SHAKY GROWTH ESTIMATES

THE pretext of the budget 2022-23 is an economic scenario that seems to be slowly returning back to normalcy from the wounds of the COVID-19 pandemic that disrupted business as usual for more than a year causing huge income and job loss for the vast majority of the people. From a contraction of 7.3 per cent in the previous financial year, the economy records a positive growth of 9.2 per cent in the current year (2021-2022) as estimated by the National Statistical Office in its first advance estimates. For the fiscal year 2022-23, the Economic Survey has projected a real growth rate of 8.0-8.5 per cent with the favourable assumptions of no further economic disruption due to pandemic, normal monsoon, oil prices stabilised, withdrawal of global liquidity within predictable limits and global supply chains back to normal. In the budget 2022-23, the government has pegged a nominal growth of GDP at 11.1 per cent over the revised estimate of the last year estimating a GDP of Rs 258 lakh crore for the year 2022-23.  It is understandable that the survey is cautious in projecting GDP growth for the coming financial year compared to slightly higher estimates projected by the IMF and the World Bank, but one need not lose sight of the fact that the actual figures of growth rates have been lower than the Economic Survey estimates since 2018-19. In the last year’s survey, growth for the current year was projected to be 11 per cent while the statistical department of the government estimates the growth rate for the current year to be 9.2 per cent. Even the advance estimates of the government fell short of the actuals in 2018-19 and 2019-20. Most importantly even with the estimated levels of growth, per capita GDP or earning of an average Indian in the current fiscal year (2021-22) will be less than what it was in 2019-20.

STATE OF THE ECONOMY

It seems that the central government has toned down its celebration of the grand recovery looking into the figures of advanced estimates which only says that the GDP in the current year in constant 2011-12 prices will marginally surpass the GDP figures of the pre-pandemic year, 2019-20. The industry as a whole will cross the pre-pandemic levels while services GDP in the current year is estimated to be lower than what it was in 2019-20; particularly trade, hotels, transport, communication and services related to broadcasting which is a major employer in non-agriculture is yet to reach the pre-pandemic level. Within the industry, manufacturing GDP in the current year is estimated to cross 2019-20 GDP by only four per cent and construction by one per cent. The Economic Survey reports that steel and cement production touched the pre-pandemic level in October 2021 but it slipped once again below that level in December 2021. Industrial production also recorded a surge in October 2021 due to the release of pent up demand during the festive season and the Index of Industrial Production (IIP) grew by four per cent on year on year basis but it decelerated again at 1.4 per cent growth in November 2021. Capital goods and consumer durables production suffered a sharp contraction in November 2021.

On the expenditure side, 54.8 per cent of GDP is accounted for by Private Final Consumption Expenditure (PFCE) and 33 per cent by Gross Fixed Capital Formation (GFCF). The advance estimate figures suggest that private consumption levels have not yet reached the pre-pandemic levels. This is also reflected by the Consumer Sentiments Survey conducted by the Reserve Bank of India which although reports an improvement in the composite index from September to November 2021 but still, 71 per cent of the respondents perceive that the economic situation has worsened in the current year and 39 per cent perceive that it is going to worsen in the future. On account of investment measured in terms of gross fixed capital formation, the government estimates that GFCF will grow by 6.1 per cent in the second half of the current fiscal year but this is hard to materialise because capacity utilisation in India’s industry is about 60 per cent and finished goods to inventory and raw material inventory to sales ratio continues to be high reflecting low capacity utilisation. In such a scenario private investments do not take off and in the household sector, there is not enough resource to be invested. Therefore government’s capital expenditure has to increase significantly. The revised estimate of capital expenditure of Rs 6.02 lakh crore however includes Rs 51.9 thousand crore of infusion or loans used to settle past guaranteed and sundry liabilities for privatisation of Air India. Also, it is important to note that the increase in GDP pegged for the current fiscal year over that of 2020-21 accounts for valuables which grew by more than 75 per cent primarily reflecting the surge in investment in gold. Therefore, the actual growth figure is likely to be short of projected figures similar to what had happened in past few years.

CONTRACTION IN EXPENDITURE

In the context of sluggish demand that existed in the pre-pandemic scenario and has been further aggravated due to the pandemic what would have been an appropriate fiscal stance is to enhance expenditure primarily to boost consumption expenditure which accounts for the major share of India’s GDP. This could have stimulated private gross fixed capital expenditure which has been dwindling for more than a decade. In the budget document, it is estimated that gross tax revenue will grow at 9.61 per cent while total expenditure is estimated to grow by 4.63 per cent. In fact, total expenditure as a percentage of GDP will come down from last year’s 16.24 per cent to 15.3 per cent this year. Although the finance minister proposes a stepping up of capital expenditure by 35.4 per cent and compared with 2019-20 actual figures this amounts to be more than double, but with respect to GDP, it is a merge increase of 0.3 percentage points over last year’s revised estimates. In the proposed budget revenue expenditure is estimated to grow by less than one per cent. In fact, the government seems to be committed to keeping the fiscal deficit at 6.8 per cent of GDP with an eye to satisfy rating agencies and deliberately kept expenditure at check, enhancing which, on the contrary, could have been the appropriate recipe for a speedy recovery.

MISPLACED PRIORITIES

The budget speech hardly addresses the grim employment situation prevailing at the moment. Informal sector workers are pushed to destitution, salaried employment suffers a severe decline and a general income loss for the vast majority. In fact, according to a World Bank Report employment rate during the pandemic was 43 per cent in India compared to the global average of 58 per cent and India’s employment scenario was worse than that of China, Pakistan and Bangladesh. Only Middle East and North Africa recorded an employment rate lower than that of India. Hence what was expected in this budget is an enhancement of provisions for employment guarantee extended to urban areas. On the contrary budgeted expenditure on MGNREGA suffers a decline of 25 per cent. The focus on infrastructure and particularly on building highways may increase jobs in the construction sector in the medium term, else there is no specific target of enhancing jobs in this budget which is nothing but a cruel denial of the glaring fact of high unemployment persisting particularly among the youth and women.

Despite the fact that 70 per cent of adults in India are fully vaccinated so far and 50 per cent of children within the age group 15-18 have received only the first dose, health expenditure in this budget increases by less than one per cent meaning considering inflation it has effectively fallen in real terms compared to the previous year’s revised estimates. There is a drastic cut in food subsidy by 27.8 per cent when the poor people mostly engaged in contact intensive jobs are yet to recover their earnings. It is a matter of concern that when situations seem to approach normalcy and students are supposed to get back to their respective institutions, there is an uncanny emphasis in this budget towards provisions of supplementary education, e-content, digital university, virtual labs and education through TV channels indicating a push towards learning through virtual mode. Apparently, the allocation for education is being enhanced by Rs 16.3 thousand crore in reference to last year’s revised estimates, but as a percentage of GDP, the allocation remains almost the same.

The finance minister promises to build 80 lakh houses in rural and urban India under PM Awas Yojana allocating Rs 48 thousand crores in this budget but compared to last year’s revised estimates it is simply an addition of 610 crores. For farmers, the budget reduces allocation for crop insurance and more importantly, fertilizer subsidy has gone down by 25 per cent. Rising prices of inputs and fuel have already abated returns in farming. On top of that reduction in fertilizer subsidy will further enhance costs of production and increase the misery of the farming community.

Therefore, the budget failed to address the immediate concerns of the people at large and missed the opportunity to offer a recipe for fast recovery through expanding domestic demand which was badly needed at the current juncture.