BEHIND the big-ticket announcements in Finance Minister Nirmala Sitharaman's latest budget lie hopes of an economic recovery that will boost employment in particular. Prof. AJIT KARNIK from Middlesex University, Dubai, looks behind some of the headline numbers, to finds both hits and misses..——-.BUDGET 2021-22 was presented against the unprecedented backdrop of the COVID-19 pandemic. Finance Minister Nirmala Sitharaman acknowledged the devastation of the Indian economy by the viral pandemic in her budget speech. The world over, a policy of fiscal expansion has been adopted to provide a safety net to the vulnerable sections and stimulate the economy in these circumstances..In many countries, fiscal expansion has been accompanied by monetary and credit expansion. India is no different: As per the IMF, India's fiscal stimulus package was 2.2% of the GDP as compared to more than 10% for developed economies and around 5% for many developing economies..“Allocations for MG-NREGS, Mid-Day Meal Scheme, Consumer Protection and other schemes and departments, have surprisingly been cut compared to budget allocations announced last year. Possibly, the government has assumed that this year will be more 'normal' than 2020-21..India is at the lower end of the scale of fiscal stimulus, but significantly, the Gross Fiscal Deficit (GFD) to GDP ratio stood at 9.5% for 2020-21 (as compared to the Budget Estimate or BE of 3.5%) and will be 6.8% in the forthcoming year..India has not tried to rein in the GFD given the precarious situation and this is a good sign. It is also satisfying that the Revised Estimates (RE) of capital expenditure for 2020-21 grew by over 6.5% over the BE and is set to rise by 26% for 2021-22 (BE) over 2020-21 (RE). As expected, the RE for 2020-21 grew 14% over the BE but is budgeted to fall by 3% in 2021-22 (BE)..Also Read: Union Budget Pushes for a Full-Scale Power Shift with a Hefty Cost.OVERALL FISCAL POSITION.While the intent of the government to pull the Indian economy out of the deep recession is clear, details behind the headline numbers are worth looking at..Table 1: Summary Data of the Fiscal Position. 2020-21 (BE)2020-21 (RE)2021-22 (BE)REVENUE RECIPTS8.997.988.02OTHER RECEIPTS1.000.240.84TOTAL RECEIPTS9.998.228.87TOTAL EXPENDITURE13.5317.7115.63GFD3.549.496.76Note: All numbers are ratios to GDP Other Receipts include Recovery of Loans and Disinvestment receipts.From Table 1, we can see that (a) The GFD for 2020-21 (RE) has increased by 5.95 percentage points over 2020-21 (BE), of which (b) the decline in total receipts accounts for 1.77 percentage points, and (c) the increase in total expenditure accounts for 4.18 percentage points..So, almost 30% of the increase in GFD is accounted for by a fall in tax collections, obviously due to the poor state of the economy, and cannot be deemed as part of a discretionary fiscal stimulus. Couple this with the IMF's estimate that India's fiscal stimulus was just 2.2% of GDP, and the level of GFD overstates the extent of fiscal stimulus during 2020-21..Also Read: Budget 2022: Crude Expression of Anti-People Agenda.There is an anomaly in the tax collections too. All tax collections except one declined in 2020-21 (RE) compared with 2020-21 (BE). This is easy to explain given the bad state of the economy. Corporation taxes have fallen by 22%, income tax by 29%, and GST by 25%. The exception is Union Excise Duties, which grew 35%, of which the excise duty on motor spirits and high-speed diesel oil (Road and Infrastructure Cess) rose by a massive 78% over the year..“Some estimates of employment multipliers for public-sector expenditure would have helped analyse the impact of the budget on employment. Besides, much of the burden of job-creation will fall on the road sector, yet it has got less than 30% of the hiked capital expenditure for the transport sector..Notably, cess collections are not shared with the states. If the Union Excise Duty collections had remained the same as in 2020-21 (BE), the GDF to GDP ratio would have been higher by half a percentage point..The Finance Minister also detailed the big expenditure push in various sectors. These have been clubbed under the six "pillars" of the budget and we must look closely at two: 'physical and financial capital and (physical) infrastructure', and 'health and well-being'..PHYSICAL INFRASTRUCTURE.The Finance Minister referred to a National Infrastructure Pipeline, which is an ambitious vision to kickstart 7,533 projects for US$1,809.21 billion. Of these, three categories—transport, energy, and water and sanitation—account for 80% of the total cost..A collation of the amounts that have allocated for capital expenditure [from the Demands for Grants available in the Expenditure Budget 2021-22] related to the items that fall in these three categories presents the following picture (see Table 2)..Table 2: Expenditure on Physical Infrastructure. (Rs. Crore) Item2020-21 (BE)2020-21 (RE)2021-22 (BE)Transport126,291.67 (0.56)105,713.93 (0.54)163,383.00 (0.73)Energy1,782.28 (0.01)2,934.01 (0.02)1,774.97 (0.01)Water & Sanitation305.45 (0.001)107.13 (0.001)280.80 (0.001)TOTAL128,379.40 (0.57)108,755.07 (0.56)165,438.77 (0.74)Note: Figures in parentheses are ratios to GDP.Given India's critical unemployment situation, not just during the pandemic but for a few years prior to it as well, it is not clear how many jobs the hike in infrastructure expenditure will create..The burden of job-creation will fall on the transport sector, which has seen the largest increase. Not that within transport, only the road sector is employment-intensive though, no doubt, there will be a spillover of job-creation in the private sector and that should be considered too..Also Read: Budget 2022: Reading the Fine Print on the Energy Sector .Some estimates of the employment multipliers for public sector expenditure would have been useful to analyse the impact of the budget on employment, but these are lacking. Besides, much of the burden of job-creation will fall on the road sector, yet it accounts for less than 30% of the increase in capital expenditure for the transport sector..HEALTH AND WELL-BEING.This pillar is a grab-bag of items that includes ongoing as well as one-time expenditures, for example on the COVID-19 vaccination drive..Table 3: Expenditures on Health and Well-being. (Rs.Crore)Ministry/Department2020-21 (BE)2020-21 (RE)2021-22 (BE)Department of Health & Family Welfare Inclusive ofCOVID -19 Emergency Response and Health System Preparedness Package65,011.10 –78,866.00 11,756.0071,268.00 –COVID Vaccination––35,000.00Ministry of AYUSH2,122.082,322.082,970.00Dept. of Drinking Water & Sanitation21,518.0017,023.5060,030.00Nutrition3,700.00600.002,700.00FC Grants for Water and Sanitation––36,022.00FC Grants for Health––13,192.00TOTAL92,351.0098811.58221,182.00Ratio to GDP (%)0.410.510.99.If the one-off cost of COVID-19 vaccination is excluded, the ratio to GDP for 2021-22 (BE) lowers even further to 0.84%..The total allocation for the Department of Health and Family Welfare for 2021-22 (BE) marks a 10% fall compared with the RE for 2020-21. The implicit assumption is that COVID-related medical requirements will taper off. This seems reasonable given the declining number of current infections. Still, it would be useful to bear in mind the sudden worsening of the pandemic in other countries due to mutations of the Novel Coronavirus, which causes the COVID-19 disease..Also Read: Deception in the Health Budget 2021-22.Allocations for some ministries and departments have surprisingly been cut in the BE 2021-22 compared with the RE for 2020-21, possibly because the budget assumes this year will be more "normal" than the last..Consumer Protection (Ministry of Consumer Affairs, Food & Public Distribution): -76.5%National Programme of Mid-Day Meal in Schools (Ministry of education): -10.9%MGNREGA (Ministry of Rural Development): -34.5%.CONCLUSIONS.Budget 2021-22 takes a very optimistic view that the rate of growth in 2020-21 will fall by at most 7.5%. India's growth rates for the third and fourth quarters of 2020-21 are not yet known..Budget 2021-22 pegs the growth rate for next year at a high 11%. However, even if the economy expands at 11%, it will bring next year's GDP to just about 3% higher than in 2019-20..Growth rates in India have been continuously declining since 2015-16. This is an important fact, for it implies that even a sharp recovery in 2021-22 will not remove the deep-rooted problems that are shackling economic growth..The thrust on physical infrastructure and health and well-being in the budget were certainly required and look impressive, but will they bring India back to the high-growth path that lasted almost a decade before 2015-16? The jury is still out..(Ajit Karnik is a professor at Middlesex University, Dubai. The views are personal.)
BEHIND the big-ticket announcements in Finance Minister Nirmala Sitharaman's latest budget lie hopes of an economic recovery that will boost employment in particular. Prof. AJIT KARNIK from Middlesex University, Dubai, looks behind some of the headline numbers, to finds both hits and misses..——-.BUDGET 2021-22 was presented against the unprecedented backdrop of the COVID-19 pandemic. Finance Minister Nirmala Sitharaman acknowledged the devastation of the Indian economy by the viral pandemic in her budget speech. The world over, a policy of fiscal expansion has been adopted to provide a safety net to the vulnerable sections and stimulate the economy in these circumstances..In many countries, fiscal expansion has been accompanied by monetary and credit expansion. India is no different: As per the IMF, India's fiscal stimulus package was 2.2% of the GDP as compared to more than 10% for developed economies and around 5% for many developing economies..“Allocations for MG-NREGS, Mid-Day Meal Scheme, Consumer Protection and other schemes and departments, have surprisingly been cut compared to budget allocations announced last year. Possibly, the government has assumed that this year will be more 'normal' than 2020-21..India is at the lower end of the scale of fiscal stimulus, but significantly, the Gross Fiscal Deficit (GFD) to GDP ratio stood at 9.5% for 2020-21 (as compared to the Budget Estimate or BE of 3.5%) and will be 6.8% in the forthcoming year..India has not tried to rein in the GFD given the precarious situation and this is a good sign. It is also satisfying that the Revised Estimates (RE) of capital expenditure for 2020-21 grew by over 6.5% over the BE and is set to rise by 26% for 2021-22 (BE) over 2020-21 (RE). As expected, the RE for 2020-21 grew 14% over the BE but is budgeted to fall by 3% in 2021-22 (BE)..Also Read: Union Budget Pushes for a Full-Scale Power Shift with a Hefty Cost.OVERALL FISCAL POSITION.While the intent of the government to pull the Indian economy out of the deep recession is clear, details behind the headline numbers are worth looking at..Table 1: Summary Data of the Fiscal Position. 2020-21 (BE)2020-21 (RE)2021-22 (BE)REVENUE RECIPTS8.997.988.02OTHER RECEIPTS1.000.240.84TOTAL RECEIPTS9.998.228.87TOTAL EXPENDITURE13.5317.7115.63GFD3.549.496.76Note: All numbers are ratios to GDP Other Receipts include Recovery of Loans and Disinvestment receipts.From Table 1, we can see that (a) The GFD for 2020-21 (RE) has increased by 5.95 percentage points over 2020-21 (BE), of which (b) the decline in total receipts accounts for 1.77 percentage points, and (c) the increase in total expenditure accounts for 4.18 percentage points..So, almost 30% of the increase in GFD is accounted for by a fall in tax collections, obviously due to the poor state of the economy, and cannot be deemed as part of a discretionary fiscal stimulus. Couple this with the IMF's estimate that India's fiscal stimulus was just 2.2% of GDP, and the level of GFD overstates the extent of fiscal stimulus during 2020-21..Also Read: Budget 2022: Crude Expression of Anti-People Agenda.There is an anomaly in the tax collections too. All tax collections except one declined in 2020-21 (RE) compared with 2020-21 (BE). This is easy to explain given the bad state of the economy. Corporation taxes have fallen by 22%, income tax by 29%, and GST by 25%. The exception is Union Excise Duties, which grew 35%, of which the excise duty on motor spirits and high-speed diesel oil (Road and Infrastructure Cess) rose by a massive 78% over the year..“Some estimates of employment multipliers for public-sector expenditure would have helped analyse the impact of the budget on employment. Besides, much of the burden of job-creation will fall on the road sector, yet it has got less than 30% of the hiked capital expenditure for the transport sector..Notably, cess collections are not shared with the states. If the Union Excise Duty collections had remained the same as in 2020-21 (BE), the GDF to GDP ratio would have been higher by half a percentage point..The Finance Minister also detailed the big expenditure push in various sectors. These have been clubbed under the six "pillars" of the budget and we must look closely at two: 'physical and financial capital and (physical) infrastructure', and 'health and well-being'..PHYSICAL INFRASTRUCTURE.The Finance Minister referred to a National Infrastructure Pipeline, which is an ambitious vision to kickstart 7,533 projects for US$1,809.21 billion. Of these, three categories—transport, energy, and water and sanitation—account for 80% of the total cost..A collation of the amounts that have allocated for capital expenditure [from the Demands for Grants available in the Expenditure Budget 2021-22] related to the items that fall in these three categories presents the following picture (see Table 2)..Table 2: Expenditure on Physical Infrastructure. (Rs. Crore) Item2020-21 (BE)2020-21 (RE)2021-22 (BE)Transport126,291.67 (0.56)105,713.93 (0.54)163,383.00 (0.73)Energy1,782.28 (0.01)2,934.01 (0.02)1,774.97 (0.01)Water & Sanitation305.45 (0.001)107.13 (0.001)280.80 (0.001)TOTAL128,379.40 (0.57)108,755.07 (0.56)165,438.77 (0.74)Note: Figures in parentheses are ratios to GDP.Given India's critical unemployment situation, not just during the pandemic but for a few years prior to it as well, it is not clear how many jobs the hike in infrastructure expenditure will create..The burden of job-creation will fall on the transport sector, which has seen the largest increase. Not that within transport, only the road sector is employment-intensive though, no doubt, there will be a spillover of job-creation in the private sector and that should be considered too..Also Read: Budget 2022: Reading the Fine Print on the Energy Sector .Some estimates of the employment multipliers for public sector expenditure would have been useful to analyse the impact of the budget on employment, but these are lacking. Besides, much of the burden of job-creation will fall on the road sector, yet it accounts for less than 30% of the increase in capital expenditure for the transport sector..HEALTH AND WELL-BEING.This pillar is a grab-bag of items that includes ongoing as well as one-time expenditures, for example on the COVID-19 vaccination drive..Table 3: Expenditures on Health and Well-being. (Rs.Crore)Ministry/Department2020-21 (BE)2020-21 (RE)2021-22 (BE)Department of Health & Family Welfare Inclusive ofCOVID -19 Emergency Response and Health System Preparedness Package65,011.10 –78,866.00 11,756.0071,268.00 –COVID Vaccination––35,000.00Ministry of AYUSH2,122.082,322.082,970.00Dept. of Drinking Water & Sanitation21,518.0017,023.5060,030.00Nutrition3,700.00600.002,700.00FC Grants for Water and Sanitation––36,022.00FC Grants for Health––13,192.00TOTAL92,351.0098811.58221,182.00Ratio to GDP (%)0.410.510.99.If the one-off cost of COVID-19 vaccination is excluded, the ratio to GDP for 2021-22 (BE) lowers even further to 0.84%..The total allocation for the Department of Health and Family Welfare for 2021-22 (BE) marks a 10% fall compared with the RE for 2020-21. The implicit assumption is that COVID-related medical requirements will taper off. This seems reasonable given the declining number of current infections. Still, it would be useful to bear in mind the sudden worsening of the pandemic in other countries due to mutations of the Novel Coronavirus, which causes the COVID-19 disease..Also Read: Deception in the Health Budget 2021-22.Allocations for some ministries and departments have surprisingly been cut in the BE 2021-22 compared with the RE for 2020-21, possibly because the budget assumes this year will be more "normal" than the last..Consumer Protection (Ministry of Consumer Affairs, Food & Public Distribution): -76.5%National Programme of Mid-Day Meal in Schools (Ministry of education): -10.9%MGNREGA (Ministry of Rural Development): -34.5%.CONCLUSIONS.Budget 2021-22 takes a very optimistic view that the rate of growth in 2020-21 will fall by at most 7.5%. India's growth rates for the third and fourth quarters of 2020-21 are not yet known..Budget 2021-22 pegs the growth rate for next year at a high 11%. However, even if the economy expands at 11%, it will bring next year's GDP to just about 3% higher than in 2019-20..Growth rates in India have been continuously declining since 2015-16. This is an important fact, for it implies that even a sharp recovery in 2021-22 will not remove the deep-rooted problems that are shackling economic growth..The thrust on physical infrastructure and health and well-being in the budget were certainly required and look impressive, but will they bring India back to the high-growth path that lasted almost a decade before 2015-16? The jury is still out..(Ajit Karnik is a professor at Middlesex University, Dubai. The views are personal.)
