For the Union Budget, the priorities and challenges
A massive issue, not created by Covid-19 but exacerbated by it, is inequality
The 2022 Union Budget will be presented as India completes two tumultuous years of the Covid-19 pandemic and the attendant economic slowdown. Last year’s budget was announced with the belief that the worst of the pandemic was over, and the nascent vaccination drive was expected to pick up pace rapidly to ensure that India had “won the war against Covid”. Even though, at the time, the protest against the farm laws was ongoing, the official mood was optimistic and the government was firm in its resolve that the farmers’ grievances had no basis in reality.
Since the last budget, there have been some positive developments, such as the significantly increased vaccination coverage, despite a slow and chaotic start, possibly leading to a less severe Omicron-induced third wave. However, the tragic devastation unleashed by the deadly second wave in the summer of 2021, and continued economic hardship in the form of joblessness, depressed incomes and high inflation, ought to impart to this budget exercise a sense of urgency and sobriety.
One recognition of mass discontent, compared to last year, is the official repeal of the controversial farm laws. The laws are not within the purview of the budget exercise, but it is imperative that the budget similarly acknowledges key economic challenges and specific manifestations of economic distress and suggests a road map for addressing these.
A massive issue, not created by Covid-19 but exacerbated by it, is inequality. The Oxfam India Supplement (2022) of Inequality Kills reports that the number of Indian billionaires increased from 102 in 2020 to 142 in 2021. The Forbes Billionaires report for October 2021 reports that more than 80% of India’s 100 richest families increased their wealth over 2020. In particular, two richest Indians saw their net worth multiply in one year – by eight times for Gautam Adani and twice for Mukesh Ambani.
As the rich grew richer, the number of poor increased. The Centre for Economic Data and Analysis at Ashoka University (CEDA) discussed Pew Research Centre’s estimates for India, which showed that the country’s middle-income population shrunk by 32 million. India’s poverty head count was steadily declining (from 340 million in 2011 to 78 million in 2019), but the pandemic increased the number of poor to 134 million in 2020 in a massive reversal of India’s fight against extreme poverty.
Scarcity of jobs has deepened economic vulnerability. CMIE data shows that overall open unemployment increased from 6.52% to nearly 8% between January and December 2021, with urban unemployment at 9.3% in December 2021. The jobs crisis is particularly acute in urban areas, suggesting a decline in wage work, manifesting itself in a decline in urban female employment and an increase in youth unemployment. Independent research shows that estimates for Covid-19 mortality from official sources underestimate actual mortality by six-seven times.
This scale of mortality indicates widespread distress, especially intense for families that lost earning members and children who lost parents either directly to Covid-19, or indirectly due to lack of treatment for other ailments.
The pandemic has also exposed the deep cracks in India’s health care system. As the public health care system is distressingly inadequate, Indians increasingly depend on private providers, incurring massive out-of-pocket expenditure and highly variable quality of care. Schools have remained shut for months, and unequal access to digital resources has resulting in children dropping out of schooling. Two top areas of focus for public expenditure must be universal health care and public schooling.
This context to the 2022 budget reinforces the point that overall economic policy must be directed towards providing succour to the large number of Indians in absolute or near-poverty through cash, in-kind transfers, in addition to job creation, with a special focus on drawing women into paid work. These points have been emphasised repeatedly since the beginning of the pandemic in 2020 (to take one of many examples, CEDA’s policy brief from 2020 that was just as relevant in 2021), but the provisions made by the central government to achieve these goals have fallen short. To repeat some of the key focal points, focus on employment expansion, including but not limited to MGNREGA, cash and food support to daily wagers and informal workers, safety nets for large segments of vulnerable workers, including those in the gig economy, payroll support to small employers, and access to health care must be an integral part of the budget exercise.
The argument in favour of increased public spending and a fiscal boost is inevitably countered by anxiety about fiscal discipline and inflationary pressures. In pre-Covid-19 times, the spectre of fiscal deficit would militate against any talk of increased public spending. Today the pandemic-induced distress is widespread enough that the suggestion of taxing the super-rich to ensure basic needs for the majority is finding greater currency. India needs to increase tax compliance by the rich. Additional ways of increasing revenues to finance expenditures need to be explored. High inflation is already a reality (y-o-y WPI inflation was 13.56% in December 2021 compared to 2.29% in 2020) mainly due to a sharp increase in fuel and power. Along with stagnant growth, this means that India could be headed towards a deadly stagflation, which will increase distress substantially, especially for low-income individuals.
It is now clear that we must learn to live with Covid-19 in the foreseeable future. The pandemic has demonstrated the urgent need for social protection and universal coverage of welfare schemes. Creating jobs and putting purchasing power in the hands of the people will also serve to stimulate growth. The annual budget is an important exercise, which should be used to signal intent in this direction.
Ashwini Deshpande is professor of economics and the founder-director, Centre for Economic Data and Analysis, Ashoka University
The views expressed are personal