As we enter the third year of the pandemic in the country, the economy continues to show signs of crisis with weak recovery in employment and consumer demand. A recent survey, the ICE 360, shows that the poorest 20% of Indians saw their incomes fall by 53% in 2021, compared to a 39% increase in the incomes of the richest 20% of the population.
The data of the CMIE continues to show high unemployment rates of 9.3% in urban areas and 7.3% in rural areas for December 2021. The ongoing third wave of coronavirus infections can be expected to and restrictions associated with economic activity in different parts of the country are again affecting employment in crucial sectors like construction. The pandemic and accompanying lockdowns have only exacerbated the structural problems facing the Indian economy.
Slowing economic growth, stagnating rural wages and high levels of unemployment have characterized the economy since 2015, particularly following demonetization and the introduction of the Goods and Services Tax (GST)
The trend of increasing inequality has intensified with the recent world inequality report 2022 stating that India is one of the most unequal countries in the world. The population share of the richest 10% in the national income is 57%, while the bottom half receives only 13% of the national income before tax.
It is imperative that the government play a role in reviving consumer demand by spending on jobs and social protection schemes as well as emphasizing redistributive efforts in this situation of rising inequality and decline in purchasing power for a large mass of the population. Against the backdrop of the global economic slowdown, following the pandemic, there is consensus around the world that the situation calls for expansionary budgets from governments to move economies forward on the road to recovery. Countries around the world have spent much larger budgets than they usually do, running higher budget deficits.
the IMF Fiscal Monitor data shows that on average in advanced economies, 11.7% of GDP has been allocated to spending and additional revenue forgone since the start of the pandemic in January 2020. While the corresponding figure for emerging economies is much lower at 5.67%. India, which is one of the emerging economies, spent an even lower amount of 4.09%. It should also be noted that even regular government expenditures in sectors such as health, education and social welfare are among the lowest in India compared to other emerging economies. Thus, the gaps in access to public services are much higher at the start.
Although there is some support for increased government spending on investment spending in media and political circles, an area where spending at such a time would be essential not only for its direct benefits but also for its contribution to economic recovery, the focus also remains on public spending. services. The universal and free provision of public health, education and care services can help improve human development outcomes in an equitable way. Such an increase in human capital would make our demographic dividend even more valuable and contribute to future growth and increased productivity.
Systems such as the Public Distribution System (PDS) and MGNREGA provide much-needed cushion, especially in times of distress. Many of these services are also labor intensive, create large numbers of jobs and are known to have significant multiplier effects. This spending can therefore also contribute to stimulating demand in the economy.
Insufficient spending on public services
Spending on public services in India has long been woefully inadequate. Recent years have seen a decrease in the priority given to these sectors in budget allocations. The pandemic has made a new dent. Schools, for example, have been closed for the most part from March 2020, and the existing digital divide has meant that many have been completely excluded from education for the past two years. Already underfunded public schools needed increased spending to fill vacancies, to provide training and support for teachers to manage online education and also to improve digital infrastructure and access to that no child is left behind.
However, the 2021 budget saw a decline in the budget allocation for education. Moreover, until the end of November 2021 (at the end of two thirds of the financial year), only 43% of the budget allocated to the department of school education and literacy had been spent.
The Ministry of Women and Child Development, which runs a number of critical programs for women and children, has also seen a decline in overall allocations in 2021-22 and has additionally spent $50 so far. % of its budget. Ministry of Health spending is better at 64% but the break needs to be seen as this could largely be due to the COVID-19 vaccination.
While this is essential, with the kind of pressure that the healthcare system is continually facing, much greater investment is needed in all areas for the strengthening of India’s healthcare system. Budget allocation for programs such as the National Health Mission has declined in real terms, and overall government health spending in India, at 1.3% of GDP, is still far from the government spending target of at least least 3% of GDP for health. Even Jal Shakti’s ministry, which saw a massive increase in budget allocation last year to provide clean water for all, saw an expenditure of only 34%.
In complete disregard for the cause of inclusion, despite all the reports showing that this time of pandemic has only increased social and economic inequality, spending by the Ministry of Social Justice and Empowerment has only accounted for only 11% of budget forecasts. [All data are based on expenditures up to November 2021 from the website of the Controller General of Accounts, Ministry of Finance, Government of India]
Through the budget, the government can signal its priorities and also initiate a process to bring the economy onto a path of more equitable development. The pandemic is an opportunity to correct long-standing discrepancies in utility spending in India. This year’s budget being presented on February 1it is hoped that the government will respond to the current crisis by presenting a recovery plan in which job creation and the provision of universal public services are central.
Dipa Sinha teaches at the School of Liberal Studies, Ambedkar University, Delhi