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Economic stability depends on the strength of three macro parameters. They are growth, employment, and price rise. Building up strength in these three pillars of macroeconomics is a challenge for the country at present as it is yet to recover from the impact of Covid-19 pandemic. The Economic Survey 2021-22 also highlighted these three key challenges. The Union Budget presented on February 1, 2022 tries to address them with various policy prescriptions.

Present macro scenario

Growth - According to MOSPI sources, there was a steady fall in annual GDP growth rate from 8% to 4% during 2016-17 and 2019-20. Again, a growth rate of -7.3% during 2020-21 caused due to lockdown and other Covid-19 related restrictions added woes to the economy.

The advance growth estimate by MOSPI for 2021-22 shows a sign of recovery. According to this source, the Indian economy is poised to grow at 9.2%. Per-capita income is also expected to grow at 8.4% in 2021-22(AE). However, even with this growth, the per-capita income for the current year stands lower than the same during 2019-20.

The Indian economy is expected to perform better in 2022-23 FY. The Economic Survey 2021-22 projected a growth rate of 8-8.5% for this year. The International Monetary Fund projected India’s economy to grow at 7.1% in 2023 which is better than the growth performances of many developed and developing nations who have been facing economic slowdown.  

Unemployment - Survey reports from government and non-government organisations confirm the existing problem of unemployment. The last two quarterly reports of Periodic Labour Force Survey (PLFS) by MOSPI ending December 2020 and March 2021 showed urban unemployment rate of 10.3% and 9.3% respectively. The quarterly reports remain silent on the nature and size of rural unemployment. However, the annual PLFS report of 2019 confirmed that the rural unemployment among the youth (15-29) was 13.8% for male and 10.3% for female. For the urban areas, the unemployment rate was even higher - at 18.2% for male and 24.9% for females.

Among the private sources, the Centre for Monitoring of Indian Economy (CMIE) tries to provide real time data on rate of unemployment and labour force participation. According to this source, the total unemployment rate in India stood at 6.6% with rural unemployment at 5.9% and urban unemployment at 8.2% - as of the first week of January 2022.

Price rise - As pointed out by Economic Survey, price rise measured by Consumer Price Index (CPI) remained within the tolerance level during 2021-22. As per the latest information from MOSPI, the CPI for all commodities on December 21 reached 5.6% - higher than the previous month’s inflation rate of 4.9%. The average CPI inflation for 2021 was 5.1%.

However, price rise measured by Wholesale Price Index (WPI) has witnessed a rising trend during 2021. From a mere 2.5% in January 2021, the WPI for all commodities increased to 13.6% in December, 2021. The monthly price rise measured by both WPI and CPI has witnessed a divergent trend during 2021.

Lower CPI inflation is explained by lower growth in consumption demand. According to MOSPI sources, the Private Final Consumption Expenditure (PFCE) fell by 6% during 2020-21. However, the PFCE is expected to rise over 15% in 2021-22(AE).

The rise in WPI is caused due to supply side disruptions. Domestic supply chain and transport restrictions (both domestic and international) in several spells because of the pandemic pushed up the cost factor and contributed to rise in WPI, according to the Economic Survey.  Looking at the trend of these macro-economic indicators, strategies of the government are mostly focusing on supply side reforms as takeaway from the budget speech and related documents.

Strategies

Growth and inclusiveness remained the major highlights of the Union Budget 2022. It is made clear that emphasis on these two factors can bring stability to the macroeconomic indicators. The government tried to architect a long run growth model for the next 25 years. This growth model starts with a push from the government through a higher rate of public capital expenditure.

The capital expenditure of the government is estimated to have increased from 2.7% (2021-22 RE) of GDP to 2.9% (2022-23BE). Information from India Data Portal shows that the proposed capital expenditure is about three times of the same during 2011-12. Moreover, effective capital expenditure which includes part of the revenue expenditure used as capital formation, stands at 4.2% of India’s GDP and 27% of total expenditure for the year 2022-23 FY.

A major part of the total allocation of capital expenditure is expected to move towards building physical infrastructure as part of the government’s PM Gati Shakti plan. The plan includes infrastructure development in seven areas such as, road, railway, airports, seaports, mass transport, waterways, and logistic infrastructure. This infrastructure development plan is made to strengthen the supply chain for bringing down cost, push inflation and generate a multiplier effect on economic growth and employment generation.

As a part of the strategy to make the economic growth more inclusive, a higher focus is laid on to increase production and productivity in the agriculture sector. According to the PLFS Annual Report 2019-20, this sector provides livelihood to about 50% of rural households. Further, estimation from the NSS 77^th round Situation Assessment Survey,2019 (using unit level data) shows that about 14.1% of households which depend on agriculture live below the poverty line. Although, this poverty figure is less compared to 21% agri-poverty during 2014.

The Union Budget 2022 emphasised on product diversification, increasing irrigation and use of modern technology like drones to increase production and productivity. The river linking projects are important highlights of the Budget. This effort would help in improving productivity and would address the issue of agri-poverty and disguised unemployment in this sector.

In the non-agriculture sectors, there is an effort to improve production, productivity, and employment generation through Production Linked Incentives (PLI). PLI is a central sector scheme under which incentives are provided to industries for their market expansion and employment creation. Estimated budget allocation under this scheme has increased from `196 crore in 2021-22(RE) to `8503 crore in 2022-23(BE), according to India Data Portal. Electronics and IT, pharma and food processing industries have been allocated the major shares of this scheme. Through the PLI model, the government has tried to create a balanced long run equilibrium growth model which would help in large scale employment generation.    

The short run strategies of dealing with the issues of unemployment and demand creation are not bypassed while creating a long run balanced growth model. The budget allocation for Mahatma Gandhi National Rural Employment Guarantee (MGNREGA) programme stands at `73,000 crore in 2022-23(BE). The allocation is less than its previous year but stands at par with the pre-Covid level budget allocation.

There is also a budget cut from `2950 crore (2021-22RE) to `2500crore (2022-23BE) for a central sector scheme titled ‘Prime Minister’s Employment Generation Program’ (PMEGP). This is a credit linked subsidy scheme through which youths can avail credit from the banks to run a business.

As a medium-term strategy, the education and health sector have been provided specific attention. These two sectors contribute to social capital formation and employment generation. According to the Quarterly Report on Employment Scenario (2021) by the Ministry of Labour, both education and health sectors contribute 32% of employment generation followed by 39% in manufacturing during July-September, 2021(QES21P-6). The combined budgetary allocation for both ministries has witnessed 14% growth - `1.67 lakh crore in 2021-22(BE) to `1.9 lakh crore in 2022-23(BE) in the Union Budget.

Public capital expenditure helps in creating a circular flow in the economy, especially during a downturn by crowding in private investment. It certainly acts as a push factor for growth and employment generation. However, with the condition of limited public resources, the quality of capital expenditure matters more than its size. The Union Budget 2022 tried to take a balanced approach preparing a long run growth trajectory with less harm to the short and medium-term goal plans.  

— The author is a Senior Research Analyst, Indian
School of Business, Mohali.

--The opinion/s expressed in the article are that of the author’s and do not
necessarily represent or reflect the policy or position of this magazine.