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Hopes Dashed Away

Amit Basole     July 8, 2019

The principal economic issue in the elections was high unemployment, in addition to concerns over an economic slowdown on the back of low investment and low consumer demand. Understandably, the expectation was that government would propose some 'big' measures, but the Budget was largely disappointing. There were several measures with implications for employment generation, but the vision they add up to has failed to produce results thus far. However, there are some creative ideas too, which one hopes will take off and be expanded.

In the face of climate change and agrarian distress, there was a chance to significantly increase MGNREGA outlay. Instead, the outlay is slightly lower than the revised estimate for 2018/19 sending a 'status-quo' signal. Nor is there a single new employment generation scheme (urban employment guarantee) or even a significant expansion of existing schemes.

There were conventional measures with employment implications - an infrastructure push (22 per cent increased allocation to rural roads), expansion of skilling programmes, simplification of labour laws, and promoting start-ups. This list does not inspire much confidence. While these will create jobs, the economy is stuck when it comes to transitioning people out of agriculture into formal jobs. Past experience indicates something bolder is required.

There was, however, a welcome focus on artisans and traditional industries via targeted skilling in agro-rural industries and setting up new clusters under the scheme of Fund for Regeneration of Traditional Industries. While only three industries - khadi, honey and bamboo - were mentioned, many more in food, textiles, garments and furniture can qualify. Several are large employers with export potential.

Another proposal was to make women in self-help groups (SHGs) eligible for MUDRA loans of up to Rs 1 lakh. The problem withMUDRA has been the preponderance of very small loans that encourage microenterprises (often one-person firms) and prevent creation of thriving future employers. Perhaps linking with SHGs could be the start of a model that sees larger cooperatives that can become employers in their own right.

On the jobs quality and ease of living front, the government is clearly moving towards an expansion of transfers as a solution to low wages and lack of social security. After instituting the unorganised sector worker pension scheme in the interim budget (an extension of Atal Pension Yojana), this Budget announces a new pension scheme for small retailers. PM-KISAN, the big announcement in the interim Budget, and the only significant addition to agriculture spending in this Budget, can be seen in the same light.

On political priorities, two things are worth noting. First, the emphasis on improving the ease of living (piped water, electricity, toilets, cooking gas and housing) rather than jobs, that some pundits have highlighted as a winning strategy in the elections. Second, increase in income tax rates for the 'super and ultra rich', which, even given the question of whether they will lead to greater tax revenue, still send a strong message about inequality. While higher taxes on the super-rich is good news; it is possible that raising taxes in a situation of low demand may compound the problem. The way to counter this is to place more resources in the hands of those whose propensity to spend is higher, namely, the poor. Perhaps this is what the government intends via expansion of direct cash transfer and pension schemes. But cash transfers are stop-gap measures. They do not fix the problem of inadequate formal job creation in the non-farm economy.

All eyes are now on the 100-day programme likely to be announced on August 15.

The author teaches Economics at Azim Premji University, Bangalore

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