Despite the rhetoric that the regime’s record in employment generation has not been all that bad by citing questionable data, Finance Minister Nirmala Sitharaman has stolen more than a few leaves from the pre-election manifesto of the biggest Opposition party, the Congress, while announcing schemes such as the internship programme in the country’s top companies, the employment-linked incentive programme, abolition of the “angel tax” to spur investments and by not reducing the budget allocation on implementing the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA).
Minor sops have been given to the middle class by changing the income tax slabs for those with taxable incomes in excess of Rs 6 lakh and under Rs 7 lakh (thereby bringing the tax rate down from 10 per cent to 5 per cent); for those earning over Rs 9 lakh but under Rs 10 lakh, the tax rate has been reduced from 15 per cent to 10 per cent.
According to Finance Minister Sitharaman, a salaried employee in these or any other higher tax brackets would save Rs 17,500 by way of income tax. However, property-owners will not be happy at the removal of indexation of property values accompanied by a reduction in the rate of tax on long-term capital gains from 20 per cent to 12.5 per cent. As expected, there were sweeteners for the state governments of Bihar and Andhra Pradesh announced by the Modi (sorry, National Democratic Alliance) government. Curiously, there was nothing for Maharashtra, Haryana and Jharkhand – the three states where assembly elections are scheduled to take place later this year.
Following the warning issued in Monday’s Economic Survey on “overconfidence” in the stock-markets leading to undue speculation, several proposals in the Budget saw share indices decline. These include the increase in the tax rates on short-term capital gains (from 15 per cent to 20 per cent), long-term capital gains (from 10 per cent to 12.5 per cent), on transactions in securities (from 0.02 per cent to 1 per cent), by changing the time period for reclassification of assets, by hiking tax rates on futures and options (F&O) transactions and by taxing income from buyback of shares. The government clearly did not have to worry too hard about controlling the fiscal deficit after its coffers were buoyed by the unprecedented transfer of Rs 2.1 lakh crore by way of dividends from the coffers of the country’s central bank, the Reserve Bank of India.
The Union government’s revenue earnings increased by 14.5 per cent while expenditures grew only by 5.94 per cent. The revenues have not been used for investments, but to reduce the fiscal deficit from 5.8 per cent to 4.9 per cent of the country’s gross domestic product (GDP).
As expected, the Budget contained proposals for infrastructural projects in Bihar involving a total outlay of Rs 26,000 crore – all the projects are part of the “Purvodaya” plan for the entire eastern region of India. Job creation was evidently very high on the government’s agenda. While Sitharaman did not mention MNREGA by name – a scheme that had been trashed by Modi in 2015 as an example of the Congress party’s failure to provide jobs – she clearly recognized that this was one scheme that has provided succour to the poor in rural areas.
Unlike previous years, the 2024-25 budgetary allocation for MNREGA was the highest-ever at Rs 86,000 crore, the same amount that was actually spent in the previous financial year 2023-24. The Economic Survey has, incidentally, said the expenditure on MNREGA were not accurate indicators of rural distress because of the capacities of specific state governments to spend on the rural employment guarantee scheme and on account of differing minimum wages in different states. Andhra Pradesh would be getting Rs 15,000 crore, much of it for building the state’s new capital at Amaravati. In addition, the central government would assist the state governments of Bihar and Andhra Pradesh should they wish to obtain multi-lateral financial assistance from the World Bank and the International Monetary Fund.
The extent to which these announcements would placate the NDA government’s two most important alliance partners, namely the political parties led by Bihar Chief Minister Nitish Kumar and Andhra Pradesh Chief Minister N Chandrababu Naidu, remains to be seen. The cut in Customs duties on 50 imported items and the promise of that tariffs would be reviewed in six months, has been seen by some economists as a kind of a “course correction” by lowering levels of protection to Indian industry. The expenditure on food subsidies has come down because the government is procuring less wheat and paddy while continuing with the free food scheme that is expected to continue for the coming five years.
The powers-that-be have belatedly recognised that lack of employment is the single biggest issue that matters to the country’s youth. According to the Centre for Monitoring Indian Economy (CMIE), youth unemployment touched a record high of 45.4 per cent in 2022-23. Between 2011-12 and 2022-23, over half the men in the country and more than two-thirds of the women were categorized as “self-employed” – a euphemism for not being able to find decent jobs. The November 2016 demonetization, the hurriedly rolled-out goods and service tax (whose rules have been amended more than 900 times since 2017) and the harsh lockdown following the pandemic – all resulted in small and cottage enterprises shutting down, throwing people out of jobs.
According to the government’s Annual Survey of Unincorporated Enterprises, between 2006 and 2021, 24 lakh small units downed shutters resulting in the number of workers in the informal sector coming down by 1.3 crore. The government evidently does not hold much store by the RBI’s recent claim that 8 crore new jobs were created in the last 3-4 years, a claim that has been questioned for lacking credibility. The Budget has called on India’s top 500 companies to engage one crore young people by providing them an internship allowance of Rs 500 a month plus a onetime assistance Rs 6,000, that would be borne by the government. The companies would bear the cost of training and 10 per cent of the internship allowance (or Rs 50 a month) could be paid out of tax-free CSR (corporate social responsibility) funds. In addition, employment-linked incentive schemes are aimed at benefiting 2.1 crore youth through, among other things, contributions to the employees’ provident fund organisation (EPFO).
The Congress was exultant with former Finance Minister P Chidambaram expressing his happiness that Sitharaman had read the party’s manifesto and implemented certain suggestions in it to create employment opportunities. The current Finance Minister had earlier dismissed the manifesto as a document that containing recommendations that could not be implemented for lack of funds, and which would increase the fiscal deficit.
Sitharaman’s Budget speech makes the grandiose announcement that an amount of Rs 1.52 lakh crore would be spent on the agriculture sector. No mention has been made on minimum support prices. Unions of farmers have pointed out that the share of the agriculture and allied sector has been steadily declining and currently stands at 3.15 per cent of the total budgetted expenditure. Curiously, for the first time, three words were hardly present in Sitharaman’s 58-page long Budget speech (with annexures). These words are “railways,” “defence” and “health-care.”
Importantly, the budgetary outlay on defence has been brought down despite geopolitical tensions rising. Sitharaman’s Budget speech also has little to say on health-care. This Budget, like previous ones, indulges in data juggling and wishful thinking. Nominal GDP growth is projected at 10.5 per cent while real GDP is projected to grow at a rate between 6.5 per cent and 7 per cent. This has been done by deflating nominal growth by assuming a “core” inflation rate of 3 per cent which excludes the high food inflation rate of 9.4 per cent. This exaggerates real GDP growth, as has been pointed out in a press release by the Communist Party of India (Marxist).
The Budget’s emphasis on employment generation is certainly to be welcomed, however late be the realization on the part of the government of the pressing need to create jobs. The government could start by setting its own house in order. According to data provided by the Department of Personnel and Training (DoPT), over 2.2 crore individuals applied for jobs in ministries and departments of the central government between 2014 and 2022. Of this number, only 7.22 lakh were successfully employed in positions that were vacant – in other words, only 3 jobs were created for every 1,000 persons who applied for them. A report by Citibank India underscored the challenges in creating jobs in the formal sector of the economy and noted a decline in formal sector employment in comparison to pre-pandemic levels. Given the fact that job creation in manufacturing industry has been sluggish and that the labour force participation rate has declined in recent years, the India Employment Report 2024 of the International Labour Organization (ILO) has described the country’s structural transformation as “stunted.”
Because of the lockdown in March 2020, for the first time, the Indian economy shrunk in size and there was a reverse internal migration from cities to villages. The impact of this reverse migration on the economy persisted for several years. Whether the new proposals in the Budget will lead to a significant rise in job creation is not certain. Incentivising employment generation is undoubtedly important, but jobs will not be automatically created unless new investments are made and household spending picks up (from a 20-year low). Growth has to be evenly spread across the population and not confined to oligarchs, in a country where one-third of the population of over 140 crore survives on less than Rs 100 a day. We still have a long way to go.
