Union Budget: Investment over consumption in 2022
To expect reforms before an election is like getting a pig to sing. It not only wastes your time, but annoys the pig (to rephrase Mark Twain). Coming just before five assembly elections and the repeal of the reformist farm laws, this Budget was expected to be a populist one. Everyone was surprised when it turned out to be anything but. Instead of freebies, it offered a road map to recovery from the pandemic and a path to high growth. Although it didn’t announce big reforms, it was investment-oriented, jobs creating, filled with quiet, reformist moves, building on the last Budget’s fine initiatives.
Many Bharatiya Janata Party (BJP) supporters were stupefied on Budget Day. Dismayed BJP politicians in Uttar Pradesh (UP) predicted in private conversations the end of their careers. But they failed to understand the political strategy behind the Budget. It assumes a modest win in these assembly elections and is primarily focused on 2024. Its strategy is to go into the general election on the back of a fast-growing economy creating jobs while continuing to deliver new welfarism: That is, visibly improved quality of rural life via water taps, affordable homes, cooking gas, toilets and mobile banking via post offices.
The Opposition, too, was nonplussed. It made a fool of itself, critiquing the Budget’s digital theme, precisely what will propel India into high-growth sectors of the fourth global revolution, areas such as green energy, Artificial Intelligence and other new technologies — a reminder of 100 years ago when cars first appeared on streets and Americans criticised their government for not protecting horse-and-buggies.
There are two ways to respond to an economic slowdown. The first is by consumption, the second is by investment. The first puts money in people’s pockets (like the Congress’s Nyay or the BJP’s PM-Kisan). People spend the money, consume goods, factories get running, and jobs return. In the second, the government invests in infrastructure — roads, ports, pipelines, housing and hospitals. This creates jobs, but also “crowds in” private investment, leading to more jobs. The Budget has adopted the second way. It is less visible, takes longer, and is politically riskier. But it’s far better because it creates assets and many more jobs.
Clearly, India’s top imperative is to create jobs, and this government has failed to do it so far. Only productive jobs (not “pakorawalas”) will bring achhe din (better days). The packages for labour-intensive sectors such as the housing and hospitality sectors in this Budget will help, but there could have a been bigger deal for small and micro entrepreneurs, the biggest job creators. Moreover, the finance minister (FM) should ask banks why they are not lending to micro, small and medium enterprises (MSMEs).
The missing link is, of course, exports. No country has gone from poverty to middle class without big exports. This is how the Far East countries did it, the latest being China. Exports have done well this past year, but the Budget has failed to reverse the pernicious trend of raising import duties.
The Production Linked Incentive (PLI) is a good scheme and many world players are coming in. Unless there is a sunset clause to end high import duties in each scheme, India will not be able to join global supply chains, which hold the biggest potential for creating world-class jobs.
Another criticism of the Budget is that it doesn’t do enough for the poor, badly hurt by the pandemic and now by inflation. True, allocations for food and job subsidies (Mahatma Gandhi National Rural Employment Guarantee Scheme) have been reduced. But the Budget assumes that the pandemic is on the way out and future waves will not need lockdowns.
If it happens otherwise, then allocations for investment will have to be reversed in favour of subsidies. Second, the Budget assumes oil prices, an important reason for inflation, will decline and the average price over the year will end in the $70-75 range per barrel, compared to $87 today. If this doesn’t happen, the government will again have to correct the course. These are uncertain times and your assumption may be different from mine.
The FM has rightly ignored the incessant noise about rising inequality and has focused on productive jobs. India, at this stage of its development, should be more concerned with opportunity, not inequality. As long as there is a basic safety net for the poor — food transfers and MGNREGS jobs — it is right to focus on jobs and growth in order to lift everyone into the middle-class. This is the best way to address inequality.
Besides, only sheer growth will bring revenues to the government to spend on health, education and poverty. Who cares if there are billionaires on the way? Remember, if the vice of capitalism is greed, the sin of socialism is envy. A sensible person prefers greed to envy and opportunity to equality.
There is valid criticism, however, about totally missing the privatisation target set in the last Budget. Heads do roll when promises are not kept in an accountable organisation. Privatisation is not easy and government needs to bring in more talent and a bulldog like Arun Shourie at the top. It is better to under-promise and over-deliver, but let’s hope next year’s modest target doesn’t mean that the FM has grown fearful after the farm laws fiasco, especially of an agitation by bank employees. Offer them a generous voluntary retirement scheme and the returns from it will be plentiful through a better price from privatisation.
A budget is more than a series of numbers on a page. It embodies our values. By choosing investment over consumption, and job creation over freebies, this Budget has opted for the long-term dignity and prosperity of Indians. This is a victory.
THERE ARE TWO WAYS TO RESPOND TO AN ECONOMIC SLOWDOWN. THE FIRST IS BY CONSUMPTION, THE SECOND IS BY INVESTMENT. THE BUDGET HAS ADOPTED THE SECOND WAY. THIS CREATES JOBS, BUT ALSO “CROWDS IN” PRIVATE INVESTMENT, LEADING TO MORE JOBS.