Economic Survey and the Union Budget 2022: Rubbing Salt on Peoples’ Wounds

Ushering in Amrit Kal

Amidst the pain and misery of the covid pandemic, the Economic Survey, and the Union Budget of 2022, have essentially rubbed salt on peoples’ wound by claiming to usher in Amrit Kal. Through the Economic Survey, the Union Budget, and the debate after their presentation, the Bhartiya Janata Party (BJP) government tried to present a rosy picture of state of the economy, with the underlying message that worst of the covid pandemic is over due to shrewd and effective management by the government. Despite the government’s best efforts to hide the truth, the grim reality of covid and its aftermath is difficult to hide.

To begin with, the revised real Gross Domestic Product (GDP) for FY 2021-22 has merely touched the pre-covid levels even though growth in last pre-covid financial year was pegged at only 4%. The real GDP numbers (revised) of 2021-22 is estimated at around Rs. 147 lakh crores while it was more than 145 lakh crores for FY 2019-20. This clearly indicates economic stagnation. But it has not stopped the government from providing a bright picture of economic growth.

The harsh reality is that many important economic indicators such as employment, tax numbers, and inflation have not reached pre-covid levels and many other important measures such as fiscal deficit, public capex, confidence level of decision makers, rupee-dollar exchange rate, are hardly at a comfortable level.

It has been clear for a while that the days of easy credit are over. However, the government did not admit that in the Economic Survey. The budget too seems to disregard this harsh reality. The fiscal deficit is on the rise and the growth that the government is boasting about is essentially in the nature of borrowed growth. It is not a genuine growth based on normal levels of economic activity.

The citizens’ expectations amidst the pandemic situation called for a pro-people budget, but that is a far cry. The government is cutting subsidies on food, fertilizers, petrol, diesel, and gas. It is lowering the budget allocation for the procurement of agricultural goods at the Minimum Support Price (MSP), and for rural development. At the same time, the government is extending tax favors to big corporates in name of promoting start-ups. This is happening when the fiscal deficit is still projected at 6.4% of the GDP for the coming FY 2022-23. In other words, out of a total budget size of 39.44 lakh crores, as much as 16.61 lakh crores, i.e., more than one third of the budget (around 42%) will be borrowed.

Uneasy Numbers

The budget papers state that the nominal GDP growth is likely to be 11.1% in FY 2022-23. Whereas the Economic Survey stated that the real economic growth is likely to be in the range of 8.0% to 8.5%percent. With the Wholesale Price Index (WPI) at double digit and the Consumer Price Index (CPI) barely crossing 6% even before FY 2022-23, the projected GDP figures imply that the inflation will be about the level of 3% during FY 2022-23. This is an unlikely scenario, especially given the emerging global economic landscape.

Once we factor in the hardening interest rates in the world economy and the rising crude oil prices, it will become evident that the economic growth figures have been projected at a much higher level than what is realistically possible. The objective is to score important political points with elections approaching in five states.  The interest figures also point to a complicated fiscal situation. The historical baggage of earlier borrowings, coupled with three years of the pandemic, have created a situation where interest payments account for almost one fourth of the total budget. The interest payments are pegged at 9.41 lakh crores while the budget for total central schemes is 11.81 lakh crores.

The tax-GDP ratio of the central government is projected at a mere 7.5%, with additions to the central tax revenue projected at Rs. 19.34 lakh crores. Adding non-tax revenue, capital receipts and borrowings to it, revenues amount to Rs. 39.45 lakh crore (i.e., only 15% of the GDP). Despite these grim figures, the government is reluctant to tax corporates and High Net-Worth (HNI) individuals. In fact, public assets are being sold to corporates at an increasing pace. The sales of Air India and Life Insurance Corporation are cases in point.

The corporates continue to enjoy India’s low corporate tax rate, while the people are made to share the revenue burden through indirect taxes which have now reached the same level as direct taxes. The middle classes were expecting some relief through this budget, as they also suffered during pandemic, in form of relaxation in income tax rates, but government hasn’t changed the income tax slabs.

No wonder that the government has pinned its hopes on National Monetization Policies (NMP), i.e., to sell public assets through blatant and indiscriminate privatization. If you draw an analogy with family budgets, this amounts to selling family assets of your forefathers, and even your father, to pay for daily household expenses. Society portrays sons who do this as nalayak. One wonders what the basis is for the big claims regarding the economy’s self-dependence, or atmanirbharata.

The government had made several big-ticket announcements in the recent past: doubling of farm income, housing for all, power for all, and so on. These were supposed to have been achieved by 2022. This is the penultimate full budget of the present government and yet not a word was heard on these promises.

One had imagined that with the impending state elections the government would have considered making some ‘populist’ announcements pertaining to previous promises and to give some immediate relief to the people. But the Economic Survey and the Union Budget was reduced to an exercise of making tall claims without providing either a roadmap or a framework for achieving the lofty goals. The promise of a 5 trillion economy by 2024 is a far cry. Crores of citizens are living amidst hardships and are unsure of their next meal and or of any stable employment. Yet the finance minister claimed that this lopsided budget is not merely for the coming year, but it presents a vision for the next 25 years.

Misleading Claims on Tax Revenues

The Economic Survey claims that the real growth in FY 2021-22 amounted to 9.2% and that this has taken the Indian economy above pre-covid levels. The fallacies in this argument have already been pointed out above. There is another important claim in the budget, which is as misleading as the claims regarding the growth figures. The government has claimed that there is a buoyancy in tax collection, with a jump of more than 67% in course of the last fiscal year.

Despite this claim about increase in tax collections, the fiscal deficit for 2022-23 has been projected at 6.4% of the GDP and revised estimate for 2021-22 stands at 6.9% of the GDP. Both are much above the targets set in the Fiscal Responsibility and Budget Management Act. The public debt of central government stood at Rs. 58.66 lakh crores in 2014-15. It steadily increased after the BJP government came to power and it now stands at 117.04 lakh crore.

This puts pressure on public finances and negatively affects the window for public and social welfare expenditure for the purpose of human development. The present budget has provided for several subsidy cuts and allocation for important sectors like agriculture, education, health, and rural development has remained stagnant. The government plans to cut subsidies on food to Rs. 2,06,831 crores in coming year from revised estimates of Rs. 2,86,469 crores for 2021-22. Similarly, for fertilizers, it wants to cut subsidies to Rs. 1,05,222 from the revised estimates of Rs. 1,40,122 crores.

The allocation for agriculture and allied activities has been pegged at Rs. 1,51,521 crores, for health at Rs. 86,606 crores, for rural development Rs. 2,06,293 crores, and for education at Rs. 1,04,278 crores. In education, there is slight increase but because a lot of efforts are required to supplement the education of children who were affected by the pandemic, the allocation does not look sufficient. It looks quite low for all other sectors, especially health because the pandemic is not yet fully over.

The reality is that this supposed jump in tax revenue too is attributed to sucking people’s savings and looting their little pockets even amidst misery of lockdown and pandemic. There has been a record increase in tax collection on essential items of day-to-day use, including petrol and diesel. This is reflected in the jump in the collection of the Union excise duties. In the revised estimates for 2021-22, this amount stood at Rs. 3,94,000 lakh crores. To put this in context, it was also higher in the previous pandemic year – at Rs. 3,91,749 lakh crores in 2020-21 – but it was only at Rs. 2.39 lakh crores in the pre-pandemic year of 2019-20. The second major basis of the claimed jump in tax revenues is the withdrawal from RBI surpluses. This was pegged at Rs. 1,47,353 crores (revised estimates) for 2021-22 and budgeted at Rs. 1,13,948 crores for 2022-23. This is a bit like selling household gold in distress.

No End to Unemployment

The finance minister announced that the government will create 60 lakh jobs but did not provide a roadmap for it. It looks like yet another fake promise.  On the demand side, the economic survey concedes that private consumption, which is the main driving force behind aggregate demand, is yet to pick up following the pandemic. This in turn shows dampened confidence, low household earnings, and a worrisome employment scenario. The pertinent statistics confirm this story. Data produced by the Centre for Monitoring Indian Economy (CMIE) confirms that 5.2 crore Indians were unemployed as on 31 December 2021.  The unemployment rate is at a high level of 7.9 % in urban areas and 6.5 % in rural areas.

The labour force participation rate under the current government has come down to historic low of almost 40%. Can any economy prosper when 60% of employable persons have probably given up the hope of finding jobs? The labor force participation was declining even prior to covid and yet the government has not presented a clear roadmap for handling the situation. There has been no announcement regarding the filling up of 8.72 lakh vacancies in central government institutions. Allocation for the National Rural Employment Guarantee Act (NREGA) has been cut down. Small and Medium Enterprises have taken a hit in terms of closure, decline in revenues, and so on but the government has not extended any emergency credit support to them. Under these circumstances, inequality is sharply on the rise.

The government is thus clearly following a starkly neoliberal agenda despite the immense crisis faced by the economy. Neoliberal policies have in fact played a key role in pushing the economy towards a crisis. How can it be the solution? Perhaps the government is too keen to please its corporate masters which have played a key role in generating institutional support for the government. With the lopsided policy framework in place, one wonders how the Indian economy will attain the projected growth rate of 8 to 8.5% in 2022-23. ν