The obvious challenge for the pandemic-hit economy is not just to accelerate growth but to ensure that such growth translates to jobs and higher incomes for the poor. There is rethinking among economists that only increasing the top line of GDP is not the solution as policies need to consider incomes of the bottom segments. This has been reaffirmed by a very recent survey of People Research on India’s Consumer Economy (PRICE) which found that the income of the poorest fifth plunged 53% in five years, while the income of the richest fifth increased 39%.
Thus, there is need for gearing up public investment, promised in the last budget, needs to be continued, though in the current fiscal actual expenditure disappointingly has fallen short of the budgeted allocation. The first problem is that of inflation, which has been stubborn in the upper reaches of RBI’s target band. The second is the need for fiscal restraint. Higher borrowing and slower GDP have pushed debt-GDP ratio close to 90%. As a result, interest payments have grown to become the single biggest item of government expenditure and eat up over 40% of total revenues.
In this connection, the recently announced Economic Survey projected GDP growth in real terms to be 8-8.5% in the next fiscal. It stated that growth is expected to be supported by “widespread vaccine coverage, gains from supply side reforms and easing of regulations, robust export growth and availability of fiscal space to ramp up capital spending”. Experts are virtually unanimous that this appears to be too ambitious to achieve, given that in the current year it would exceed 9+%. In fact, in FY22, this high GDP growth was possible only because in the previous fiscal the contraction was around 6.6% (compared with provisional figure of 7.3%).
The outlook on agriculture has been encouraging with the sector not quite hit by the pandemic, with a growth of 3.9% in the current fiscal from 3.6% in 2020-21. The Survey has rightly pointed out the need for improving productivity of small and marginal farmers through small holding farm technologies. Additionally, use of artificial intelligence, drones and incentives for start-ups to enable farmers to get swifter and accurate information about weather, prices etc, has rightly been emphasised. Achieving this is crucial, but it would have been better if the government comes out with an action plan on how research institutions, including Indian Council for Agricultural Research, financial institutions and banks would support this government programme.
Besides, it’s the resolve to shift cultivation from rice and wheat to pulses and oilseeds to ensure self-sufficiency and also assisting in reducing important dependence. The need for giving priority to these two areas as also horticulture has been advocated by agricultural scientists for some time as crop diversification has the added advantage of increasing farmers’ incomes.
Undeniably, integration of horticultural plants with field crops like rice and also pulses become extremely important to achieve inclusive growth so that together it can boost up production of the agriculture sector. The main objective for this combination is to grow rice, pulse, kharif and rabi vegetables on the same field during the same period of time, contributing towards nutritional security and ensure soil sustainability in the long run. Thus, the horticulture sector being an important component of high value agriculture, its economic importance is increasing over the years and this has been aptly highlighted in the Economic Survey along with bigger focus on dairying, animal husbandry and fisheries.
Coming to infrastructure sector development, it has been said the five sectors capture 83% of the aggregate pipeline in value – roads 27%, Railways 25%, power 15%, oil and gas% and telecom 6%. Obviously, there is need to focus on physical infrastructure but instead of just thinking of highways, district and sub-divisional roads have to be given thrust so that the rural populace are benefitted.
As regards social services, the President talked about the PM Ayushman Bharat Health Infrastructure and the Survey has shown expenditure in three segments including health, education and others rising to Rs 19.06 lakh crore in FY 22 against Rs 16.34 lakh crore in the previous fiscal. But one cannot deny the dearth of doctors, specially specialists, virtually non-existent in rural and backward areas as also nurses and the lack of well-equipped hospitals in the country. Dr. Devi Shetty, eminent cardiac surgeon, recently observed that every hospital with over 100 beds should be encouraged to start a nursing and paramedical school. Covid proved that nurses’ contribution in patient care is as significant as that of doctors. In fact, most countries are trying to revamp their healthcare services by recruiting Indian doctors and nurses.
Education is also a crucial area which has been neglected and the closure of educational institutions during the last two years has greatly affected the rural population, which does not have connectivity to take advantage of online learning. Rural students have immensely suffered during the pandemic but the Survey has not delved deep into the problem and the possible methodology for tackling it.
However, the most important lacunae in the Survey is not outlining a strategy to generate jobs and just saying that organised sector jobs are at pre-Covid levels makes no sense. There is no plan on whether and how to boost labour intensive sectors like construction and housing, leather, food processing, tourism, gems and jewellery, etc. No unemployment data has been furnished and nothing has been stated about the conditions of migrants and the government’s plan to provide them with work and reasonable incomes. The CII just recently rightly suggested additional incentive rates to be included in the PLI schemes on the number of jobs created.
Another significant area, which has escaped Survey’s attention, is the inflation context. Though the it has talked of imported inflation from global energy prices, oil prices rising and expected to reach $100 per barrel mark shortly. The assumption of $70-75 per barrel of oil made in the Survey for the next fiscal is difficult to believe at this stage. Rising fuel prices may make all revenue calculations go wrong and also affect growth and development. Not only rising prices feed into inflation but also increase LPG and kerosene subsidies. Over and above this is the wholesale price inflation which has been running in double digits.
Finally, whether the Indian economy would be able to navigate the turbulent times with a ‘barbell’ response, as pointed out by the Chief Economic Adviser remains to be seen. However, the economic recovery that would be welcomed should encompass the major section of the population and not what Prof. Raghuram Rajan, former RBI Governor and presently with the Chicago Booth School of Business, talked of a K-shaped recovery as it reflects a situation where technology and large capital firms recover than small and micro business. One symptom of this is weak consumption growth, specially for mass consumption, said Rajan in a recent interview. According to him, “the bright spots are the health of large firms, the roaring business the IT and IT enabled sectors are doing, including the emergence of unicorns in a number of areas”.
As is generally agreed and also Rajan observed, the dark spots are the extent of unemployment and low purchasing capacity, specially among the low middle class and lower income groups, the financial stress that small firms are experiencing, including the very tepid credit growth. Thus, the challenge before the government is the capacity to generate resources to carry on the huge development agenda and uplift the conditions of the poor and the impoverished!