Budget 2022 expectations: For India’s economic recovery path neither ‘U’ nor ‘V’… Is ‘K’ Okay?

India is seeing a drop in the total amount of investment as part of GDP which is central to economic growth. Today, this stands at nearly 32% now from the earlier 39% in 2008 till 2011. We can surely bounce back but at the moment, signs are weak.

Union Budget 2022, which will be presented on Tuesday, needs to keep an eye on inflation and maintain confidence of the general public. (File Photo: PTI)

By Ashwajit Singh

Does a global economy buoyed by substantial demand despite the Omicron indicate an optimistic 2022? Is India seeing a K-shaped recovery with various groups and industries recovering much more rapidly than their counterparts? Has India found its pre-2016 growth trajectory with an average growth rate at 5% over the next three years?

I think maybe not. Primarily because year on year when we arrive at this number, both the formal and informal sectors are somewhat taken at par which is misleading. Considering the size of latter is shrinking, about time time we snap out of this calculation model and project real numbers. Another important reason is a drop in the total amount of investment as part of GDP which is central to economic growth. Today, this stands at nearly 32% now from the earlier 39% in 2008 till 2011. We can surely bounce back but at the moment, signs are weak.

Falling consumption levels, tight labour markets, rising inflation levels have brought in tough times for high contact service industry & SMEs but, there is a silver lining. Fueled by a global demand, the export industry has done well. Investments in gas and energy have gone up and the IT sector’s dream run continues thanks to the pandemic driving digital.

At the threshold of presenting the India Union Budget 2022 in a few days from now, here are some of my concerns and asks from this annual financial statement…

  • Creation of urban safety net equivalent to NREGA in the rural to keep migrants in the city; imperative for creating long term sustainable livelihood opportunities. People are moving from mid-income to lower income jobs which is worrying. This is something that I highlighted even in the previous Budget and with waves after waves of the pandemic since then, the absence of this safety net has simply worsened the problem. An indicator of this is the increased dependence on Agriculture sector that has seen a job rise from the earlier 36% (2018-19) to now nearly 39% in 2020-21 as per CPHS survey by CMIE..
  • Increased focus & support to new services like Telemedicine, EdStech, tele-lawering etc. Manufacturing led growth is getting more difficult hence piggybacking on innovation and technology will drive growth
  • Boost to Digital – As per a recent Gartner forecast, India’s IT spending is expected to grow by 7% in 2022 to reach $101.8bn as organisations in the subcontinent invest more in modern tech infrastructure and support a hybrid workforce. Push for web consultation, tele-medicine to connect the remotest could give the much needed fillip to digital health infra. Riding on the pandemic wave, the budget should continue to reflect the government’s commitment to harness new tech solutions for people welfare. This will help not only help digitise banking sector but improve the overall health of the economy. However, budgetary solutions should also provision for the 10 million plus ‘kirana’ outlets in the country and motivate them enough to implement digital solutions aggressively and innovatively.  
  • Focus on Productive Investment & Job creation. The latest CMIE data pegs India’s unemployment rate at a 4-month high of 7.9% in Dec ’22 with urban as high as 9.2%. This is alarming and the forthcoming budget will determine how soon can a rebound occur. Conscious attention is required to up investments in training, skilling and reskilling workforce to make the most of the changing work landscape. Reinvigorating Human capital can go a long way in upping future productivity and earnings. Also, despite the optimistic projections released by the recent World Bank’s Global Economic Prospects Report on India’s economic growth (expected to be 8.3% in the current fiscal year, 8.7% in 2022-23), the female participation in India’s labour is falling. This needs to be corrected and adequate measures to be put in place like formulating gender-aware and evidence-based policies with a conscious emphasis on gender-friendly workplace practices.
  • Systemic planning for back-to-school. Ministry of Education’s budget allocation in 2021 was reduced from Rs 99,321 crore in the budget stage to Rs 85,890 crore in the revised stage (down 14%). This needs to be revisited with an open eye considering our future is at stake. Adequate support to educational institutions in both the public and private sectors in their efforts to build the necessary infrastructure with support to skill & training development. Quicker vaccination trials for the under 15+ could also accelerate this agenda.
  • Social Push to continue in the health, water and sanitation sectors to build a strong social fabric that will take forward the government’s development agenda. The immediate aftermath of the COVID-19 pandemic prompted the Centre to increase budgetary allocations to healthcare to a whopping 137%, with a spending of 1.8% of the GDP in the year 2021. As the virus trajectory remains uncertain and its virulence a matter of concern, budget ‘22 must consider increasing the annual healthcare expenditure to at least 2.5 of the GDP. Private Public Partnership especially in health can be a step forward. India can take inspiration from its counterparts in the OECD which, on average, apportion more than 8% of the GDP for healthcare and also endeavour to promote universal health coverage. 

The sheer size of India is too big to be managed only by the centre. States need to fill in and through a collaborative approach make a plan. For instance, infrastructure is done both by Centre and states but the latter can play an important role in creating not only local jobs but pushing demand for domestic raw material like steel, cement etc.

The past years spanning the global COVID-19 exigencies have seen increased rates of unemployment the world over, with over 200 million people expected to lose their jobs by 2022. On the home front, the social imperative of the hour is to respond positively to the country’s current population divide. Although a large increase in the number of effective workers in the age category of 15 to 45 is a positive indicator, the next decade or two will require implementation of a huge public programme to develop employability skills and the budgetary allocation should provision for it.

While Union Budget ’22 needs to keep an eye on inflation and maintain confidence of the general public, it is an opportunity for the government to shift from the ‘past’, show the vison for a ‘future’ that relies on our strengths of democracy, judiciary to build a new economy.

(Ashwajit Singh is the Founder & Managing Director of IPE Global. The views expressed are author’s own.)

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Most Read In Economy