Former Chief Economic Advisor Arvind Subramanian said on Monday that Budget 2022 made matters worse for long-term growth in India by not focussing on enabling private investments and leveraging India’s potential as a large exporter.
The biggest crisis for India post pandemic is long-term growth – which comes from private investment and exports – and job creation, he said at Business Today’s Budget Roundtable 2022 today. This has to be the long-term growth strategy but Budget 2022, he said, has fallen short on all three counts and made matters worse for long-term growth.
“We need to build roads and bridges (referring to the increased capex allocation). But long-run growth is going to come from private investments and exports. Here, the government is maybe even going backwards.”
There are broader issues around regulatory certainty, level playing fields, timely payment and non-arbitrary decision making which are affecting private investment, he said. “That’s not a matter of the budget or corporate tax rates. The government seriously needs to think what about the environment is still not attracting private investments – both foreign and domestic. That’s a bigger issue.”
Pointing out that the Budget has reinforced protectionism through its ‘Aatmanirbharta’ push, when there exists a “historic opportunity” for India to become a leading exporter in the world because China has become uncompetitive and Vietnam faces its own challenges, is “not a promising long-run growth strategy”. Instead of becoming more open and attracting FDI, especially in critical labour-intensive sectors, we have doubled down on Aatmanirbharta and, frankly, that’s going backwards.”
He said the country’s employment data can be contested. But he referred to proxies like increased demand for the rural employment scheme MNREGA and states imposing rules around ‘jobs for locals only’ as real indicators of the extent of the India’s employment crisis. Further, he said, the pandemic’s impact on the small and medium enterprises is still not clear because they’ve had support from the banks. Add to that India’s economy was weak even pre-pandemic. “That’s why we should take the talk about a relatively weak economy not creating jobs seriously and respond to it.”
But the solution does not lie in focussing on startup unicorns and new-energy sectors to create jobs. While certainly a pocket of dynamism, he said, the capital-intensive, skill-intensive and tech-intensive sectors’ job creation ability is limited. “You create 100 unicorns. What does it do the bottom 50-70% of the country?”
Adding that tax collections have been buoyant this year because of a K-shaped recovery in the economy after the pandemic impact, where different sectors have recovered at different paces, it may not be the case next year. “If revenues surprise on the upside and the growth situation is not too bad, any saving they make this year, I would urge the government to continue (fiscal) consolidation as a way of preserving stability at a time when the international environment can get a bit tricky.”
Talking about the government’s disinvestment targets, he said LIC’s possible privatisation will drive up profitability, its corporate governance, the way it does business and disclosure will all improve.” If you look at privatisation as a tool of efficiency, LIC and other public sector banks would be important privatisation targets going forward.”
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