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The upcoming budget is the full budget of the Narendra Modi government ahead of the 2024 general elections, but considering the revenue and expenditure of the government, it is not expected to be a budget for the common man. But experts say the uneven nature of India’s post-pandemic recovery calls for more support for the most vulnerable sections of society.
India’s economy is in relatively good shape in 2023, with one-third of the world teetering on the brink of recession after a two-year pandemic.
Despite slightly falling short of the GDP target, the Indian economy remains the fastest growing economy in the world. India’s growth is likely to be 6-6.5 percent.
In addition, inflation is decreasing. Energy prices are falling. The country continues to see strong investment and consumer spending is on the rise. Also, India benefits from the ‘China-plus-one’ global manufacturing policy.
But experts say the upcoming budget should focus on broadening the expansion of Asia’s third-largest economy.
uneven recovery
Speaking at the recently concluded World Economic Forum meetings in Davos, International Monetary Fund Chief Economist Geeta Gopinath appealed to politicians to use fiscal policy to support the most vulnerable in society.
India’s unemployment rate remains high even though the GDP growth forecast is good. Similarly, inequality has worsened.
A recent finding by British charity Oxfam revealed that 40 percent of India’s wealth is owned by 1 percent. However, many have pointed out that there are flaws in these calculation methods.
But other data, such as falling demand for affordable housing and rising demand for luxury cars over two-wheelers, point to a post-pandemic K-shaped economic recovery.
In this, the rich get richer. The poor are poorer. The signs of this can be clearly seen in the rural areas of the country.
Delayed wages
The BBC traveled to various villages in Purulia district of West Bengal, a state mired in political conflict between the central and state governments.
According to official sources, the payment of Rs 2,000 crore worth of wages under the government’s Rural Employment Guarantee Scheme has been delayed for over a year.
A couple Sundara and Aditya Sardar spent 4 months digging ponds under this employment scheme. They told the BBC that they have now taken out loans to meet their food needs and have withdrawn their child from school due to delayed wages.
Similar tales of woe could be heard in all the tribal hamlets.
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“It has been suspended in West Bengal for more than a year. This is inhumane at a time of economic crisis and peak unemployment. As the Supreme Court said in the case related to the Mahatma Gandhi National Rural Employment Guarantee Act, this is an act of forced labour,” says social activist Nikhil Dey.
This delay in wages means that not only in West Bengal, but across the country, the central government has to pay Rs. 4 thousand crore pending.
Economist Jean Tres blames the government’s attempt to control spending on social security programs.
“At one time the expenditure on this was as high as 1 percent of the GDP. Now it is less than half a percent. I would be very happy if we increase it to 1 percent again in this budget, along with the efforts to control the corruption in the scheme,” said Drace.
Despite additional funds allocated last year to extend emergency aid programs during the coronavirus pandemic and to address the global geopolitical impact, the budget allocated less funds for rural employment program expenditures, food and fertilizer subsidies.
A balancing act
But given the precarious fiscal position of the Modi government, the finance minister has a difficult balancing act to do between prioritizing social security of the poor and increasing pro-development spending on the one hand and reducing the budget deficit on the other.
India’s fiscal deficit has averaged 4-4.5 percent over the past decade, and currently stands at 6.4 percent.
As total government debt has doubled in the past four years, subsidies on food and fertilizer could be cut by a quarter, a Reuters poll of economists found. The government has already stopped the free food scheme during the Corona period.
A growing current account deficit, the difference between what the government earns from exports and what it spends on imports, is another challenge.
“India’s economy is influenced by global investor sentiment and regional trade patterns. These are not in good shape at the moment,” said Taimur Baig, Chief Economist at DBS Group Research in a recent report.
Demand for Indian exports is likely to decrease as Western countries face recession. Moreover, tight domestic financial conditions are also expected to dampen domestic demand. The Reserve Bank of India is widely expected to raise interest rates further in February.
Although India has performed well globally, the Modi government faces tough economic challenges this year. A series of structural reforms should go beyond the budget announcements to better deal with the cash crunch.
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