Employee of a share broking firm during Union Budget 2025. Express photo by Partha Paul, Kolkata, 01.02.25 *** Local Caption *** Employee of a share broking firm during Union Budget 2025. Express photo by Partha Paul, Kolkata, 01.02.25
Feb 9, 2025 07:15 IST First published on: Feb 9, 2025 at 07:00 IST
As far as I can recall, there has not been a more politically-driven budget. Nor has there been a budget that so miserably failed to seize the opportunity to reform and restructure the economy. The people were ready and the government failed them.
2025 Mirrored 1991
Look at the situation in 2024: The BJP had been voted to power for the third time but with a warning. You will have sufficient numbers but not an absolute majority to form the government. You will not attempt to change the Constitution. You will govern by consensus. You will address the issues of unemployment, poverty and inequality, inflation, farmers’ distress, and absent or broken infrastructure. It was the same situation that Narasimha Rao-Manmohan Singh faced in 1991. The Congress’ PM-FM seized the opportunity and announced path-breaking reforms beginning on July 1, 1991 and completed the first tranche of reforms by August 15, 1991 (devaluation, trade reforms, financial sector reforms, taxation reforms and industrial policy).
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After the 2024 election, the first budget of Mr Modi-Ms Sitharaman on July 23, 2024 was a damp squib. It had nothing to address the fundamental causes. The usual excuses were trotted out and there was a promise that the first full budget (whatever that meant) would address the issues. Meanwhile, the economy slowed down, wages were stagnant, inflation reigned and the RBI refused to budge, FDI inflows declined, FIIs pulled out investments, and business and businesspersons migrated to Singapore, Dubai and the U.S. The question on everybody’s lips was ‘Who will call out the government?’
Sensible Advice
Thankfully, the Chief Economic Adviser (CEA) was frank and forthright in his preface to the Economic Survey (ES) 2024-25. His sensible advice was “Get out of the way” and “deregulate”. There are 13 Chapters in the ES but I shall pick only four to illustrate what was the CEA’s recommendation and what was the government’s response (or non-response).
Chapter 1 (State of the Economy) underlined the causes of the slowdown and recommended deregulation and structural reforms at the grassroots level to improve competitiveness. The FM took the opposite route. She threw more money into current schemes and announced 7 Schemes, 8 Missions and 4 Funds. There was no specific proposal for deregulation; nor were any steps outlined to improve the competitiveness of any sector. She could only announce a High Level Committee for Regulatory Reforms to review non-financial sector regulations, implying that the financial sector will remain under government’s control and no review will be made.
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Denial, More Denial
Unemployment is the gravest challenge facing the country, especially families with unemployed children. In Chapter 12, Employment and Skill Development, the ES relied upon the Periodic Labour Force Survey (PLFS) that concluded that the unemployment rate had declined to 3.2 per cent in 2023-24. That would be considered full employment in economic theory. Realising the pitfall, the ES pointed out that we need to generate 78.5 lakh non-farm jobs every year until 2030 when the working age population will reach 96 crore. The proportion of regular/salaried jobs has declined and self-employment, including in own farms, has increased. Real wage per month in salaried employment for males has declined from Rs 12,665 to Rs 11,858 in the last 7 years. Real wages for self-employed workers have also declined. All evidence on the ground (especially the number of applications for even low-level jobs) contradicts the PLFS’ conclusion. Does the FM agree with the PLFS and the ES? Her silence on the matter is denial of the truth. The reality is that while the GDP grows at a moderate pace, unemployment is growing, especially among youth and graduates, and job creation is at a standstill.
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There is a whole chapter under the title Deregulation Drives Growth (Chapter 5). With the current investment rate of under 31 per cent and a growth rate of under 6.5 per cent, the ES pointed out that we could not become a developed country by 2047. The ES urged the government to “accelerate and amplify the deregulation agenda ….and work towards giving to people back their agency and enhancing the economic freedoms of individuals and organisations.” The ES identified the regulatory constraints including factory regulations and inflated regulatory capacity. I can give examples of deregulation from 1991-96 such as the abolition of the office of CCI&E and turning FERA into FEMA. Similarly, the FM could have eliminated some offices and regulations. She shied away, and my guess is nothing will happen for a whole year.
Achilles’ Heel
Despite the high decibel Make in India campaign, India’s manufacturing sector is tiny and not growing at a robust pace. Chapter 7, Industry: All About Business Reforms brings out the cold facts. Our share of global manufacturing is 2.8 per cent compared to 28.8 per cent of China. The manufacturing sector’s share of GVA has declined from a high of 17.4 per cent in 2011-12 to 14.2 per cent in 2023-24. We import high-end machines required for manufacturing. On R&D we spend less than 1 per cent of GDP. The ES said the way forward is paved with deregulation, R&D and innovation, and improving skill levels of the workforce. The Budget’s response was to launch Schemes and Missions.
Governance is in the present. There are challenges, there is a government, but governance is absent. The CEA is another voice in the wilderness.
