CHANAKYA’S VIEW | When will govt deliver on second wave of reforms? | Pavan K. Varma
The Opposition protests sporadically, but it is all they can do. The whole exercise is a ritual, performed predictably, with marginal or no real impact on the fundamental problems plaguing the economy
Union finance minister Nirmala Sitharaman is well-meaning. Every year, on Budget Day, she reads out a long speech which is essentially a statement of intent. The treasury benches thump the table non-stop on every achievement she highlights, and every goal she announces. The Opposition protests sporadically, but it is all they can do. The whole exercise is a ritual, performed predictably, with marginal or no real impact on the fundamental problems plaguing the economy.
The reason for this is that, except for 1991, when finance minister Manmohan Singh used the Budget as a major policy-changing mechanism, Budget presentations have since, in general, restricted themselves to a bit of tinkering of taxes and schemes and considerable self-patting, without initiating structural changes to bridge the glaring economic fault lines that need to be tackled head on.
What are these fault lines? At the macro level it can best be summed up in the phrase “rich-poor” country. We are the world’s fastest growing economy in GDP terms, but one of the poorest globally in per capita terms; we have the world’s third largest number of billionaires, but also the world’s largest number of the unacceptably poor; we have some of the finest educational institutions in the world, but also an illiteracy rate where, as per 2022 data, over 30 per cent of women, and close to 17 per cent men, cannot read and write; we have the world’s largest acreage of arable land, but our agricultural growth rate in 2023-24 was a meagre 1.4 per cent.
This year’s Budget has given sops to the long-suffering middle class, in terms of income-tax relief. This is welcome, and long overdue. Middle-class incomes have been shrinking, prices of essential commodities have been rising, and job opportunities have dwindled.
But I doubt if this will by itself do very much for the middle class. Unless economic growth rates remain at a sustained level over eight per cent annually, it is unlikely new opportunities for employment and upward mobility will open up for this class. Besides, what percentage of our population pays taxes? Only 6.68 per cent of India’s population filed income-tax returns in 2023-24, as compared to 43 per cent in the United States.
The big elephant in the room is unemployment. In 2024, the unemployment rate was 7.8 per cent, one of the highest in the last 15 years. Between the ages of 18 and 24, the unemployment rate in 2024 was as high as 14.8 per cent, up from 12.4 per cent the year before. Our sub-standard education system is producing an army of unemployed and unemployable people, even as jobs are becoming scarcer as corporates resort more to automation and depend less on labour intensive manufacturing.
Essentially, there is a major problem in the way our economic basket is structured. In terms of Gross Added Value (GVA), financial, real estate, and professional services, account for 23 per cent of the basket; but agriculture, which employs over 50 per cent of the population, accounts for only 18 per cent; and manufacturing, which is the avenue to absorb the unemployed and underemployed in agriculture, accounts for only 14 per cent. What has the Budget done to rectify this lopsided structure?
Our private sector leaders have the potential to become the tigers of economic growth. Nirmala Sitharaman has often asked them to invest more. If they are not doing so as per her expectations, the problem lies in an area far beyond her remit. The truth for this malaise was brought out in the Economic Survey released before the Budget. With robust frankness it speaks of a “trust deficit” in the economy, which means that the rich are afraid that if they invest, they may fall prey to the dictum: guilty unless proved innocent, rather than the other way round. The fear generated by the political or biased use of government agencies like the I-T department, ED, CBI and others is a big dampener on unleashing our corporate tigers, including in public-private partnerships, and the confidence of our MSMEs. The Survey also highlights “over-regulation” of the economy, urging the government to “get out of the way” of doing business.
Quite bluntly, it makes the case for a second wave of reforms for the “Ease of Doing Business”, if India is to see both greater investment from its own corporates and investments from abroad. It is not coincidental, that it is because of this “trust deficit” that we see a flight of capital from India, and increasing numbers of high-net-worth individuals leaving the country to operate from safer shores.
Two other areas needed, in my view, much greater attention in the Budget. The first is education. India’s educational infrastructure at the primary and tertiary level is abysmal. It needs a huge infusion of funds, accompanied by substantive policy changes. The second is health. Here too, the contrast is glaring. At one level we have some of the best-equipped hospitals in the world, at another our primary healthcare centres are in pitiable condition. In terms of percentage of budget allocations, health and education account, by global
standards, among the lowest spends in our Budget. This seriously impacts the already besieged conditions of the poor.
The agricultural sector too is languishing. Low growth rates, and low yields per hectare, have plagued us for too long. I have long argued that after the Green Revolution of the 1960s, India is in dire need of a new Mission Agriculture, where investments on a systematic basis are made on R&D, cold chains, storage, transport, irrigation, market reform and changes in the crop basket.
I like Nirmala Sitharaman. She is sincere and diligent. But I have to say to her that the problems facing the Indian economy are systemic: inequality, lack of jobs, lopsided economic structure, neglect of basic education and health, and poverty. Unless these fundamental issues are tackled, our economic efforts are akin to building – and embellishing -- the first floor of a mansion where the foundation is precariously fragile. Her Budget may have perhaps pleased the middle class to an extent, but in the absence of a basic reform push, it is, alas, like every year, a ritual.
