhar said. However, the spending on the department of health and family welfare hasn't been very encouraging. While spending on the sector increased during the period of the pandemic, with Covid-19 behind us, the sector seems to have fallen down the pecking order. This is in contrast to the vision of the national health policy. The failure to invest more in the sector has led to people being forced to spend more on medical bills. Dhar pointed out that one of the major reasons for indebtedness for people is skyrocketing medical expenses. "The government spending on health must be five per cent of the GDP for progressing towards universal health coverage."

Like the health sector, the educational sector too failed to factor in majorly in the budget. A more pressing problem in the sector has been the failure to use budgeted resources, he pointed out.

While the government has expressed its intention to revive the manufacturing sector, the allocations for the same have been underwhelming, he observed. The allocations to RoDTEP (Refund of Duties and Taxes on Exported Products), too have been lower, Dhar said.

He also highlighted the need to increase the tax-to-GDP ratio. There should be sustained effort to improve corporation tax collection, he added.

Speaking about the changes proposed in the income tax, Dhar said, "The investment in provident funds, payment made to life insurance premiums, equity-linked payment schemes and payment towards sum of home loans cannot be deducted from under the new tax regime. Now, several of these deductions are in the nature of the savings, which provide financial security. In a country where we do not have social security, these four savings are very important."

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