Will Budget 2024 have a panacea for Modi government’s K-shaped problem?

The Modi government has a K-shaped problem. The big question is: will Union Budget 2024, even if just a vote-on-account as elections are at our doorsteps, have a panacea for it.

'K-shape' refers to the divergent economic graphs of different sections of the populace, starkly evident as economic reforms and post-Covid structural alterations in policy seem to have boosted big businesses and those in the formal sector. As urban and upper middle-class incomes went up, those in the lower strata, especially in rural areas, saw themselves being squeezed out.

Economist Ashok Gulati’s recent estimates paint a stark picture. While income in rural areas rose 6.9 per cent before 2014, it fell to about 3 per cent from 2014 to 2019. Covid made it worse, with incomes declining even further for those in rural areas, both in agriculture and other livelihoods.

“We talk so much about the fifth biggest economy and all that. But it definitely does not seem to be evenly spread out,” pointed out R.D. Sahay, advisor policy at Sharda University. “(Prosperity) can only happen when the common man also finds that there is something for him in the economy or in the system. He must have a stake as well.”

For the Modi government, mitigating measures to deal with this makes sense on two levels. One, of course, is the fact that with polls probably just weeks away, it makes sense to proffer welfare measures through the budget. Secondly, schemes aimed at a rural revival do have a ripple effect on economic growth — an improvement in jobs and incomes in rural areas boosts spending, directly contributing to further economic growth.

But how a government, which publicly professes an aversion to the ‘revdi culture’ (politicians’ propensity to offer freebies), manages to do this would be interesting to watch. Many believe it will come on two levels — one would be schemes and incentives to upgrade sectors like agriculture, warehousing, roads, and other infra activities, as also waste management.

Upgrading agriculture, with technology as well as warehouses and cold storages (something Nirmala Sitharaman’s budgets throughout NDA-II has harped on), helps in improving yield as well as reducing loss due to wastage. Infra activities like road construction in rural areas are a direct job generator, while urban waste management, an area governments have not focused on much as yet, could be a huge employment generator.

The second could be through social welfare schemes that would be presented as reforms in labour laws, security through insurance schemes as well direct benefit transfers.

Subhashish Banerjee, founder of the political strategic advisory organisation, P3, feels there will be enough incentives offered to the rural areas in this election year which will be couched as ‘citizen schemes’. “(These) will be drafted not only to clear the government’s stand on benefiting the masses but will also generate considerable economic boost among the lower and middle classes.”

Rohet Ramesh, director of Layam, an HR and consulting firm expect the budget to introduce significant amendments to labour regulations, with an aim to improve employment, enhance social welfare and safeguard workers’ rights. “Targeted incentives may stimulate investment, job creation and industrial expansion, supported by increased allocations for skill development, incentives in the informal sector and stable working conditions,” said Ramesh, who feels allocation for social security initiatives in areas of labour insurance and health insurance will be a focus.