Manish Tewari | Budget 22’s key challenge: Employment generation

On January 31, 2022, Parliament would meet for the Budget Session. As the nomenclature suggests this session is usually devoted to examining the finances of the Union government and the general health of the Indian economy. While the finances of the government are more than definitely in the red as evidenced by the yawning gap between its revenues and expenditure or what is colloquially known as the fiscal deficit, it is the overall state of the economy that is rather distressing.

Every economy runs on four fundamentals employment, consumption, savings, and investment. This forms the virtuous cycle of the economy. Livelihoods generate consumption that fires the cylinders of production and savings generate investment. As there is enhanced consumption on account of elevated wage levels or greater levels of employment, production capacity expands and savings get deployed as investment. Higher levels of domestic investment become the catalyst for attracting foreign direct investment (FDI).

How does the Indian economy square up on the four fundamentals mentioned above? According to the Centre for monitoring the Indian Economy (CMIE) as on January 21, 2022, the 30-day moving average unemployment rate stood at seven per cent. The urban unemployment rate was 8.5 per cent while the rural rate was 6.3 per cent.

What these numbers translate into is that there are 53 million or 5.3 crore unemployed people in India out of which eight million are women. Out of this 53 million, 35 million people were actively seeking means of livelihood while another 17 million were willing to contribute to the economy provided work was available.

This spectre of mass unemployment is also evidenced by the fact that MNREGA work numbers are at a record high. A total of 21.1 million and 24.7 million households, respectively, demanded work under this programme in November and December 2021.

According to numbers put out by the World Bank, the global employment rate stood at 55 per cent during pandemic-ravaged 2020 and 58 per cent in 2019. The corresponding number for India stood at a low of 43 per cent in 2020. CMIE, however, estimates that India’s employment rate could have been touching the nadir at 38 per cent.

The budgetary challenge, therefore, for the finance minister is to find employment for nearly 60 per cent of India’s population. To measure up to the global employment benchmarks India would need to create employment opportunities for an additional 187.5 million people. Given that the current employment numbers stands at around 406 million or 40.6 crores employed, this seems to be an insurmountable objective.

Consumption levels are also down because of the three waves of the Covid-19 pandemic since India imposed its first lockdown on March 24, 2020. These muted levels of consumption are rather obvious from the current assessments; that benchmark private final consumption expenditure (PFCE). This number for 2021-22 stood at Rs 80.81 lakh crore. This represents a marked fall from the 2019-20 number of of Rs 83.22 lakh crore but can be considered as a marginal evolvement over the 2020-21 figure that stood at Rs 75.61 lakh crore.

What do these private consumption numbers indicate? The foremost and most obvious conclusion is that the impetus on infrastructure projects is unfortunately not creating enough employment opportunities. It is having both a negative and a deleterious impact on the spending power of the people. Last but not the least, if this latency continues to hold the field in the immediate future, private sector capital formation will also neither rally and nor would it get boosted. The consequence would be, it would become increasingly challenging to augment GDP growth numbers through the medium of government spending alone.

The World Bank’s latest forecast on Global Economic Prospects opines rather morosely, “Global growth is expected to decelerate markedly from 5.5 per cent in 2021 to 4.1 per cent in 2022 and 3.2 per cent in 2023 as pent-up demand dissipates and fiscal and monetary support is unwound across the world.” A direct consequence of this deceleration would be on the Indian exports trajectory.

In the years encompassing the period between 2011-12 and 2019-20 now categorised as the era before the pandemic, the value of India’s merchandise exports grew at a rather low CAGR of 0.32 per cent. Taking the rather tight numbers of global growth predicted by the World Bank for the coming years into consideration and the impact it would have on India’s export profile, this institution estimates India’s real GDP growth to come down to 6.8 per cent in 2023-24. Taking the rather low statistical base into account this could well put GDP growth into negative territory.

Even the savings rate has also been rather adversely impacted as a consequence of people having to dip into their savings to tide over the pandemic induced hardships. India’s savings rate had touched a 15-year-low as gross domestic savings stood at 30.9 per cent of GDP in financial year 2020-21, down from a peak of 34.6 per cent in the financial year 2012-13. However the World Bank estimated that the erosion in gross domestic savings (per cent of GDP) was much deeper and pegged the figure at 28.92 per cent for 2020. What this means is that the funds that are available with banks and other financial institutions like NBFCs for financing investments stand significantly reduced.

Coming to India’s investment profile, investments accounted for 32.5 per cent of its nominal GDP in the quarter ending September 2021, compared with the figure of 28.7 per cent in the previous quarter that ended on June 30, 2021. This number had touched an all-time high of 41.2 per cent in September 2011 and a record low of 21.6 per cent in June 2020. Interestingly, 2011 was the year when the UPA was at the receiving end of the canard of policy paralysis. Gross fixed capital formation was 31.2 percent of gross domestic product (GDP) in the fiscal 2020-21 juxtaposed against 32.5 per cent in 2019-20.

Even foreign direct investment (FDI) into India in the July-September quarter of 2021-22 fell a sharp 42 per cent on year on year basis. It stood at $13.5 billion down from $23.4 billion a year ago.

However, the real problem is the growing inequity and inequality in India. This is reflected in the startling numbers put out by the recently released Oxfam report. It shockingly revealed that while the number of Indian billionaires grew from 102 in 2020 to 142 in 2021. The collective riches of India’s one hundred super-affluent climbed to a record high of Rs 57.3 lakh crore; correspondingly the share of the bottom 50 per cent of the population in national wealth to amounted a meagre six per cent.

India is dangerously hurtling towards a period of serious social unrest fuelled by the increased concentration of wealth in a very few hands, deliberately perpetuated religious polarisation and a spectre of hypernationalism aimed at othering the other on a daily basis.