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Budget: Job loss to delay $ 5 tr economy

By Nagaland Post | Publish Date: 1/9/2022 12:19:32 PM IST

 The government has to do an uphill task to present an extra-ordinary budget that should be low cost, high on growth, have debt sustainability even as it contends with the third corona pandemic omicron wave.

It will not be an easy task as the country races to achieve Prime Minister Narendra Modi’s avowed GDP target - $ 5 trillion economy by 2025, and adjust if not check high inflation of 14.2 percent. Now the estimates are for about $ 2.6 trillion budget by 2025. The pandemic has certainly reduced the achievements by about $ 200 to 300 milllion.

More so as the wholesale inflation rises to 14.2 percent, the highest in recent memory, accentuating the government’s fiscal situation amid high debt, and causing imbalances that is affecting growth. Even the mildest disruption could affect the tepid recovery. The IMF observes that central government deficit has risen to 8.6 percent and those of the states to 12.8 percent in 2020-21 much of it due to the covid. The bank credit has also been subdued.

Omicron or not the government has to make provision for Rs 4.38 trillion for delay in 470 projects. With offline mode and other restrictions to have a bearing on the state of the economy, it would be an exercise. With rising omicron numbers and pressure on the health sector, the government has to change gears in ongoing budgetary preparations. It has to keep public debt vulnerabilities in check.

Mending ways is not easy. In the new situation despite large deficits the government has to come out with novel approaches. It must move out of the many hackneyed high-cost infrastructure investment. The not so well-planned highway system has levied additional cost on the rural system as the neighbourhood gets distanced and made to pay high fees and tolls.

The country has also to reconsider whether it needs projects like bullet trains or metro trains. It is convoluting the system which is being dumped with high running and maintenance costs. The Delhi metro finding costs high is reducing frequencies. The CAG observes that metro has high overall cost.

Similarly, certain small and mid-sized cities and townships are being dumped with flyovers and metros affecting their functionality, aesthetics and capability to sustain high-cost infrastructure. Aping the west does not pay.

It calls for cut in imports of products that could be made domestically like the rail track cement sleepers to save forex. The country’s foreign exchange reserves has declined by $ 2.053 billion to $ 633.614 billion in December 20221, reveals RBI data.

Last year the budget for health sector was raised by 137 percent to Rs 2.23 lakh crore from 2019-20’s Rs 94.452 crore appears huge. It is not really so. It clubs the figures of health - Rs 73,932 crore and Ayush - Rs 67,112 crore. Together the hike is only 11 percent but in actuality compared to the previous year’s revised budget estimates, it is a reduction of 11 percent. Such window dressing has to be avoided.

How the finance minister changes tack remains to be seen. More restrictions as omicron spreads entail economic disruption. This was indicated by Nomura India Business resumption index (NIBRI) during the first and second pandemic phase.

The deficit and debt are bound to rise. The Economic Survey 2021-22 does not see high debt as a problem in Indian situation but it certainly raises debt service problems. The ES is of the view that since interest rates are low, the country would be able to sustain it. It is a different issue that low interest rates have other problems and may not be really practical. It has also added to NPA issues of late. A sustained rate rise could threaten the RBI’s case for keeping borrowing costs lower for longer to support the economy, given it has a mandate to keep consumer price inflation within its target band of 2 to 6 percent. 

The RBI for many months has left key lending rates unchanged and vowed to keep the accommodative policy stance for as long as needed to support a durable economic recovery.

But covid is not solely responsible. India’s GDP - at a high of 7-8 percent when Modi took office - had fallen to its lowest in a decade - 3.1 percent - by the fourth quarter of 2019-20. During the pandemic it had minus 24.4 percent contraction in June 2020. Even now its growth figures are projected at 9.7 percent over those low figures. It may look good but certainly calls for concern for accelerating it. The growth in September 2021 quarter was 8.4 percent higher than RBI 7.9 percent projections. Former NITI Ayog CEO Aravind Subramaniam says growth figures are 2.5 percent overestimated.

The biggest concern is that private final consumption expenditure (PFCE) has still not reached the pre-pandemic levels in the September quarter. The PFCE is the largest component of India’s GDP and its weakness suggests that the recovery is still not broad-based and is being driven by the rich.

 In India, covid 19 has exposed comorbidities and has further opened up the traditional fault lines, with the large unorganised labour sector bearing the brunt of the costs. At the last count, the Centre for Monitoring Indian economy (CMIE) estimated that over 130 million daily wagers in the urban centres were rendered jobless and homeless. India’s economy has been in distress for most of the last decade - 2011-21.

Exports are stuck at around $300 billion for nearly a decade. The 68-day world lockdown has prevented India from bouncing back either on manufacturing or exports. The country is losing market share to smaller rivals such as Bangladesh, whose remarkable growth has hinged on exports. 

That is less than the situation demands.  The revenue projections remain moderate. India’s economic advisory council to the prime minister expects the country to grow at an actual of 7.7 to 7.5 percent. 

The revenue collections may be moderately higher. But the country needing higher doses of cash infusion may not find it easy to manage the finances. 

The major problem is the industry contributing 26.5 percent in 2019 (30.3 percent in 2010) is sliding and agriculture 15.6 percent sustains  growth.   The final result once again may be inflationary and the course to 2022-23 would remain a bit bumpy but expected to stabilize if the pandemic abates and normal functioning is restored.

Shivaji Sarkar

Launched on December 3,1990. Nagaland Post is the first and highest circulated newspaper of Nagaland state. Nagaland Post is also the first newspaper in Nagaland to be published in multi-colour.

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