Betting on Growth

EVERY BUDGET HAS A plethora of schemes and plans that try to maximise the government’s outreach to different sections of the Indian people. This is true for any government, irrespective of its political hue. The “scheme mania” is often lamented by commentators and economists as being a side-show of the “real thing”: the actual allocation of money to different sectors. But in the 2023-24 Budget, something seems to have changed. In the welter of details, one can discern a shift in the balance between empowerment and entitlement, for the better.

There are two ways to look at what’s changed. One, the relative balance between allocations for empowerment—the money used to fuel growth—and those for catering to current consumption. Two, the micro elements in terms of schemes that reflect this shifting balance. To be sure, there are a number of well-meaning schemes that cater to various constituencies but the nature of these schemes has changed. Instead of large expenditures that fuel current consumption, these schemes are now focused on skilling individuals and communities or helping them organise economically.

One example is the Deendayal Antyodaya Yojana (DAY) that has led to the mobilising of 81 lakh women into self-help groups (SHGs). The scheme has been in operation for a while; the government now plans to take it to a logical next step. Turning SHGs into producer enterprises/collectives as Union Finance Minister Nirmala Sitharaman highlighted in her Budget speech on February 1. The finance minister promised professional help to these groups that will enable them to market their products apart from sourcing raw materials, design and branding of their goods.

This is very different from an outright cash dole to such groups. Throwing cash without professional help in furthering sales and marketing of output is certain to prove useless. The first task in the programme was to organise women in these groups. That has been attained; the government is now looking to move the plan to the next step in the value chain.

Another such scheme is the Pradhan Mantri Vishwakarma Kaushal Samman (PM-VIKAS) that seeks to create a package of assistance for traditional artisans and craftspeople. In her speech, Sitharaman said, “For the first time, a package of assistance for them has been conceptualised. The new scheme will enable them to improve the quality, scale and reach of their products, integrating them with the MSME value chain.” She added that the components of the scheme will include not only financial support but also access to advanced skill-training.

This emphasis on skilling is a leitmotif of the Budget. Another example in this respect is the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) that is now in its fourth edition. In the latest version, the emphasis is on “new age courses for Industry 4.0 like coding, AI, robotics, mechatronics, IOT, 3D printing, drones, and soft skills.”

A hard-nosed perspective would ignore these micro initiatives as well-meaning but helpless against the political economy backdrop and constraints under which the government has to operate. There is some truth to this claim. But another way to examine these changes is to look at these small initiatives against the larger story of allocations. Here, the changes that are afoot are amply clear.

The shifting balance between empowerment and entitlements can be seen in the relative allocations made to the two in the Budget. The expressions “empowerment” and “entitlement” are not precise fiscal categories but their rough meanings are commonly understood. Even within their rough meanings, entitlements are easier to measure in a budgetary sense. In the Indian context, subsidies, government transfers such as PM-Kisan and employment generation programmes like the Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) scheme fall within the class of entitlements. Ultimately, all of these are about present consumption or consumption in the Budget year. In contrast, capital expenditure on roads, infrastructure and other assets is investment. The story about empowerment versus entitlement ought to be seen as the relative shifts in these expenditures.

These have changed decisively in the last three financial years. The allocations provided in the Budgets for 2021-22, 2022-23 (Revised Estimates or RE), and the Budget Estimates (BE) for 2023-24 tell an interesting story. Back in 2021-22, spending on food, fertiliser and petroleum subsidies, PM-Kisan and MGNREGA amounted to a tidy ₹6.11 lakh crore. As a percentage of the government’s revenue receipts these amounted to a tidy 28.15 per cent. It must be remembered that budgets are based on what the government has in hand (or is likely to get hold of) in terms of revenue and borrowings. From that perspective, the ‘entitlement’ Budget took away a significant fraction of the government’s resources. Then came the 2022-23 Budget and soon after that the war in Ukraine. The result: a messy, inflationary and disruptive year. The ‘entitlement’ Budget rose but not significantly, to ₹6.7 lakh crore. As a percentage of revenue receipts it went up only marginally to 28.5 per cent. Given all the pressures to safeguard the interests of farmers, the poor and other consumers, this marginal increase represented prudent management of resources without sacrificing the interests of any section of society.

This fiscal, 2023-24, is clearly a very different year. It is the penultimate year before what is likely to be a keen electoral contest. In India, all such political battles are preceded by a government opening its spending taps to woo the electorate. In a country like India, this is simply done by a large dollop of entitlements. But this year, the Modi government did something very different, it reduced entitlements. The figure has come down to 18.8 per cent of revenue receipts, a nearly 10 percentage point decrease over the figure in 2022-23. The government is clearly confident that it can reduce this spending and still enter the hustings with elan.

This picture should be contrasted with the government’s allocation for capital expenditure in these years. In 2021-22, capital expenditure amounted to around 27.2 per cent of revenue receipts, marginally lower than entitlements. In the current fiscal, the balance shifted and capital expenditure rose to approximately 31.1 per cent of revenue receipts. But in 2023-24, this figure will rise to a whopping 38 per cent. If one considers effective capital expenditure, that adds grants-in-aid for creation of capital assets, these figures go up dramatically: 38.7 per cent in 2021-22; 44.7 per cent in 2022-23 (RE) and an eye-popping 52 per cent in 2023-24. It was clearly all about growth in these years.

Given the various constraints and cross-cutting interests that inform any budgetary exercise, one can see the direction in which the present government is moving. To give another example that links the macro and the micro pictures, consider agriculture. This is one sector that is very hard to reform as was amply clear from the government’s retreat from the three farm reform laws. The entrenched special interests from northern states derailed those reforms. But instead of focusing on those big reforms from the top, the government is slowly chipping away at the old order. While large expenditures on foodgrain purchases and subsidies associated with them at the buying and distribution ends will remain, something new is being tried at the ground level.

In her speech, the finance minister highlighted the plan to launch an Agriculture Accelerator Fund to encourage agri-startups by young entrepreneurs in rural areas. This is the right approach to bring change in a sector dominated by special interests. It is not as if in states like Punjab there is a shortage of people willing to innovate and start ventures in agriculture. The problem lies with the same mix of funding, expertise and that extra bit of help that marks a successful venture from one that could have been successful. Sitharaman said the Agriculture Accelerator Fund will aim at bringing innovative and affordable solutions for challenges faced by farmers. It will also bring in modern technologies to transform agricultural practices, increase productivity and profitability.

Anyone who has cared to see the shiny new roads and bridges springing up with regularity across various parts of India can justifiably wonder about the resources needed for these wonders. (The allocation for transport in 2023-24 is ₹5.17 lakh crore, up from the ₹3.9 lakh crore in the revised estimates for 2022-23). This level of spending could only be dreamt of at one time. In the ‘bullock-cart economy’ days, investment was what was left after meeting the interests of politically vocal and organised groups like labour, farmers, and others. Now, it is the other way round with investment and empowerment getting priority treatment.

This is all the more remarkable in that it comes just a year before the General Election. It is almost an iron law of Indian politics that ‘last year’ priorities of any government are to please the greatest number of voters. A ‘growth bet’ in the Indian context is considered suicidal in the ultimate year of the political cycle. Emphasis on growth is usually reserved for first-year Budgets in a five-year cycle. It speaks of the confidence of the Narendra Modi government that it thinks that growth will find resonance with voters.

market accessNirmala SitharamanOpenomics 2023Self Help GroupsUnion Budget 2023womenwomen empowerment