By Manoj K Sahoo and Prahanta Chandra Panda, Ahmadabad, February 1, 2017 : The current financial year is special. The Union government projected the growth rate of GDP in the current fiscal at about 7% of GDP, though it has not included the impact of demonetisation on the economy. However, in the latest Economic Survey it has accepted that the impact of demonetisation will be a growth sacrifice of up to 0.5%.

IMF projects the post demonetisation growth to be about 6.6% this fiscal. Growth matters a lot. In 2012-13 in the post global recession era India’s growth was also just above 5% which later had peaked to more than 7% with the average growth rate in GDP in the last four years since 2012-13 attained at 6.5%. India was still the highest growing economy in the world. This tempo was however lost due to the uncertainty created after the demonetisation on November 8, 2016.

The Union Budget 2017-18 supposedly designed to create jobs and infrastructure growth seems half-baked, though the Modi Government seems to have in mind the lack of job creation and decline in industrial and investment growth in the economy. The current Union government has made efforts to take care of these issues in the Union Budget 2017-18, but a careful analysis of the Budget tells a different story.

What is essential to note here is that the current central government’s focus has been shifted away from growth and job creation to demonetisation, check corruption and create transparent taxation system with an aim to expand the tax base. This Budget also reflects aspects related to these things. The government was criticized heavily over both demonetisation and lack of efforts to revive the economy through new jobs creation by opposition and concern expressed by the President. New jobs creation had declined successively since 2010 from a high of more than 10 lakhs per year to a meager below 1 lakh level in 2016. (Figure 1)

Industrial sector had revived and it was registering robust growth rates since 2012-13 from a growth rate of 3.6% a high of 7.4% in 2015-16. But this fiscal, it has declined to a level of 5.2% thus again sacrificing the fruits of growth with the five year industrial growth average of 5.42%, which obviously is a matter of concern.

Figure 1: Job Creation and Growth of Corporate Sales in India

Source: CSO, Ministry of Statistics and Programme Implementation, GoI, as in Times of India, 31, Jan 2017

Clubbed with this the fact that last year banks faced major NPA crisis and thus capital crunch and dwindling of lending to the corporates. Corporate sales and profits were declining steadily after peaking in 2010-11 and finally sales growth entering into negative zone since last year. Corporate sales contracted by about 5% in current year after a peak of about 10% in 2010-11 in real terms, which was a witness that the health of the economy was not well. (Figure 1) Investment scenario (gross fixed capital formation) in the economy was dampened since last four quarters after peaking at about 10% growth in the September 2015 quarter to declining successively and contracting by more than 5% in September 2016. (Figure 2)

Figure 2: Quarterly growth in Gross Fixed Capital Formation in India

Source: CSO, Ministry of Statistics and Programme Implementation, GoI, as in Times of India, 31, Jan 2017

This bleak economic scenario, it seems, government was well aware of, though it didn’t do much to rectify the situation. Hence the current Budget a focus was given on job creation efforts and leveraging the supposed benefits of demonetisation for reviving the investment scenario in the economy. Starting from agriculture, a record credit allocation of Rs. 10 lakh crore was made as priority sector lending.

But as past experiences show, priority sector lending are more often diverted to the agricultural equipment manufacturing firms, rather than the true farmers. That’s why the bleak farmers suicide scenario in India. The government has to commit and see that true beneficiaries are farmers. On this basis possibly government is relaxed at least this year by bumper growth in agriculture sector at 4.1%, but let’s not forget the fact that in last five years agriculture has only grown at a meager 2.16% on average which is insufficient to the stated target of the current government to double farm income by 2020.

But some good measure in this area has been enhancing crop insurance provision from Rs. 5,500 cr last year to Rs. 13,240 cr this fiscal, which includes past arrears, and Rs. 9,000 crore in next fiscal. Also sum insured is more than doubled from Rs. 69,000 cr in khariff 2015 to Rs. 1,41, 625 cr in khariff 2016. But the coverage is still not sufficient which is only at 30 % in 2016-17, proposed to hike to 40% next year and 50% in 2018-19. Stable agriculture growth and farm income growth will not be possible until majority of farmers are covered under crop insurance.

Total allocation for Rural, Agriculture and Allied sectors is pegged at Rs. 1,87,223 crores, which is 8.64% of total budgeted expenditure for coming fiscal which though significant, not sufficient seeing the vast dependence of about more than 60 per cent of people directly dependent on the rural farm sector. Moreover, rural farm sector allocation as share of GDP has remained stagnant over the years with the substantial reduction of subsidies to this sector. This has resulted into shifting focus of successive governments to rural non-farm employment and avoiding taking concrete steps on rural farm sector growth.

Employment Generation

Government’s employment generation efforts can be gauged from the fact that it has given a susbtantial thrust to rural employment via MGNREGA with a record allocation of Rs.48,000 cr with a target to asset creation of 10 lakh ponds by Mar 2017 and additional 5 lakhs by 2018. Participation of women in NREGA have also increased from less than 48% to 55%. Moreover, Mahila Shakti Kendras at villages with Rs. 500 cr in 14 lakh ICDS anganwadis is created to provide skill, employment, digital literacy, health and nutrition to village women.

PM’s Kaushal Kendras’ expansion from 60 to 600 districts with Rs. 4000 cr allocation for ‘Sankalp’ for job training to 3.5 crore youth, Rs. 2200 cr for ‘STRIVE’ for Skill Strengthing for Industrial Value Enhancement, and 100 India-International Skill Centres for advance training and courses in foreign languages will provide some fill gap in skill development to the disadvantaged sections. But past experiences have shown that skill provisioning, facilities of finances for self employment and jobs availability in the public and private sector have to go in tandem to make the objective of these programs fruitful.

The allocation for PMGSY, to build rural roads including the State’s share is pegged at Rs. 27,000 crores in 2017-18 and allocation for Pradhan Mantri Awaas Yojana – Gramin increased from Rs. 15,000 crores in 2016-17 to Rs. 23,000 crores in 2017-18 with a target to complete 1 crore houses by 2019. This will provide a much needed impetus to rural employment generation.

However, the Budget seems to be silent about organized sector employment and that to in the urban areas. Some impetus given to the MSMEs with upto Rs. 50 crore turnover in terms of corporate tax rate reduction from about 30% to 25% will free some capital with the entrepreneurs which may lead to some growth in jobs in the private organized sector.

But it may be a sure case scenario as corporate face capital-crunch themselves with decline in sales- both symptoms are negatively correlated to jobs growth. Rs. 10,000 crore capital infusion has been provisioned to the banking system which will ease some pressure from the banks and will increase lending to the MSMEs but it will go some quarters till sales growth of corporate becomes positive for companies going for increased hiring.

Infrastructure Growth

Another area of focus in the Union Budget 2017-18 has been on the infrastructure growth. Total Infrastructure allocation is pegged at Rs. 3.96 lakh crore for the next fiscal (significant 18.27% of total budget expenditure) with increase in Highways budget allocation to Rs. 64,000 cr next fiscal from 57,676 cr in current year. Out of this share of transportation infrastructure on Railway, Road and shipping provisioned at Rs. 2.41 lakh crore (11.22% of total budget expenditure) with majority share going to the railways at Rs. 1.31 lakh crores for capital and development expenditure (6.1% of total budget expenditure).

Problem of railways and road infrastructure development has been incessant delays in the implementation of the projects, which in fact leads to increase in capital costs and thus non-fulfillment of the targets and restructuring of the projects in next financial year. This has been the major problem in Indian railways, which in fact needs special focus and professional management. Mere allocation of funds with half-hearted commitment is not going to solve the age-old problems of Indian railways.

For communication infrastructure allocation of Rs. 10,000 crore is provisioned for Bharat Net project for high speed broad band services. This is the right time for seamless broadband services connecting nook and corners of India as the Government is putting thrust on digitalization of the economy, IT infrastructure network for GST implementation and cashless transaction. This has to be expedited on urgent basis with freeing of additional resources from competitive spectrum allocation.

The Way Forward

The present Union Government has to do substantial introspection when it designs the budget and calculates that infrastructure growth and impetus to industries with support from rural farm sector growth will take the economy back to higher growth trajectory. The negative and uncertain business environment and public mood created by the abrupt demonetisation, what Amartya Sen calls a ‘unguided missile’, has to be taken care of India’s rank in the ease of doing business has been very low at 130 out of 189 countries. PM’s effort this year has mopped up record FDI of USD 130 billion. Scrapping of Foreign Investment Promotion Board must lead to enhancement of ease of doing business and faster implementation of FDI proposals leading to turnaround in industrial investment and higher realization of manufacturing growth. FDI and PPP participation in infrastructure growth thus be given utmost priority with deeper commitment. Hence, Budget is an occasion for long term collective thinking and not half-baked prioritization and reflection of ‘unilateral thinking’!

(The Authors are Faculty Members of Economics at School of Liberal Studies, Pandit Deendayal Petroleum University, Gandhinagar.)