THE budget 2024-25 presented by the finance minister of the newly elected NDA government expresses the political and economic tensions of the coalition government and a half-hearted attempt to appear to be addressing the major issues that drove the election results. True, that India is currently the fastest growing economy of the world, when Europe is yet to come out of the protracted stagnation, low growth in the US and Canada and China records a relative slowing down after long stretches of high growth. The BJP went to the electorate with facts of high growth, achievements in positioning India at a high pedestal in global platform by organising G-20 meeting and approaching to become the fourth largest economy of the world. However, these were not received by people with great enthusiasm. Despite so many ‘great’ achievements applauded and propagated by the mainstream media every evening, people remembered the bitter taste of rising unemployment, long stretches of food inflation, uncertainty and insecurity for existing employees, falling real wages and the nasty game of dividing people by religious faith to displace substantive issues related to livelihood.

It was expected that the budget would aim to resolve some of these issues, particularly when high growth rates continue to hang like a surreal statistical artefact, not being realised in the day to day lives of an average Indian in terms of welfare gains. India is experiencing levels of inequality which is the highest in the world and similar to what it was in pre-independence period during 1922. However, one of the major contradictions with which every government following neoliberal policies has to live with is that on the one hand they have to appease global finance but on the other hand they have to be elected by the support of the common people of the country. Reconciling the two, simply, is the art of governing in the era of neoliberalism.

RICH UNTOUCHED

According to the figures shared in the budget documents the economy is expected to grow at a nominal growth rate of 10.5 per cent while the Economic Survey projects a real growth rate of 6.5-7 per cent which suggests an underlying inflation of 3.5 to 4 per cent. According to CMIE, the figure for retail inflation is 4.3 per cent and as regard food inflation, the current inflation rate is 8.4 per cent. If the food inflation persists for long with a deeper impact in the days to come, the assumed inflation rate may not reflect reality and the real growth rate may be less than what is being estimated. Currently private final consumption expenditure which accounts for 58 per cent of GDP is growing at a slower pace than the growth of overall GDP. The other important contingent of GDP which is gross fixed capital formation or investment accounting 33.7 per cent of GDP, the growth of which has increased in the last financial year primarily because of the capital expenditure push by the government with an annual growth of about 30 per cent. But despite a CAGR of 27 per cent growth of government capital investment in the past five years, private corporate investment has not picked up as expected. This year the government’s budgeted capital expenditure has grown by 16.9 per cent.

The sectoral performance of the economy also reflects a dismal picture. Growth in agriculture has fallen drastically and most of the services growth shows a declining trend. High growth has been recorded by the mining sector and manufacturing in the last financial year but followed by a slight decline in manufacturing growth in the latest quarter of the current financial year. Higher growth has been recorded by the construction sector primarily because of the huge investments made by the government in infrastructure particularly roads and railways.  The huge rise in employment claimed on the basis of RBI KLEMS data is under severe criticism as it does not seem to be consistent with the growth slowdown during the pandemic and massive job destruction experienced in the informal sector in the recent past. According to the CMIE figures unemployment rate in June 2024 continues to be as high as 9.18 per cent. Indian industries are operating at a level of capacity utilisation of 73-74 per cent. In such a scenario even if the revenue receipts have grown by 15.9 per cent, the total expenditure has been estimated to grow by only 7.3 per cent. This brings the share of total expenditure as percentage of GDP below what it was in the revised estimate of the last financial year. This fiscal contraction was exactly what was not required in a scenario when there are large unutilised capacity and human resources. But the government in order to appease the global finance wanted to reduce fiscal deficit as percentage of GDP from the last year’s figure 5.8 per cent to 4.9 per cent for the financial year 2024-25.

Even if we accept the need of bringing down the fiscal deficit for the sake of argument, it could have been brought down close to zero by taxing the super rich who are the 0.04 per cent of the population. Studies done by the World Inequality Lab suggest that a 2 per cent and 4 per cent wealth tax to rich people who own wealth worth Rs 10 crore and 100 crore respectively and an inheritance tax of 33 per cent and 45 per cent to be paid one time during the transfer of wealth of similar amount respectively, will mobilise a revenue equivalent to 4.6 per cent of GDP. Clearly, wealth of this amount if made taxable, 99.96 per cent of Indians will not be affected by such tax. There is no tax on wealth and inheritance in India but in the US inheritance tax is 40 per cent, in Japan 55 per cent and in Korea 50 per cent. The rich and wealthy of India are left untouched while to reduce fiscal deficit the government has chosen to reduce subsidies on food and fertilizer and drastically cut down expenditure on higher education.

UNEMPLOYMENT AND SCHEMES

For the past one and half decade, since the financial crisis, private corporate investment growth showed a consistent decline. This was one of the major concerns in the past three budgets and the government increased its capital expenditure in view of stimulating private investment. However, this did not give expected results not because corporates were not making enough profits and short of funds to invest but because of sluggish demand. In fact, in the past three years the listed companies in India made a very high annual rate of profit to the tune of 15.1 per cent but investment on gross fixed capital grew at an annual rate of 7.7 per cent and net investment grew with an average rate of 4 per cent. Hence there was a disconnect between profit and investment which contributed to the slow employment growth in the corporate sector. The sluggish growth of investment is primarily because of not so exciting expectation of profit in productive sectors. Even post-pandemic, private final consumption expenditure is growing at a pace slower than the growth of GDP and there still remains large unutilised capacity in the industrial sector. On top of that, corporates have to service their debts which increased during the pre-pandemic period. Hence for the corporates there is no real incentive to invest in creating capacities. The widening gap between profit and investment contributes to the widening gap between growth and employment.

The government proposed three ‘employment linked schemes’ promising some transfer to new entrants and the employers as benefits and EPFO contributions for specific time periods. The underlying rationale for such transfer is that as the actual cost of employment declines due to government subsidies extended to corporates, it would stimulate employment. This premise is utterly erroneous as capitalists employ workers not just to cover their wage costs but to extract surplus value which is potential profit. This extracted surplus value is converted into profit only when the goods and services produced could be sold and value produced is realised. If the employers are uncertain about the realisation of value by selling the produce, why would they be employing more workers? True, if the corporates receive a subsidy from the government as part of the workers’ claims they may recruit some interns or pay some existing interns using government funds. This would increase the EPFO enrollment even if the worker is not even permanently absorbed. This is not going to effectively create employment, but a transfer of revenue is passed to the corporates and an inflated number of temporary employment would be generated by subsidising corporates using public money.