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  Opinion   Oped  19 Jun 2019  Slowdown, jobs Sitharaman’s twin challenges

Slowdown, jobs Sitharaman’s twin challenges

The writer is a development economist, formerly with the Bill & Melinda Gates Foundation and the World Bank. Email:
Published : Jun 19, 2019, 2:24 am IST
Updated : Jun 19, 2019, 2:24 am IST

Budget allocations are reflective of government’s priorities in keeping with its vision and goals.

Finance minister, Nirmala Sitharaman
 Finance minister, Nirmala Sitharaman

The full Budget 2019-20 to be presented by the new finance minister, Nirmala Sitharaman, on July 5, 2019, is a good trigger to bring the Narendra Modi 2.0 government back into development mode. This being the first Budget of the NDA 2.0, it is easy in some respects and difficult in others. With NDA returning to power, no radical shift in policies and programmes is needed, which makes the task of the FM easier. But the fact that this budget is being prepared against the backdrop of slowing down of economic growth and high unemployment rate make the task of the FM somewhat difficult.

Niti Aayog vice-chairman Rajiv Kumar, who got reappointed for another term, is right in saying that that private investment has to lead the way for the next phase of growth. So, public investment must be such as to crowd in private investment. But the private investment needs to come not from crony capitalists or investors but from the new class of entrepreneurs and capitalists who believe in the virtues of competition, innovation, value creation, and smart risk taking; and who play by the rules.

Typically, a Budget is much more than a government’s statement of expected revenues and expenditures for the next fiscal year. Budget allocations are reflective of government’s priorities in keeping with its vision and goals. Even though Budget making is a balancing and optimisation exercise in the midst of several competing interests, a good Budget is one that pays heed to certain organising principles. Here are a few of them.

Current consumption versus public investments: This Budget needs to strike a right balance between supporting current consumption (such as pensions and other welfare programmes) and making public investments (such as investing in skills and training of the youth and in creation of other public and semi-public goods). Often, the right balance is dictated by the context at hand. It is widely felt that the budget 2019-20 needs to be growth-oriented. The necessity of a growth-oriented Budget will preclude any major social programme that makes a heavy demand on public funds in the near term. Keeping the ongoing social programmes afloat while redirecting public investments towards boosting investment and growth should be the overarching guiding philosophy of this budget.

Higher versus lower multiplier sectors: A growth-oriented budget needs to prioritise those high growth sectors that generate growth and employment in other sectors too, thereby creating a multiplier effect. Sectors such as domestic tourism and IT (information technology) including IT-enabled services are known to have higher growth and employment multipliers. So, this budget needs to focus on sectors with such attributes. Often, sectors that offer higher growth multiplier are lower on employment multiplier. For example, the automobile sector where production and assembly are highly automated has higher growth but lower employment multiplier.

A related issue is about concentrated versus diffused economic growth. Promotion of large capital-intensive manufacturing industries generates concentrated growth while supporting MSME (Micro, Small and Medium Enterprises) generates diffused or scattered growth (and also employment). This is as much a question of sources of growth as of choice of technology. For example, electricity generation by a large hydro-power project is a case of concentrated investment and growth while the equivalent amount of energy generation through a solar power project in a decentralised manner is a case of diffused growth. To distinguish between higher and lower multiplier sectors, a thorough understanding of sectoral inter-linkages and inter-connectedness is needed. It is not clear the degree of sophistication deployed by the Budget division of the ministry of finance to understand various inter-linkage and inter-connectedness of sectors and use that knowledge for Budget or policy purposes.

Urban versus rural focus: The Budget needs to strike a balance between investing in urban centres that serve as “engines of growth” and investing in rural areas for “shared” and “inclusive” growth. The Budget needs to intensify programmes such as the Smart Cities Mission, AMRUT (Atal Mission for Rejuvenation and Urban Transformation) and so forth. Simultaneously, the Budget needs to promote investment and growth of agriculture and allied areas, including giving a boost to food processing industries, for which there is a sound case and an urgent need.

Ongoing versus new programmes: The Budget needs to ensure that ongoing programmes that are in a “surge” phase are not deprived of adequate funding while also not shying away from initiating investments in new programs. For example, the national health insurance programme for the poor (the Pradhan Mantri Jan Arogya Yojana, or the PM-JAY) that was introduced last year is currently in a “surge” phase. This budget needs to ensure adequate funding to PM-JAY in the participating states. (It’s probably not a good idea to aggressively seek its expansion in non-participating states, as that would mean higher allocations in this year’s Budget to the programme that essentially supports current consumption). Similarly, the Budget need not shy away from introducing new initiatives aimed at boosting tech-revolution in the country in which India could harness its comparative advantage and become a global leader.

On-Budget versus off-Budget reforms: The government needs to deal with several important reforms/decisions whether it’s about financial sector consolidation or labour reforms or the current crisis in the Non-Bank Financial Companies or disinvestment in public sector undertakings. Some of these are situational while others require systems design issues. Most of these reforms need immediate attention and action for a fast-track growth. What reforms/decisions could be made part of this budget and what could be pursued outside of Budget is an important decision to be made by the FM and her team.

These are then some of the ideas on organising this year’s Budget. An average person may look at the budget purely from a narrow, selfish perspective of net personal gains or losses due to various changes proposed in the Budget. But an expert eye would be able to gauge how well the Budget is organised.

How does the Budget relate to the Prime Minister Modi’s recent interaction with all the Union secretaries in which he asked them to come up with a five-year plan of their respective ministries? Well, this is a useful exercise to learn of various development priorities and goals. Not all those priorities may get picked up. And those that do get picked up may get sequenced over the next five years. A good Budget would also give a peek into priorities that are likely to be taken up in the subsequent Budget(s).

Tags: information technology, msme