The Union Budget focussed on 'a profit-led recovery at the cost of smaller firms,' economic and social research expert Yamini Aiyar said at the 22nd edition of the Malayala Manorama annual budget speech on Friday. Owing to the COVID-19 restrictions, this year's speech was delivered online.
Aiyer, president and chief executive of Delhi-based Centre for Policy Research, was discussing the Union Budget presented by Finance Minister Nirmala Sitharaman in the Parliament on February 1.
The economist focussed on largely two aspects of the Indian economy – the macro fiscal position and the policy pathways adopted by the government.
The COVID-19 pandemic put economies into a freeze like never before. The lockdown upset the budget plans and estimates the government had drawn up for the country, she observed.
The economic recovery, which the nation is experiencing now, is largely profit-led. This comes at the cost of smaller firms. Economic activity has shifted from small firms to large firms which were more efficient during the lockdown. The labour force was visibly affected by this shift and the cost cuts associated with this trend, Aiyer observed. Smaller firms are usually more labour intensive in nature and cost cuts by these firms translated to job losses for a vast majority in the labour market.
According to Centre for Monitoring Indian Economy (CMIE) data, the unemployment count increased by 11.3 million from November 2020 to December 2020 resulting in an unemployment rate of 9.1 per cent.
Though the economy is on the path of recovery, the pandemic has changed the labour market in two significant ways, Aiyer said.
One, a shift in the nature of employment. Almost 44 per cent of the salaried workers moved to informal employment from March 2020 to December 2020.
Two, a gendered difference in the rebound. While 73 per cent of the men who lost their jobs in April 2020 found a job by December 2020, only 23 per cent of the women who lost jobs in April found a job or retained their jobs in December 2020. Thus, the female labour force participation, which has been suffering since demonetisation, has taken a hit once again.
Inequality widens
According to Aiyer, income inequality has been further widened by the pandemic-induced lockdown. While the savings rate improved for the economically well-off, it suffered for a vast majority.
The bottom 10 per cent is estimated to have lost 30 per cent more income than top 20 per cent. This can be deciphered from trends of automobile demand. While car sales went up, the two-wheeler sales suffered.
Macro fiscal position
Disinvestments receipts fell significantly (2.1 lakh crore to 0.32 lakh crore) as opposed to fall in tax revenue (0.43 per cent of GDP) in the last fiscal. India's stimulus package is one of the smallest in the world perhaps due to this, she observed.
Last year the expenditure driven by the subsidy bill, MGNREGA and health expenditure rose to the highest level since 1988. The GDP contraction despite this, points to over-estimation.
The economist also questioned the Finance Ministry's rationale of quoting a 137 per cent increase in health expenditure by pulling expenditure from other heads into healthcare.
Whither fiscal federalism
The finance minister stated the centre's commitment to fiscal federalism and agreed to the 15th Finance Commission's recommendation of a 41 per cent vertical devolution in the Union Budget.
But it remains to be seen how it will translate into real life, the economist pointed out. The central government has been using surcharges and cess to limit the overall devolution to the states. It has also further burdened the states by increasing their share in many centrally sponsored schemes. In fact, the Centre has focussed in meeting its own expenditure instead of assisting the states in meeting their expenses.
Crowding-in private investment
With the assumption that the economy is on a recovery path, the government has adopted the strategy of crowding-in private investment through capital expenditure and profit-led growth. It prefers the new welfarism concept focussed on private goods, as opposed to a sound investment in human capital.
Though crowding-in will eventually take effect and put the economy on an upward trajectory, it does not do much to help the vulnerable sections of the society most affected by the pandemic. Instead of creating a floor of income generation, the government has focussed on crowding-in of private investment, the economist observed.
