Budget 2022: A pathbreaking document, but for wrong reasons

GST regime, budget 2023
Budget 2023 has pledged Rs 35,000 crore in support of net zero and energy transition objectives, although the fine print of the plan is yet to be announced.

The Union Budget 2022 is truly a historic one. Not for the reasons Bharatiya Janata Party spokespersons or experts-for-hire have tried to spin it as. It is path-breaking because for the first time since it came to power in 2014, the BJP government has spearheaded a new policy course that markedly diverges from the normative underpinnings of the United Progressive Alliance government. No longer can the BJP be caricatured as being just Congress + Cow. In that sense, Budget 2022 can be characterised as the first BJP Budget.

Reconceptualisation in the role of the state

Budget 2022 boldly reconceptualises the role of the state. It reimagines what the government sees its core functions to be. Rather than envisioning itself as a welfare state where development is primarily people-centric rather than industry-centric, the BJP government sees itself largely as a facilitator of growth. That is why it has consciously chosen not to provide immediate relief to citizens after a devastating pandemic.

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It has chosen instead to focus on infrastructure development, the returns of which may trickle down a few years from now. In fact, this is partly why the government has been trumpeting the Amrit Kaal as a goal 25 years from now. This, naturally, postpones the promise of ‘Acche Din’ indefinitely. To illustrate this point further:

  1.  After the first two waves of Covid-19, it was fair to assume that the government would prioritise healthcare spending both to avoid a potential future wave and to ramp up vaccinations for the unvaccinated 50% of Indians below 18 years of age and partially vaccinated 18 crore Indians above 18 years of age. This is even more urgent given that the Covid-19 virus is mutating and will necessitate booster shots for the entire adult population. The BJP government has reduced spending on public health from Rs 74,820 crore (2021-22) to Rs 41,011 crore (2022-23). In fact, the BJP government spent the same proportion on healthcare in 2019-20 as it did in 2015-16, i.e. 1.3% of the GDP.
  2. Because of the lockdown which exacerbated the adverse impacts of demonetisation and GST, consumption expenditure had fallen to a record 40-year-low. Why is consumption so important in India’s context? Consumption contributes to 57% of India’s GDP. Therefore, a surefire way to kickstart India’s economy is to boost consumption. This was even more crucial because 84% of Indian households have seen a massive fall in incomes, and average household debt has almost doubled from Rs 34,000 per year to Rs 52,000 per year. This has been exacerbated by the fact that unemployment is at a historic 48-year high with labour force participation among the lowest in the world at 34.6%, compared with the world average of 61%. Rather than taking measures to boost consumption by putting more money in peoples’ hands through lower indirect and direct taxes and by enhancing welfare expenditure, the government has:
  • Budget 2022 has slashed the direct benefit transfer subsidy for LPG cylinders by 491% from Rs 23,667 crore (2020-21 actuals) to Rs 4,000 crore. At a time when 51% of Indian households have less money in hand due to higher fuel prices, the slashing of this crucial subsidy will mean that families will forego all expenditure except the most basic necessities.
  • Slashed allocations for the price stabilisation fund by 642% from Rs 11,135 crore (2020-21 actuals) to Rs 1,500 crore this year. Food inflation was at a record high of 5.2% in April-December 2021. The cut in funds will lead to high volatility in food prices in the coming months.
  • Cut the National Social Assistance Programme (NSAP) allocations by 339% from Rs 42,443 crore (2020-21 actuals) to Rs 9,652 crore this year. The NSAP provides a critical safety net for the elderly, widows, and disabled persons. Reductions in it will severely impact those Indians who are the most vulnerable at this time when mass poverty and hunger are back.
  • Slashed the food subsidy by 103%, which has fallen from Rs 4.62 lakh crore (2020-21 actuals) to Rs 2.06 lakh crore this year. Furthermore, allocations to the mid-day meal programme (now renamed PM-POSHAN) dropped from Rs 12,878 crore (2020-21 actuals) to Rs 10,233 crore this year (a 25.8% drop). This is shocking as India slipped to the 104th rank out of 122 countries in the Global Hunger Index during the pandemic and the government was severely criticised for letting millions of Indians starve as 65 lakh tonnes of food grain rotted in godowns.

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Why has the govt cut welfare spending

This naturally begs the question — how can any government that is sensitive to electoral outcomes possibly take such controversial decisions? After all, the impact of these decisions is going to adversely affect millions of Indians. There are two reasons for this, both political and financial.

Politically, the BJP government is consciously choosing to prioritise its political survival at the Union government over any state elections before the 2024 Lok Sabha elections. On a side note, this clearly points to a widening cleavage between BJP’s top leadership on one hand and BJP state governments which have been left to fend for themselves. This is perhaps the natural culmination of simmering tensions between the BJP and the Sangh Parivar on a host of issues like the caste census, the three farm laws, 100% FDI in retail, the social composition of the Union cabinet and the BJP organisation, centralisation of power in the PMO, etc.

Financially, the union government is uncomfortably poised. More than a third (35.3%) of India’s current budget will be financed by borrowings. This is exacerbated by the fact that 23.85% of the budget is being spent on interest payments. To be more specific, of the total budgeted expenditure of Rs 39.4 lakh crore, Rs. 9.4 lakh crore will go in interest payment. Most nations pay between 8-12% of their budget on debt servicing.

This is an unprecedented situation, and it is obvious that the government is desperate to bolster its revenues. That is why it has decided to sell Rs 111 lakh crores’ worth of national assets for a mere Rs 6 lakh crore under the National Monetisation Pipeline plan. This includes 31 airports, 23 ports, 26,700 kilometres of highways (20% of the nation’s road length), 400 railway stations, 1,400 kilometres of rail lines as well as the entirety of the Konkan railway, four heritage hill railways and the dedicated freight corridor. Contrast this with China, which aggressively promotes its state owned enterprises on the global stage. In auctioning India’s family jewels, the BJP government may bolster revenues in the short run but it will severely compromise national interests.

What’s equally shocking is the BJP government’s decision to depend primarily on GST collections (estimated at about Rs 9,00,000 crore including GST compensation cess) and income tax (Rs 7,00,000 crore) to bolster its revenues. This effectively means that the government is expecting the middle class and the poor (about 90% of India’s population) to contribute the bulk of its revenues.

There is not a word about raising more resources from the ultra rich, whose wealth in the last two years has increased from Rs 23,14,000 crore to Rs 53,16,000 crore, nor of raising corporate tax (which the government slashed from 30% to 22%, leaving the government poorer by Rs 1.45 lakh crore). Presumably, the government was expecting that lowering corporate tax would prompt them to boost investment. This hasn’t happened, and is unlikely to happen when demand is at a historic low.

Another strategy adopted by the government to raise revenues is cutting revenue expenditure. As explained earlier, this is done by cutting spending on welfare programmes that the states implement. This has been done without consulting state governments, which have not been in the loop because federal institutions like the National Development Council and the National Integration Council are moribund. Given that this will adversely impact the ability of state governments to implement their welfare agenda, this is bound to have electoral ramifications. So quite naturally, all state governments will raise a hue and cry. However, this is a bit of a self-goal because it’s bound to impact BJP-ruled states more, simply because more states are governed by the BJP.

Will capital expenditure boost demand, employment?

Even though they have sidestepped the rather worrying issue of suppressed welfare expenditure, the BJP’s spokespersons have argued that enhanced capital expenditure (funds allocated for infrastructure development) will boost demand and generate employment (reportedly 60 lakhs over the next five years which is a far cry from the 2 crore jobs per year that Prime Minister Modi promised). However, the government’s decision to put all its eggs in the infrastructure investment basket needs to be objectively analysed. After all, enhanced capital expenditure is desirable.

Upon careful reflection, it appears that this bold gamble seems to be over-pitched. Firstly, enhanced capital expenditure will not generate the kind of employment to absorb four crore jobless Indians. Now will it absorb 50 lakh plus Indians joining the workforce every year? The Budget has not done anything to revive India’s Micro, Small and Medium Enterprises which generate over 40% of employment in India. Secondly, the Rs 7.5 lakh crores allocated for infrastructure development (2.6% of the GDP) do not account for global inflation (which is at a 30 year high) or efforts by central banks of developed nations to rein in liquidity.

Thirdly, most of the infrastructure projects announced may not take off in the time-frame announced. India’s administrative processes are notoriously slow. Floating tenders, awarding contracts, allocating and transferring funds to firms and starting work will take at least a year and a half. This problem is even more acute due to the unfilled vacancies in government machinery (that the government has not bothered to fill up after eight years in power) and because the government simply doesn’t have enough personnel on the ground to implement the announced projects. Lastly, given that this government is permanently in election mode, it’s very unlikely that any of these projects will get the kind of push they need.

Finally, the government hopes that the enhanced infrastructure development will boost demand (assuming that the projects take off in time and generate employment across the nation). However, it has been estimated that the additional capital expenditure will transfer only about Rs 1,710 per household (or Rs 1 per person per day) for the entire year. This is nowhere near enough to boost consumption or provide a safety net for the poor (23 crore Indians have been pushed into poverty in the last few years), bucking the trend from the UPA years, when 27 crore Indians were pulled up from poverty).

Need for course correction

Economically, India is in a dire situation. The kind of economic distress we are facing is unprecedented. Unemployment is at a 48-year high, inflation is at record levels, the incomes of 84% Indian households have fallen, and the average household debt has ballooned. This has created acute socio-economic distress, which has grave ramifications for India’s social contract.

There are those who would disingenuously argue that the economies of all nations have contracted due to Covid-19. While that is true, what’s also true is that while the world economy collapsed by 3.1%, India contracted by 7.3%. India’s growth rate collapse in 2020 was the worst for any emerging market economy. Why is this? This is partly because of the BJP government’s aversion to expertise (most vocally exemplified by PM Modi’s famous dismissal of expertise in his quip- Hard-Work vs Harvard). But this is also because the BJP government has primarily prioritised the welfare of India’s top 20 large conglomerates at the cost of India’s other economic stakeholders.

This is not mere hyperbole. It is a matter of record that in 2020, nearly 70% of all corporate profits accrued to the top 20 firms (compared with less than 50% in 2011). The BJP consciously chose to do this because it is in its perverse interests to do so. The more it aids these 20 firms or oligopolies or captures public assets like airports, mines, highways, railway stations, etc. or secures concessions, the more funds it secures for its party-political activities. It is no coincidence that as a party, the BJP cornered 76% of total Electoral Bonds in 2019-20, and received more than 78% of its funding from unknown sources, 3.5 times higher than funding for all other national parties combined.

So what needs to be done? Firstly, if the union government is genuinely interested in spearheading a recovery package, it needs do three things, namely a) provide a safety net for those who need it today. This includes enhancing expenditure on NSAP, MGNREGA, healthcare etc., b) boost consumption which would mean transferring funds directly to the poor and vulnerable in the form of a NYAY-like scheme) and c) enhance employment rapidly (because that, in turn, will boost incomes and hence consumption). Providing dignified and productive jobs is perhaps the single biggest mid-term structural solution to stabilising our economy.

Secondly, the BJP government needs to urgently stop wasteful expenditure on statues (reportedly it has spent Rs 8,119 crore on statues so far, and has committed to building more in the coming months); on publicity (Rs 6,000 crore – Rs. 4.300 crore till 2018 and Rs 1,700 crore after that till 2020); and Rs 20,000 crore on the Central Vista project (which has not generated massive employment and whose costs have already shot up 29%). All these funds could have been better used to help the people who remain the ultimate end of all development.

But we need to be realistic about how much the BJP government will (or can) course correct. It has consistently proven its incompetence in the past five years — it has failed to meet revenue targets and disinvestment targets, since 2016 . So, all of us need to acknowledge that we cannot outsource the redressal of this problem any longer. All of us need to remember that India’s development is a bipartisan issue, and we all have a role to play in it. This government just can’t govern well, for it repeatedly substitutes the substantive with the symbolic. So for India’s sake, do the right thing. Yes, “the time is out of joint…(but) come, let’s go together” for your country needs you like never before.

(Pushparaj Deshpande is the Director of the Samruddha Bharat Foundation and Series Editor of the Rethinking India series. The views are personal.)