Mritiunjoy Mohanty and Sushil Khanna

Budgets in India are a time when governments lay out their report on the state of the economy and pronounce policy platitudes in terms of the greater good they think will justify the taxes they impose on its citizens. But beneath the platitudes of the policy slogans  and couplets Finance Ministers regale parliament with, lie the contours of a struggle where different classes and groups struggle to extract their pound of flesh.

Most policies have winners and losers, and those with the weakest voice are the property-less poor and the weak, small and micro-businesses, and the small and marginal farmer. Sometimes few morsels are thrown at them, specially when elections are near, and other times these alms and morsels are snatched away. For the Finance Minister Sitharaman, this was the year to snatch away the morsels Modi was forced to throw at the poor, as a consequence the ill thought Covid lockdown, counted amongst the most draconian across the world. And remember that the pandemic came even before the economy could recover from this government’s ill conceived demonetization that destroyed millions of small households and small enterprises.

Indian economy has just gone through a policy-induced stagnation, thanks to the way an arrogant and inept Modi government handled the pandemic lockdown. Even if one assumes the best estimates of GDP growth in 2022-23, made in the Economic Survey, India has experienced an average growth of just 2.7 per cent per annum during 2019-2023. No wonder unemployment is all time high and large scale destitution and hunger and malnutrition are writ over the faces of young and old in India. Outside of the 1% that is. For them the recovery is complete. Ask Mercedes. In India they have seen the highest sales growth last year. Economists have a fancy term for this – they call it a K-shaped recovery. That’s when the 1% gains and everybody else loses …

Table I India GDP Growth

GDP Rs Triln145.16135.58147.36156.32146.1
Per cent growth3.7(-6.6)

The survey while singing praises of this K-shaped recovery, which has just brought the Indian economy a little above the 2019 level, promises faster and inclusive growth, driven by government-led capital expenditure. Suddenly crowding-in  is the mantra to revive private sector’s animal spirits and risk appetite! But given the fact that growth in private sector investment has declined sharply, since Modi’s demonetization that destroyed jobs and demand in the economy, it (private investment) seems in no mood to be coaxed and cajoled. Even after six long years, private sector investment has been sluggish, pulling down the national investment rate from 39 per cent of GDP to around 30 per cent during Modi years.

Sitharaman’s budget once again showed the callous face of Modi government, that had only three years earlier had watched without compunction or remorse the millions of poor migrant workers walking hundreds (sometimes thousands) of miles back towards their villages. The reader will  recall that Sitharaman had then even mocked those trying to help them or provide food and shelter.

The Budget 2023 will long be remembered as one where the Modi government snatched food and employment guaranteed days work  away from teeming unemployed reeling under an economic decline that had robbed them of their gainful jobs. And it snatched this away to raise resources for infrastructure investment and tax breaks to the rich income tax payers – it has made sharp cuts in the job guarantee scheme popularly known as Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA). The latest data available for rural job demand (Nov 2022) under the MNREGA scheme running at all time high. In other words, though the GDP has recovered to the pre-pandemic level, jobs which were destroyed in the senseless and hurried lockdown have not materialized. Unemployment –both rural and urban– remains high as high demand for employment under NAREGA.  The budget tis year has slashed subsidies and life support to the hungry and the jobless and even to farmers who had struggled against  Modi government. Ultimately, this K-shaped recovery is about politics too. The Modi government has been among the most political and ideological of all governments that have ruled post-independent India – politics has always trumped sensible economics.

The cuts are draconian. Food subsidy and few foodgrains to the poor has seen a reduction of one lakh crore, fertilizer subsidy by more than 50,000/- crores, MNREGA budget has been cut by more than 33 per cent, from 90,00/- crores to 60,000 crores . Similarly, there have been cuts in petroleum subsidy where poor today pay Rs.100 for a liter of kerosene. There have been similar cuts in allocation for education and health. As Jean Dreze and Reetika Khera note “we are more or less back to square one after 20 years, in terms of total expenditure on these schemes as a proportion of GDP” [The Wire, ‘Chart: The Sharp Decline in Total Expenditure on Social Security Schemes’]

 The much-touted increase in capital expenditure to Rs. 10 lakh crores or 3.3 per cent of GDP is unlikely to lift the economy. To grow the economy, India needs to invest at least 33 per cent of GDP, or 10 times the amount government is spending.  The balance investment has to come from private corporate sector and the so called household sector. Despite many tax breaks given to private corporations, who today pay a tax lower than pensioners in India , the private corporate sector, in the last 7-8 years, has been shy to invest, even as they have used government largess to clean up their balance sheets and deleverage.

As worsening income distribution had led to collapse of demand for several industries. Thus while Mercedes has done exceedingly well because demand for “Luxury” cars costing above Rs. 1 crore a piece has doubled , along with India’s billionaires, the demand for motor cycles and scooters has declined by a whopping 40 per cent. These are today largely used by poorly-paid delivery boys, earning less than minimum wage in net terms, working to amass profits for Amazon, Flipkart and Swiggy.   As the distress spreads to FMCG and other sectors where Indians in the lower 80% of the income distribution are the main customers, demand collapse and income decline has made private corporate capitalist  wary to invest. And small and medium business which has been decimated clearly cannot either. So Sitharaman’s Rs. 10 trillion capex is not likely to raise the overall investment rates in the  economy, nor fire up the dormant “animal spirits” of risk taking. What we well know is that demand uncertainty never bodes well for private investment growth.

Secondly, if we add the capital expenditure by public sector enterprises to that of capital expenditure by Central government the total amounts to  3.9 per cent of GDP. This is exactly what the government and PSEs together invested last year (2022-23). So this year, Central government increase has come at the expense of PSE whose capital budget has been cut. So why should central government capex go up and PSE capex go down? That too is politics. The jumla of the double-engine!

What is more interesting is that about 30 per cent of Central governments capex will be executed by private sector. About 3 lakh crores is to be spent as grant in aid or viability gap funding to projects like toll roads or metro lines built by companies like Reliance. More in the pocket of Modi’s friends|

Finally, FM Sitharaman has signaled fiscal rectitude by indicating that the fiscal deficit will be reined in to under 5%. And pray how is this miracle to be achieved? By a sharp squeeze in the states legitmitate share of tax resources, in part by central government mobilising resources by  levying cess and surcharges that  are not shared with states! What Jayati Ghosh has so aptly called “combustible federalism” [‘Tightening the screws’, 2nd February 2023, The Telegraph].

In keeping with past form, again this a budget aimed at virtue signaling to rating agencies and made for the 1%. And the rest of the citizens of the country are left to fend for themselves. This is the true meaning of ‘Atmanirbhar Bharat’! Amen.

Top - Home