Higher capex yes, but what about repairing India’s K-shaped recovery?

The Union budget for the financial year 2022-23 relies on increased investment spending as a panacea that will help rid the economy of sluggish consumption, embarrassing unemployment and help the economy. economy to regain its rhythm after the pandemic. High capital expenditure by any government, in economic theory, given its ability to generate jobs and stimulate long-term development, is welcome. However, its effectiveness largely depends on the nature and quality of the investments, the macroeconomic scenario in which they are deployed and the assets they seek to create.

Unfortunately, the boosted capex of Rs 7.5 lakh crore – 35% higher than FY22 – brings no immediate resolution to the unemployment crisis. What the average Indian citizen receives, on the other hand, is the assurance that increased investment spending will pay rich dividends in the future, while their current situation continues to be marred by low incomes made worse only by high inflation.

Consider, for example, that investments in the previous two budgets also saw significant spikes. In FY21 and FY22, investments increased by 29% and 34.5%, respectively, to Rs 4.39 lakh crore and Rs 5.54 lakh crore. During the same period, unemployment also exploded statistically. During the same period, the central government allocation to MGNREGA also exceeded the figures estimated in the budget. For FY21, an allocation of Rs 61,500 crore to the job guarantee scheme was revised and the government – given the overwhelming demand under the scheme – was forced to disburse more than Rs 1, 11 lakh crore.

In FY22, the amount allocated in the budget to MGNREGA of Rs 78,000 crore was later increased to Rs 98,000 crore. To understand the dissonance between capital spending and the simultaneous rise in unemployment and demand for NREGA jobs, one must understand that capital spending, by its very nature, comes with a time lag. The multiplier effect of capital spending on the economy (2.45 as estimated by the RBI) is also negated when people withhold discretionary spending and consumption for fear of emergencies and unforeseen circumstances, e.g. expensive hospitalization or the recurrence of another wave leading to blockages.

Incorrect reading of runes

Furthermore, the government’s over-the-top push for infra while going overboard with supply dynamics completely neglects the demand equation. Without a boost in consumption and demand from those at the very bottom of the pyramid, very few multinationals and large corporations will be willing to step up and undertake capacity expansion. A combination of inflation and higher raw material costs has – for about six months – eaten away at margins as well as volumes at a number of consumer staples, consumer durables and auto companies.

With sales falling, the private sector will lend a boost to capacity expansion. Until animal spirits don’t really come back into the economy and consumption makes an emphatic comeback, India Inc will continue to hold cash on its books and avoid expanding capacity. But beyond the big players, millions of MSMEs are seeing their results stagnate or erode.

These MSMEs, over the years, have been bludgeoned by demonetization, botched Goods and Services Tax (GST) implementation, followed by downturn and, most recently, COVID-19 related lockdowns. Small and medium-sized distribution and manufacturing units can only withstand these many shocks before their entrepreneurial will collapses.

Overall, fewer jobs and job opportunities are created because people are less willing to take risks. As a result, bank credit growth remains sluggish and the well-to-do avoid incurring expenses while the poorest have no choice but to dip into their savings, or worse, take out loans to meet their current expenses.

Giving MGNREGA a boost

At a press conference on Saturday, Finance Minister Nirmala Sitharaman urged the private sector to open their purse strings and join the capex movement. Well-meaning, yes, but a little too optimistic given that the US Federal Reserve is expected to raise interest rates over the next few months. The reduction in the Federal Reserve’s bond-buying program will force the hand of central banks around the world to raise interest rates, and the RBI, in all likelihood, will follow global signals and raise interest rates. interest. In such a cash-strapped scenario, the incentive for the private sector to raise funds for investments in capacity expansion is even weaker, leaving the government alone in its investment mission.

This is where an additional allocation to MGNREGA would have helped the government achieve its goal of boosting consumption and economic growth. At the height of the pandemic, when economic activity was completely destroyed and widespread job losses became the norm, it was MGNREGA that came to the rescue of millions of Indian workers by providing them with work and a security net. Between April and September 2020, 58.5 million households and 83.5 million workers were employed under the scheme.

Given its paramount importance to the Indian economy, it is the government’s responsibility to keep it in top shape, but the reality on the ground is far from good. The internal dynamics of MGNREGA are plagued by bureaucracy, delays and complications arising from the use of Aadhaar.

As of February 2, total unpaid dues under the demand-based work scheme, according to Minister of State for Rural Development Sadhvi Niranjan Jyoti, stood at Rs 3,360 crore. Another non-profit organisation, NREGA Sangharsh Morcha, says there are pending debts accumulating over previous years for a whopping Rs 18,350 crore which effectively reduces the allowance for the financial year 23 to Rs 54,650 crore (Rs 73,000-Rs 18,350).

Just as is the case in the GST mainframe, this government has also botched the terms within the NREGA architecture. A study conducted by LibTech India and People’s Action for Employment Guarantee (PAEG) effectively rejected the government’s claims regarding the timely payment of wages to MNREGA workers. In the study, 10% of central government salary transfer orders to one block per district and per state for ten states were sampled. It found that 71% of salary payments were delayed beyond the prescribed seven days, 44% of payments took more than 15 days while 14% exceeded 30 days. For workers with little or no job prospects, such delays are unforgivable. As wages are delayed, workers find themselves knocking on the doors of the local pawnshop and sinking deeper into the spiral of debt.

In his speech to parliament, Sitharaman threw another punch, that of India entering a new golden era, an Amrit Kaal leading to India’s 100 years of independence. As for the sops, this one clearly lacked the appeal or appeal like the ones offered before – Make in India, smart city plan, doubling farmers’ incomes.

For now, day laborers and migrant workers are too busy trying to keep the wolf out of their doors to watch 25 years later.

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