Budget 2022: Wrong prescription for unemployment, demand slump

PLFS shows low unemployment rate
As low rural unemployment is the reason behind improved jobs data, questions are being raised about the sustainability of India's labour market.

Budget 2022 was presented in Parliament last week in the midst of an unprecedented unemployment crisis. The crisis was aggravated by the lack of aggregate demand in the economy. The budget was expected to provide a stimulus for employment generation across sectors. Objectives such as generating jobs and boosting aggregate demand needed similar policy measures as working class spends most of their income and their marginal propensity to consume is relatively higher. The last two years were harsh on the economy because of the Covid-19 pandemic and subsequent lockdowns and partial lockdowns. Expectations were that the Budget would address these issues to some extent.

Before the pandemic broke out, open unemployment was already at a 48-year high of 8.8% (2019-20). There had been no change in open unemployment over three financial years ending March 2020. This was hardly surprising given the fact the economy was slowing each quarter. This implied that underemployment was increasing over this period.

In absolute terms, there were 30 million unemployed persons before the pandemic. The pandemic and subsequent economic disruptions added another 10 million to this figure. Considering additions to the labour force of 5 million per annum, unemployment in absolute terms would be around 50 million. Around 32 million semi-skilled and unskilled migrant labourers went back to agriculture between 2019 and 2020 and received little help. The mass migration led to the reversal of the falling trend in absolute number of workers in agriculture between 2004-05 and 2019.

Urban unemployment has been ticking higher than the national average and recent data from the Centre for Monitoring Indian Economy show that urban joblessness continues to be sticky. Urban joblessness was 8.16% in January 2022 compared with the national average of 6.57%.

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Budget 2022 cuts MGNREGS outlay

Since their return to villages, the migrants have come to depend on the Mahatma Gandhi National Rural Employment Guarantee Scheme. The programme is a lifesaver at a time of desperation as livelihood opportunities are almost non-existent. Budget 2022, however, did not raise allocation for MGNREGS despite the Economic Survey 2021-22 raising expectations. It stayed silent on an urban employment guarantee programme and did not expand the wage subsidy scheme through EPFO.

Budget 2022 allocated Rs 73,000 crore for MGNREGS this year, the same as the amount in Budget 2021, but lower than the revised estimate of Rs 98,000 crore. Thus, the budget allocation for 2022-23 is way short of the FY22 spending. In 2020-21, the actual expenditure on MGNREGS was Rs 1,11,170 crore.

The decline in allocation towards MGNREGS is disheartening in the context of the severe unemployment crisis caused by the pandemic. Demand for rural jobs is likely to stay high due to several factors including the reverse migration that followed the pandemic outbreak. The Budget 2022 did not announce the much anticipated urban job guarantee scheme.

Finance minister Nirmala Sitharaman said the Productivity Linked Incentive (PLI) scheme in 14 sectors has the potential to create 60 lakh jobs. The FM also mentioned that the push for a green economy will create an enabling environment for employment generation. She also counts on the telecommunication sector, 5G technology in particular, can enable growth and offer job opportunities.

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The only serious intervention in the Budget for jobs is the increase in capital investment. From its normal level of 1.3% of the GDP, capital investment was increased to 2.9% of the GDP. This is expected to boost public investment in infrastructure in a situation where most state governments do not have the elbowroom to invest.

In any case, they have to deal with the strict restrictions on borrowing on account of the Fiscal Responsibility and Budget Management (FRBM) Act. Also, an increase in public investment was required to crowd in private investment – a typical Keynesian measure. This is a significant departure from the Union government’s policy stance for the last two years when the size of the fiscal stimulus was barely 2.1% and 1.9% of the GDP.

FM counts on capital investments for jobs

The Budget focusses on a long-term view of ‘India at 100’ and relied on enhancing capital expenditure-supported growth and productivity in big-infra segments. The expectation is that the big boost in capital expenditure and more supply side spending measures will subsequently create a number of good quality jobs. The last two budgets also pushed a similar logic, but ground realities are different as both unemployment and aggregate demand continued to plague the economy.

In an interview with Economic Times, principal economic adviser Sanjeev Sanyal said the proposed boost in capital expenditure in 2022-23 is essential to crowd in private investment and kickstart a virtuous cycle. He explained that the government is using public spending on infrastructure in two ways. The first area of focus will be to build demand as that would ramp up jobs and other for creating capacities that would enhance the supply side.

The Budget has given more funds to the Emergency Credit Line Guarantee Scheme (ECGLS) for MSMEs at Rs 50,000 crore. This takes the total allocation to the scheme to Rs 5 lakh crore between FY21 and FY23. This might have some positive implications for saving some jobs in MSMEs that may have to close down sue to a lack of aggregate demand in the economy. Pandemic induced distress in the unorganised sector got aggravated by the decline in aggregate demand. The Union government’s fiscal stimuli in the last two years were not large enough to compensate for the job losses suffered during Covid-19 lockdowns. This has resulted in rising poverty and increasing inequality in India.

This Union Budget for financial year 2022-23 was an opportunity to address these issues in a holistic manner and supplement supply-side incentives with demand-side stimulus. However, apart from enhanced capital investment proposals, there is very little in the budget that will boost employment generation. In the last few years, the focus was always on supply-side incentives.

Given the prevailing poor employment scenario and the job losses due to the pandemic, the budget should have taken employment generation head on rather than simply relying on supply-side incentives. Labour is derived demand and demand for labour would go up when demand for goods and services go up. This certainly would happen when aggregate demand goes up. This budget was expected to create appropriate demand-side impetus, but this remains an unfulfilled agenda.

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Dr Kingshuk Sarkar is an associate professor at the Goa Institute of Management. He has worked as a labour administrator with the government of West Bengal. He earlier served as a faculty member at VV Giri National Labour Institute, Noida and NIRD, Hyderabad. Views expressed are personal.