COVID SHADOW OVER THE BUDGET
Two years later the threat of covid-19 is yet to recede, suggesting that livelihoods will continue to be a defining theme of the Union Budget. EPISODE #58
Dear Reader,
A very Happy Monday to you.
Last week the Public Affairs Forum of India (PAFI) hosted Subhashis Gangopadhyay, research director of IDF, as part of the walk-up to the Union Budget to be presented on 1 February. Asked about how he would characterise this year’s budget Gangopadhyay said it will mirror the moniker Finance Minister Nirmala Sitharaman gave to the budget of 2021-22: A once in 100 years budget.
Gangopadhyay’s reasoning was simple. The covid-19 pandemic, which had dodgy origins in Wuhan, China, had severely scarred the Indian economy and the populace. The rehabilitation was still a work in progress and hence FM Sitharaman would have to continue to prioritise livelihood—or at least subsidise it.
I believe he is spot on. The Indian economy is exhibiting the so-called K-shaped recovery—drawing from the alphabet soup economists use to explain how one part of the economy is recovering and the other is not. In the case of the latter the brunt has been borne by the contact economy—made up of hospitality, aviation, tourism—which employ two-thirds of the informal economy workers.
So this week I explore the covid-19 shadow over this year’s Union Budget. It will also serve as a walk-up to D-day tomorrow.
The cover picture this week is a TV grab from this year’s Republic Day Parade. As they say a picture is worth a thousand words. In this instance it is worth so much more. The woman riding the motorcycle hands free, facing the wrong way and nonchalantly holding up a placard with the social message of ‘Beti Bachao, Beti Padao’ belongs to the Seema Bhawani' motorcycle team—these daredevils are part of the Border Security Force.
A big shoutout to Vandana, Gautam, Premasundaran, Aashish and Chittukuruvi for your informed responses, appreciation and amplification for last week’s column. Gratitude also to all those who responded on Twitter and Linkedin.
Glad to share that last week’s piece struck a chord with readers—registering the highest number of views ever. It just confirms how so many of us are invested in the new economy and hungry for explainers. Thank you for your support. As I always say reader participation and amplification is key to growing this newsletter community and conversation. And, many thanks to readers who hit the like button😊.
BUDGET EXPECTATIONS
On Tuesday, Finance Minister Nirmala Sitharaman will present what will be the 10th Union Budget of the Bharatiya Janata Party-led National Democratic Alliance (NDA) and her fourth. It is very likely that the Union Budget for 2022-23, given that the threat of covid-19 is yet to recede, will continue to work the tricky ‘lives vs livelihoods’ trade-off.
Yes, the overall macroeconomic numbers look reasonably satisfactory. In fact, compared to the rest of the world, it may even come across as outstanding—especially given the impressive growth numbers being projected for India. There are concerns however about growing inflationary pressures stemming from supply chain disruptions. Given the slack in the economy following the demand compression due to the shutdown of the economy to contain the pandemic, the inflation risk looks worse than what it is. For the moment at least.
However, if we look beneath the hood as it were, there is cause for concern. The scarring of the economy due to the pandemic has caused job losses, erosion of incomes and surge in the ranks of the new poor—those who fell back into poverty. At the moment there is no precise estimate about the extent of the problem; there are some estimates which claim that the number of poor in the country increased by over 100 million. Regardless, the problem is for real.
The union government is clearly aware of the challenge. Exactly why for the last two years they have provided free food grains to 800 million people. Not surprising then that the food subsidy bill has grown—partly for this reason—four-fold to Rs 4.22 lakh crore between 2019-20 and 2020-21.
In addition, the union government has been spending for income support to farmers. Designed to mitigate the fallouts of a prolonged rural distress the payout averages over Rs 1 lakh crore every year
Finally, spending under the social safety net—Mahatma Gandhi National Rural Employment Guarantee Scheme—was bumped up to a record Rs1.98 lakh crore in 2020-21; an increase of 59.67% over the previous year. Since it is a demand-driven scheme the revised numbers for 2021-22 will give us a sense of the rural distress.
Legacy Deficits
This challenge has got amplified by the legacy deficits—in health, education, infrastructure—India has failed to resolve for the last 75 years. Till the pandemic came along the underlying risks of running with a sell-past-the-date health infrastructure were conveniently ignored.
The consequences, as we experienced in the loss of our near, dear and distant, was devastating. I have written recently about this legacy of neglect so will not dwell in detail on the specifics.
Nonetheless I will share a visual sourced from Sambhav Foundation, a stark reminder of the consequences of this legacy of neglect.
The Foundation estimates that India needs 6.4 million healthcare professionals to match global standards.
This woeful shortfall in capacity has meant that the Union Budget cannot afford to take its eye of both the short-term and long-term threat of a health deficit on livelihoods—especially since most Indians, even before the pandemic struck, were just one disease away from poverty. The additional challenge is that health is a state subject—nudging them to rise to the challenge is tricky, especially since the Union government will have to avoid coming across as the ‘big brother’.
At the same time the Budget will have to signal a new blueprint for generating jobs. Business as usual has run its course. All the more since the NDA has overtly batted for empowerment over entitlement: Teaching people how to fish, instead of handing them fish. In tandem with continued step-up in social welfare spending such a strategy will lay out a sustainable path to recovery.
More Reforms?
While the livelihood challenge will pre-empt a large chunk of the government’s resources, the FM is likely to signal that the NDA regime, despite setbacks, is determined to simultaneously push the reform agenda. After all the Budget is a statement of intent and hence a very important means of signalling.
If you recall last year’s union budget had showcased a fundamental break with the past—burying the legacy of the public sector undertakings as the commanding heights. Writing about it for Open Magazine, Haseeb Drabu and I had argued that FM Sitharaman’s third budget was seminal for this very reason.
“PURELY FOR ITS decisive break from the past, the Union Budget for 2021-2022 will rank among the top five ‘disruptive’ Budgets and pitchforks Sitharaman, most unexpectedly, into an elite league of finance ministers. Combining with her boss, Prime Minister Narendra Modi, Sitharaman has carved out a special space for Modinomics in the budgetary history of post-independence India.
The last time a duo combined with such finesse was Prime Minister PV Narasimha Rao and Finance Minister Manmohan Singh in 1991. Exactly why some analysts are referring to this as the ‘1991 moment’; because, once again, a Budget has ignored political rebuke and undertaken a bold and radical paradigm shift. To be sure, Team Sitharaman’s big-stakes gamble was based on the prime minister holding all the political aces. For now, it has paid off with the markets voting, scaling a record high. Sitharaman’s third Budget (the economy did get third-time lucky!) will be remembered for long.”
If you wish to read it afresh please click this link.
While signalling its commitment to a market-based economy and simultaneously ramping up its social welfare spending to play catch-up to bridge the legacy deficits, it would be fair to expect fresh measures in making it easier for start-ups in particular and ease of doing business in general.
In fact, the first round table hosted by Prime Minister Narendra Modi on the Union Budget with a clutch of venture capitalists and private equity investors in December solicited the movers and shakers of global capital for fresh ideas to further improve the ease of doing business.
If one were to read the tea leaves then it is likely that the FM will unveil fresh plans to further unlock and inspire the entrepreneurial spirits with an eye on sustainable growth.
It is then clear that neither is India free of the pandemic nor is it from its fallouts. As a result the biggest test for this Budget and FM Sitharaman is in addressing the issue of livelihoods through the one tangible metric: jobs.
Recommended Reading/Viewing
Undoubtedly the onset of the covid-19 pandemic has triggered dizzying transformation. To put it another way it has accelerated change that was inevitable. Often most of us are left bewildered; confused on how to cope with this disruption.
Ravi Venkatesan, the former India CEO of Microsoft, has published a new tome to serve as a ready reckoner.
As the book promo argues:
“There are clear signs everywhere that we need new ways to think about the world and our place in it. Our old ideas about education, lifestyle, success and happiness no longer work. How is work changing? How can you know what skills will be useful when jobs of the future are still being invented? Will ‘jobs’ even exist or are we moving to a world of projects and gig work? How do you make sense of all this and more?”
The book does look appealing. Sharing a teaser in this wonderful conversation between Venkatesan and Abhijit Bhaduri—an insightful thinker in his own right who does frequent deep dives on the Future of Work. if you aren’t already doing so kindly follow him on Linkedin and subscribe to his weekly newsletter.
Click the twitter link below to tune into the conversation.
Till we meet again next week. Stay safe.
Hello Anil, its been a long time (3 months precisely), been away due to other commitments. Its refreshing to once again read your take on the budget. You were spot on pointing out the issues that need to be tackled in the coming budget. And reading this after the budget is presented, gives me much more insight into the fine balance.
I have to bring to your notice 1 issue I've found (a small one). You've written 10 billion = 1 lakh crore, where as 10 billion = 1000 crores. Its been repeated a couple of times.
dear Anil,
You have given a very clear picture of our economy and the challenges we face at present. the Budget has been announced and the debates, analysis and arguements have started in all TV channels. i feel it is a very good budget and the stress is on large scale spending to take the Economy to $5 trillion by 2025. lets hope fiscal deficit remains in control and below 6.5%.
The information you have shared about shortfall of medical personnel , given by Sambhav Foundation is an eye opener. We have a chapter on Health Infrastructure in class XII and the data given in our NCERT Textbook is of 2012 economic survey. Will share this data with my class.thks.
The book by Ravi Venkatesan seems to be very interesting .The message is so apt, we all need to change before it is too late. And finally the picture of the daring lady on motor cycle again signals the need for a change in our views and perceptions.