Advertisement

Budget 2022: Increase spending on MGNREGA, PM-Kisan programs to support demand and job creation

Dr Arun Singh | Updated on: Monday, January 17, 2022, 08:22 PM IST

In India, several sectors are still struggling and have not recovered to their pre-pandemic levels and signs of stress are evident across sectors, especially for small businesses. | Photo: IANS
In India, several sectors are still struggling and have not recovered to their pre-pandemic levels and signs of stress are evident across sectors, especially for small businesses. | Photo: IANS
Advertisement

Even after two years the pandemic is still not in the rear view. Coronavirus variant (Omicron) is ravening across the globe; governments are struggling to minimize supply chain disruptions and economic activity, and to support the social and health need of their country. Finding balance between life and livelihood is once again at top of the agenda.

In India, several sectors are still struggling and have not recovered to their pre-pandemic levels and signs of stress are evident across sectors, especially for small businesses. Localized lockdowns and strict restrictions are a possibility if cases continue to surge. Given that 3rd wave in India could see an exponential rise in the number of COVID-19 cases, additional spending from the government is warranted for managing the pandemic and to support growth.

The Union Budget for 2022-23 would thus be framed at the backdrop of a very difficult situation as uncertainty remains high and balance sheets (governments, businesses, and households) remain stretched.

Derailing the fiscal consolidation plan: We expect the government to meet the fiscal deficit target of 6.8 percent and set the target for FY23 at a higher level of 6 percent. According to the 15th Finance Commission, the Central government should bring down fiscal deficit to 4 percent of GDP and states should bring it down to 3 percent by FY26 that would bring down the liabilities of the Centre and States to 32.5 percent by FY26. However, given that the pandemic has lingered much longer than anyone expected, targets will need to be revised to accommodate social and economic needs.

It is time to address white elephant in room (non-merit subsidies): It’s time to relook at non-merit subsidies and re-allocate funds to schemes with multiplier effects given that government’s debt burden and interest payments remain high. Around 45 percent of the revenue receipts were budgeted for interest payments in FY22 compared to pre-pandemic level of 36 percent (FY20 actuals). This is likely to increase with expected increase in interest rates this year. As researchers estimate non-merit subsidies (Centre and State) add up to more than 5.5 percent of GDP, the government can consider reallocating a share of this finds towards other developmental schemes. Subsidies by the government can be categorized into merit which consist of food, education, health, water supply and sanitation and non-merit subsidies which includes fertilizers, energy (power), ports, roads, etc., the distinction based on externalities associated with the merit services.

Balancing social and economic needs: Given that general government debt level remains high (89.6 percent to GDP in FY21), and this constrains the government's ability to respond to future shocks, the government must aim to maintain a fine balance between social expenditure and capex, as both will need equitable thrust. Increased thrust on capital expenditure is required to uplift the potential output of the economy to fulfil the dreams of ever-growing population, while social spending and immediate stimulus measures are needed to support the battered not so well-off population.

Spending on rural jobs guarantee scheme and capital expenditure should be on priority: We expect the government to increase spending on MGNREGA and PM-Kisan programs to support demand and job creation. Demand for work under the MGNREGA scheme remained elevated in the current fiscal amidst weak informal labour markets. Even after an additional allocation of Rs 100 billion in the current fiscal year, the utilization has been more than 100 percent of allocated amount (till date i.e. mid-January), indicating both likely payment delays and high demand for work.

Managing expectations for labour supply: We expect the government to introduce measures to facilitate the new hybrid work environment that would be the new normal across various sectors. Migration of labour is now no longer a once in a lifetime phenomenon. The COVID-19 waves had led to great uncertainty over availability of skilled labour and increased the cost of labour for businesses. Reverse migration, rur-urbanisation, could hold the key, at least for the services sector.

Spend, not just budget: Only 49 percent of the budgeted amount for capital expenditure has been spent by the government during the first eight months of the fiscal year. There is a large volume of appropriated but unspent expenditure by the Central government every year. CAG estimates that unspent expenditure was about 2.0 percent of GDP in FY20.

(Dr Arun Singh is Global Chief Economist, Dun & Bradstreet)

(To receive our E-paper on whatsapp daily, please click here. To receive it on Telegram, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

Published on: Monday, January 17, 2022, 08:22 PM IST