Great on growth, not on jobs

Dear Amma, It’s been many years since you’d gone away. Had you been around, I can imagine you asking, “What’s this ‘girl’ Nirmala done in the Budget?” To answer that question, let me put the Budget in a broader context. The deadly pandemic – I hope it goes away soon – has taken a devastating toll on the economy. The task for the Budget was to put the economy on a firm recovery track, and importantly ensure that that rapid growth translates to jobs and incomes for the poor. The easy and politically attractive way would have been to support consumption by giving money directly to the poor. It is to FM’s enormous credit that she did not succumb to this temptation. She decided to spend more, but to spend it by way of public investment. Government capital expenditure is slated to go up by a massive 35%. Plus, FM also raised the allocation for interest-free loans to states for capex spending. All told, effective capex spending by the Centre will be an impressive 4.1% of GDP. Why is this better than just plain consumption spending? Simply because this is a robust path to sustainable growth. Public investment will not only generate growth in the short term but it will also build a base for strong growth in the future.medium nocaption89282074 Thankfully, we are at last seeing some light at the end of the tunnel on the twin balance sheet problem. Banks are now ready to lend and the private sector will be ready to invest once the existing slack in capacity is used up. When that happens, we will potentially get onto a virtuous growth cycle. The key of course is to ramp up execution, which has been our main weakness. I was happy to see FM focussed not just on hard infrastructure, but also soft infrastructure. She announced several measures to improve the ease of doing business, mostly by leveraging on digital technologies. Individually these measures may not sound dramatic but their combined impact on building trust and reducing transaction costs can indeed be dramatic. Many foreign investors, including those who have come under the PLI scheme, complain that costs of doing business are still high. If we succeed in making investment in India a happy experience, we have a serious shot at becoming a part of the world’s China+1 strategy. Knowing you as well as I do, I can anticipate your next question. What about jobs? Our jobs problem, serious even before the pandemic, has been compounded by it. There are some estimates that nearly 10 million jobs have been lost on account of the growth slowdown and the shift in activity from the labour-intensive informal sector to the capital-intensive formal sector. Kickstarting private investment will create jobs, but certainly not in the numbers we want. It is the MSME sector that is job-intensive and there is not much in the Budget to support them beyond continuing the existing guarantee schemes. Linking some PLI incentives to job creation would have been something worth trying. Export production too is labour-intensive. But export production behind protectionist walls is seldom competitive. It’s disappointing that FM did not roll back import tariffs, at least partially. The big elephant in the room of course is the fiscal deficit. This is programmed to decline from 6.9% of GDP this year to 6.4% next year. FM reiterated her commitment to bringing it down to 4.5% of GDP by 2025/26 but I wish she had given a glide path to getting there as that would have enhanced credibility and softened the government’s borrowing costs. There has been a lot of speculation over the last few months on GoI’s stance on cryptocurrencies. The suspense has finally ended with the Budget imposing tax at a uniform rate of 30% on income from trading in ‘virtual digital assets’. For many who feared that the government will totally ban cryptocurrencies, this will come as a relief. Others might think 30% taxation is too harsh but GoI may have deferred to the RBI governor’s concern that unfettered speculation in cryptocurrencies could threaten financial stability. Simultaneously, FM announced that RBI will come out with an e-rupee, a digital version of the paper currency next year. Since virtually everyone who wants to has already switched to UPI-based fast payment systems, I am not sure the e-rupee will be a gamechanger. But of course, we have to wait and see. In any case, I am certain the crisp currency notes that you were so fond of will continue to be around. Yes, I can hear you. You want my overall assessment. As someone who handled household budgets, you know that budgets are all about making choices among competing demands. I think FM has made some wise choices under difficult circumstances. It’s a level-headed Budget. Lots of love. The writer is former Governor, RBIIllustration by Uday Deb