BackEconomists bat for boost to jobs and public investments
Budget will have to keep demand elevated as private investment will take time to recover
PremiumNEW DELHI : Rarely do economists agree on public policy. But, at the Mint Budget Roundtable, prominent economists from the academia and Dalal Street were unanimous on the urgency of generating jobs by boosting public investment in a post-covid economy.
Ajit Ranade, chief economist, Aditya Birla Group, said India is witnessing a K-shaped recovery. Forming the upper shape of the K is corporate profitability, exports, strong foreign direct investment (FDI) flow, and a strong stock market, he said.
“But much of the population is in the lower part of the K. Labour force participation is barely 40-42%. NREGA demand is very high and the few food programmes that had to be extended to March 2022, are signs of stress," he added.
Ananth Narayan, professor at the SP Jain Institute of Management and Research, echoed Ranade: “We have done a lousy job of creating jobs. This predates one government, it’s a structural issue over the last 15 years. That is the issue that needs to be addressed."
He added that the employment to population ratio used to be 55% in 2005 and has been coming down since then to the current levels of 40-42%. The total workforce in December 2016 was 40 crore and remained at 40 crore even in December 2021.
Yamini Aiyar, president and chief executive officer, Centre and Policy Research, highlighted another complexity.
Aiyar said skill mismatch in the formal labour market would increase since students graduating have not been in the classroom.
“So, before we look into the long term-challenges, we have to work on these short-term challenges. The last Budget gave me a sense that we were past the relief stage, but there are still signs that we are still not past the immediacy of the relief stage."
JP Morgan’s chief India economist Sajjid Chinoy said: “While 2021 was the year of getting economic activity on the track, 2022 will have to be the year where we have to get jobs back on track. The Budget will have to keep demand elevated as private investment will take time to recover, and public investment will have to shoulder the burden of job creation."
Fundamentally, a Budget is supposed to be a statement of the government’s macro-fiscal position and the last Budget was realistic to a certain extent, but it will be helpful to be realistic about our disinvestment target, said Aiyar.
While the FY22 Union Budget targeted ₹1.75 trillion through divestments, barely 5% of this was achieved.
“ ₹1 trillion not coming into a bank is a significant hole in your math. The budget will also have to be real about the realities of the pandemic. We should hope for less roll down of spending on subsidies such as NREGA and the public distribution system. The government needs to open schools and deal with the challenges of foundational learning," Aiyar added.
Lekha Chakraborty, professor, National Institute of Public Finance and Policy, said:’’ I think we don’t have to fear fiscal deficit right now and we can expect the same narrative this time around in the Budget presentation. High fiscal deficit can be substantiated if we can increase revenue spending on education and health. There is mounting pressure on the RBI to increase rates. So, my hunch is that the fiscal deficit will be contained at 6.8% of GDP via tax buoyancy and not expenditure compression."
Chinoy said this fiscal year should remain relatively accommodative and monetary policy will have to begin to normalize. He added that the Reserve Bank of India has already started doing so in a non-disruptive manner.
Inflation in India is mostly high goods inflation and not services inflation, said the experts. The roundtable discussion also indicated concerns over high oil prices.
Ranade said he would like to see efforts to improve India’s tax-to-GDP ratio.
“We are among the lowest in the world. We should especially focus on direct taxes-to-GDP ratio, " he added.
Chakraborty said focus should be on healthcare.
“We have increased to 0.8% of GDP but still less than 1% of GDP. So, more investment in health is needed," she said.
“I would look for quantum and distribution of expenditure. More investment in education, health, and infrastructure will be key. I think the bond market will look for tax realism, something which we saw in the last Union Budget, too," said Chinoy.
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