'Budget Hasn't Addressed Real Economy Issues'

'Generating employment requires a shift in policy.'
'If not, the country will face economic, social and political challenges in the coming years.'

The Union Budget 2024-2025 was full of announcements. But will they address the key problems faced by the economy now?

Has the Budget addressed unemployment? Is there a new focus in the Budget for farmers? Are there new schemes in the Budget to revive the MSME sector?

Professor Arun Kumar, below, retired professor of economics at the Jawaharlal Nehru University and an expert on the Indian economy, analyses the Budget in this conversation with Rediff.com's Shobha Warrier

Prime Minister Narendra D Modi said the Budget would empower the newly emerged neo-middle class.

The Budget has announced many things, but I don't see anything like that (to empower the newly emerging neo-middle class) in the Budget.

The major problem facing the economy is lack of jobs in the unorganised sector, and that is the reason the government did not get a majority and lost seats in UP and some other states.

What the ruling party needed to do was to take care of the unemployment situation, especially in agriculture and the unorganised sector.

Farmers are unhappy but there is not much in the Budget for them. The government has provided only Rs 152,000 crores which is only little above inflation. It does not provide the badly needed new thrust to this sector.

The rural employment guarantee scheme got Rs 86,000 crores last year, and the same amount this year which means it has declined in real terms.

In the case of health, the health budget was cut last year, and now it is back to what it was. Again in real terms, it has come down compared to what was budgeted.

For education, there is a step up over last year but compared to two years back, it is only marginally up.

In other words, the Budget lacks the thrust required in critical areas like employment generation, agriculture, social sectors, etc.

What does the term 'neo-middle class' mean?

In India, the middle class is very small. If you look at the tax data, it tells us that only 1.5 crore (15 million) are effective taxpayers which is 1.1% of the population.

Out of the 9 crore (90 million) who file Income Tax returns, 5 crore (50 million) are filing for either nil return or very small return. Another 2.5 crore (25 million) who file returns fall somewhere in between.

So, you can say that 1.1% of India is the upper middle class and the well off, about 2 crore (20 million) are middle class, and the rest are lower middle class who do not pay income tax and the poor.

If one is not talking about the 140 crore (1.4 billion) people, and only about the 2 crore middle class, it is a sorry situation.

What per cent of the 2 crore are neo-middle class is unclear?

Is there anything in the budget for the MSME sector or agriculture? The MSME sector has not yet recovered from the effects of demonetisation and GST...

You cannot ask, is there anything? There will always be something when you are spending about Rs 48 lakh crore which is 15% of GDP.

So, you can always give something for every head of expenditure in the Budget.

The question to ask is, 'Is there a new thrust in the Budget for these critical sectors of the economy?'

You mean, not enough?

Not enough. What is needed is, we have to have a new prioritisation and it will require a substantial step up in allocation to these sectors.

New prioritisation has to be for the micro sector, for agriculture, and for the unorganised sector so that there is robust employment generation in these sectors.

With employment, incomes would be earned and demand will be generated, and when there is greater demand, capacity utilisation will increase and the private sector will invest more.

To generate more demand, you have to give purchasing power to those at the bottom, to the workers in the micro sector, agriculture sector, etc.

I will give you an example. If you give Rs 100 to a poor person, she will spend the entire 100 rupees. She will buy a shirt for her husband, a chappal for self and something for her children.

But if you give Rs 100 to a rich person, he will spend only Rs 5, and save Rs 95. Hence, little demand will be generated.

So, if one wants to generate additional demand, one has to shift focus to those in the unorganised sector.

The government says it is doing that but in reality it is not doing that. That's why the consumption share of the GDP is declining.

The GDP, according to the official figures is growing at 7% to 8% but consumption is growing only at 3% to 4%. Because consumption is lagging behind, there is inadequacy of demand.

Consumption lagging behind means incomes are going in favour of the rich people who consume a smaller per cent of their income compared to the poor. We have to change this.

So, prioritisation has to be given to boosting the unorganised sector, consisting of the MSME sector, and the agriculture sector.

Also, there is need to create employment for women as employment of women is very low in India.

Employment has to be created for the educated youth. 97% of the employment in the MSME sector is in the micro sector but demonetisation and GST have killed the micro sector.

If it becomes buoyant, many jobs can be created.

Recently we saw thousands of youngsters coming for a few hundred jobs in Air India. For the police exam in UP, 47 lakh (4.5 million) youngsters applied for 60,000 vacancies.

The youth is desperate for jobs. So, this is where the nation's priority should be.

The government claims that it has created around 8 crore (80 million) jobs, yet unemployment is the biggest problem faced by the young of India...

When the government says it has created 8 crore jobs, it depends on what definition of unemployment is used.

The ILO defines unemployed as somebody not getting an income from work or not getting work at all.

But the Government of India counts even those giving free labour. By this yardstick even a housewife, who works very hard taking care of the family, will get counted as employed.

Look at the shops where the entire family may sit but have little to do. Can one call all of them as employed? This is disguised unemployment.

Similarly, in agriculture, people go to the fields but there is no work.

There is also massive under employment. Can one call a person as employed when he gets work for 1 hour a week? Can he support his family by working one hour a week?

So, in India the problem is under employment.

Then, there are people who are not even looking for work as they have not found any. They are not even part of our labour force.

According to the official data, the labour force participation is only 55% in India while it is around 70% in other big economies like, China, USA and Brazil.

In brief, there are four kinds of unemployment: Disguised unemployment, under employment, unemployment and those who are not even looking for work.

The government says India is the fastest growing economy, then why do we have jobless growth?

It is like this. The organised sector that is highly mechanised and automated. It is growing but it hardly generates jobs.

The unorganised sector, where 94% of the labour force works, is declining.

The data for estimating GDP is largely from the organised sector. The unorganized sector is largely proxied by the organised sector.

So, a declining sector is being represented by a rising sector and we overestimate the GDP. So, we are not growing at 7% to 8%, but at 1% or 2%.

That's why we have so much unemployment in spite of the claim of GDP growing at 7% to 8%. The 7% to 8% GDP growth is only in the organised sector which generates few jobs.

Only when the unorganised sector grows at 7% to 8%, will there be big employment generation.

While 97% of the employment of the MSME sector is in the micro sector, the present government is very much pro-organised sector.

So, I would say, the Budget has not addressed the real issues in the economy.

Do you think this will lead to more unemployment?

When you invest mostly in capital-intensive sectors and reduce that in labour-intensive sectors, unemployment will increase.

In time, the problem will worsen because the government is not doing what it should do.

On paper, some of the schemes announced in the Budget may look good but the reality is different as depicted above.

You must remember generating employment requires a shift in policy.

If not, the country will face growing economic, social and political challenges in the coming years.

There is growing conflict among communities and demands for reservations when it is clear that the problem cannot be solved by that.

Feature Presentation: Aslam Hunani/Rediff.com