India needs a Budget for its Young

February 22, 2023

Context:

In 2020, India accounted for 20.6% of the worldwide population of 15 to 29 year olds which means that in the years ahead, one out of every five workers deployed globally could be an Indian.

Key Proposals in this year’s Union budget:

Increase in capital expenditures:There will be a considerable increase in capital expenditures, for the building of physical infrastructure, mainly in transport, energy and defence.
- The figures under this head are expected to be higher by ₹3.2 trillion (or lakh crore) in 2023-24 compared to the corresponding level in 2022-23 (revised estimates).
Shortfall in government’s receipts: The shortfall in government’s receipts relative to its expenditures — to 5.9% of GDP, the government is nevertheless committed to reducing the fiscal deficit.
Fall in Subsidy Expenditure: The Union government’s expenditure on food subsidy will fall by ₹0.9 trillion (or 90,000 crore), on fertiliser subsidy by ₹0.5 trillion, and on MGNREGA by ₹0.3 trillion.
The marginal increases in the allocations on health, education, agriculture and the Anganwadi scheme are unlikely to make an impact, after taking into account the effect of inflation.

Public Private complementarities:

A jump in capital spending by the government, as proposed in the Budget, is a much needed step to reinvigorate the Indian economy.
Investment (for buying new machines and building roads and factories) as a proportion of income or GDP indicates the rate at which a country’s productive capabilities are growing.
In India, this proportion rose steadily during the mid2000s and peaked at 42% in 2007.
High rates of investment translated into extremely fast rates of economic progress in the country, which lasted until the early 2010s.
After the global crisis of 2007, in India, the government restrained its expenditures, worrying about the rising fiscal deficits.
As public expenditures nosedived, private investors lost confidence as well. Investment as a proportion of GDP was on a steady downward slide, falling to 33.8% in 2013-14 and 27.3% in 2020-21.

Negative impact of cut on subsidies and social sector spending:

Subsidies and social sector spending are considered ‘wasteful’ and, therefore, it is believed, a cut on their outlays will not hurt economic growth.
Quite the contrary, a reduction in social expenditures not only worsens the existing social inequalities but can also dampen the prospects for long term growth.
Only 9.8% (in 2020-21) of India’s workers are in regular jobs that provide some form of social security.
Therefore, measures such as MGNREGA and free provision of food have been a clutch at straw for millions of poor Indians, hit as they have been by the COVID19 pandemic and joblessness.

Invest in people, invest in the future:

Underinvestment in education and health will undercut India’s chances in a global economy that is increasingly dominated by knowledge.
Every year, millions of young women and men in the country are denied the opportunity for affordable basic and higher education.
At the same time, there is frustration among the educated that there are too few decent jobs for many of them.
Government expenditure on health and education can provide a boost to both the supply and the demand fronts in a knowledge-driven economy: more new jobs as teachers and doctors, especially for women, and a greater supply of younger professionals and skilled workers.

Unwarranted fears about Fiscal Deficit:

Inflated fears about the fiscal deficit and government debt will only be counterproductive in a country possessing vast reserves of untapped human and other resources as India does.
Only a small portion of India’s public debt is owed to external agencies (amounting to 4.2% of GDP in 2022), which does not pose a threat of the kind that external debt had created in Greece or is creating in Sri Lanka now.
India’s government debt is held largely by domestic financial institutions, including public sector banks, insurance companies and provident funds.
Virtuous cycle: Borrowing to build resources that help generate new jobs and incomes will lead to higher incomes and higher levels of development will also lead to the creation of fresh savings, which will help pay off the debts.
In this way, the children belonging to asset poor and socially disadvantaged households too will get a chance to pick up the qualifications required to enter the new economy.

Make or break moment of Indian economy:

The proportion of the population in India aged 30 years and above will rise to 58.6% in 2040, up from 37.5% only in 2000.
On the other hand, with a boost in government expenditures to provide food security, health and education, millions of India’s youngsters could indeed aspire to grow into bright stars that illuminate the world.

News Source: The Hindu