Finance Minister Nirmala Sitharaman has diligently done what has been asked of her, as she has consistently done over the last six years — to deliver a Budget document with reasonable fiscal discipline and limited reform ambitions. The question that remains is whether business as usual is good enough. The short answer is no. In understanding the scale of challenges ahead, the nine priorities she has laid out are worth revisiting.
First is productivity in the agricultural sector. We saw an increase in the share of labour in agriculture even before the pandemic, despite farmer incomes remaining flat — worrisome signs for a developing economy. The two key problems are that most policies are designed with the consumer in mind and not the farmer, and there is very little research and development (R&D) spending in agriculture. The biggest return on investment lies there. The obsessive focus on minimum support prices has become a populist trap.
The second is stagnant employment opportunities and low levels of skills among those joining the labour force. It is commendable that the government has finally recognised there is a problem here. The proposed solutions, in employment-linked incentives, though, are more of the usual and may improve outcomes at the margins at best. The central problem is one of poor human capital, on which the National Education Policy 2020 has excellent ideas. But it is garnering dust.
The third priority was under the catch-all phrase of inclusive prosperity and social justice. The government used this section to announce measures for Bihar and Andhra Pradesh, an understandable political compulsion. It missed a trick here because focusing singularly on two cities of Amaravati and Gaya and purposefully transforming them into urban growth centres, as China did with its smaller cities, would have been opportune. The government instead decided to announce a family of packages to look pleasing to its allies.
The fourth priority was a wide category of manufacturing and services. The poor state of micro, small and medium enterprises (MSMEs) was acknowledged. These have been hit by the triple blow of demonetisation, haphazard initiation of the goods and services tax (GST), and the pandemic. In fact, the share of manufacturing in employment and total output has declined over the last decade. The focus must be on improving human capital across the board. We must also double down on our strength in services which are fast becoming tradable, global capability centres being a case in point, and put together a workable vision for products that work at the intersection of manufacturing and services, such as chips, electric cars, etc.
The fifth was urban development. No new ideas were proposed. It is no secret that the infrastructure in existing large cities, despite some commendable recent developments, is struggling. The smart cities project, launched with fanfare in the first Modi government, has more or less been abandoned. We need the Tier-II and -III cities to grow sustainably and gainfully employ our teeming millions. Tourism, health, education, and low skilled manufacturing with decent public services like sanitation are obvious contenders to be the economic core of these cities.
The sixth was energy security and transition. Seventy per cent of India’s power needs are met by coal. Using cleaner coal and transitioning to nuclear and renewables is part of the energy transition plan. The question, though, is simply not one of energy but also employment — the coal sector is one of the largest employers. A concrete proposal here, made by the Economic Survey, of letting investments come in from China, would allow India to build good-quality solar panels and electric cars domestically.
The seventh was push to infrastructure. The central government has done a commendable job of continued capital expenditure in roadways, railways, ports, and airports. We are getting close to the stage where incremental expenditure here must be questioned and debated. Are we building roads or ports to nowhere? Is the money better utilised in improving schools and universities or making India more attractive to tourists?
The eighth was vaguely enunciated as Innovation and Research. Most cutting-edge research in the world happens in universities or at interaction of industry and academia, funded often by the state or non-interfering donors. India’s public universities are degrading, and fast approaching the point of no return. The private ones are of middling quality. The government’s multiple initiatives to infuse some energy, any energy, into higher education have failed. We could start by dismantling the University Grants Commission and setting up a light-touch regulatory body.
The ninth was the next-generation reforms for facilitating employment opportunities and sustaining high growth. There was unfortunately no talk of disinvestment from large public sector units, no talk of a framework devolving finances to local governments, no talk of initiating governance reforms of looking beyond the Union Public Service Commission (UPSC) as the only site of talent induction, no serious talk of trade treaties, to give a short list of obvious reform contenders.
This is a crude outline of the work required in materialising the dream of a Viksit Bharat, a developed India, by 2047. The government’s lethargic approach of responding to every challenge through a “scheme” is getting tiring. In the midst of our massive demographic dividend, we need to think big and do big. The incremental approach will not make us rich before we get old as a country.
The author is an economist at New York University Abu Dhabi and Cornell University, and a co-author of the recent book Breaking the Mould: Reimagining India’s Economic Future
First Published: Jul 24 2024 | 11:54 PM IST