Government Budgets

[op-ed snap] Budgeting for jobs, skilling and economic revival

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Suggestions for revival of the Indian economy, unemployment in rural and urban areas and ways to increase it by investing in various sectors.

Context

With the unemployment rate at 6.1 (2017-18), not just the future of the economy, the future of the country’s youth depends on the Budget.

Unemployment and other indicators of the economy

  • Unemployment in urban youth: The unemployment rate for urban youth in the 15-29 years category is alarmingly high at 22.5%.
    • These figures, however, are just one of the many problems, as pointed out by the Periodic Labour Force Survey.
  • The decline in labour force participation: The Labour Force Participation Rate has come down to 46.5% for the ‘15 years and above’ age category.
    • It is down to 37.7% for the urban youth. Even among those employed, a large fraction gets low wages and are stuck with ‘employment poverty’.
  • The decline in investment: The aggregate investment stands at less than 30% of the GDP, a rate much lower than the 15-year average of 35%.
  • The decline in capacity utilisation: The capacity utilisation in the private sector is down to 70%-75%.

Where the Budget should focus to reduce rural employment?

  • Revive demand: The Budget should also focus on reviving demand to promote growth and employment.
    • PM-KISAN and MGNREGA: Schemes like PM-KISAN and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are good instruments to boost rural demand.
    • Unutilised fund: a significant proportion of the budgetary allocation for PM-KISAN will go unutilised.
  • Why income transfers through such schemes matter?
    • Spend most of their income: Farmers and landless labourers spend most of their income. This means that income transfers to such groups will immediately increase demand.
    • Consumes a wide range of goods: Further, rural India consumes a wide range of goods and services; so, if allocation and disbursement are raised significantly, most sectors of the economy will benefit.
    • Immediate result: And such transfer will have the immediate payoff.
  • Allocate to irrigation and infrastructure projects
    • How allocation could matter: Rural unemployment can be reduced by raising budgetary allocation for irrigation projects and rural infrastructures like roads, cold storage and logistical chains.
    • These facilities, along with a comprehensive crop insurance scheme, can drastically increase agricultural productivity and farmers’ income.
    • The decrease in wastage and reduction in inflation shocks: Moreover, by integrating farms with mandis, such investments will reduce wastage of fruits and vegetables, thereby leading to a decrease in the frequency of inflationary shocks and their impact.

Where the Budget should focus to reduce urban unemployment?

  • Focus on construction and related activities: In urban areas, construction and related activities are a source of employment for more than five crore people.
    • Second only to agriculture: Across the country, the sector’s employment figures are second only to those of the agriculture sector.
    • Construction as the backbone of other sectors:  These projects, along with infrastructure, support 200-odd sectors, including core sectors like cement and steel.
  • Problems with the construction sector:
    • Construction sector at a halt due to legal disputes: Due to the crisis in the real estate and infrastructure sectors, construction activities have come to a grinding halt.
    • At present, many real-estate projects are caught up in legal disputes-between home-buyers and developers; between lenders and developers; and between developers and law enforcement agencies like the Enforcement Directorate.
    • Unsold inventories: The sector has an unsold inventory of homes, worth several lakh crores.
    • Multiple authority as regulator and problem in liquidation: Multiple authorities -the Real Estate Regulatory Authority (RERA); the National Company Law Tribunal (NCLT); and the many consumer courts -have jurisdiction over disputes.
    • Consequently, restructuring and liquidation of bad projects are very difficult, and in turn, is the main source of the problem of NPA faced by the NBFCs.
  • What should be done to increase the demand in the construction sector?
    • Raise the tax exemption limit: To revive demand for housing, the Budget can raise the limit for availing tax exemption on home loans.
    • Use the bailout fund: The ₹25,000-crore fund set up by the centre to bailout 1,600 housing projects should be put to use immediately.
    • The funds should be used to salvage all projects that are 80% complete and not under the liquidation process under the NCLT.
    • Single adjudication authority: Several additional measures can also help. For example, there should be a single adjudication authority.
    • NIP and its significance: The ₹102-lakh-crore National Infrastructure Pipeline (NIP) programme is a welcome step. If implemented successfully, it will boost the infrastructure investment over the next five years by 2%-2.5% of the GDP annually.

Problems with National Infrastructure Pipeline

  • Problems of 60% investment: The problem is that more than 60% of the planned investment is expected from the private sector and the States.
    • Regulatory certainty a must for the private sector: The government does not seem to realise that for private investment, regulatory certainty is as important as the cost of capital.
    • Regulatory hurdles: Many infrastructure projects are languishing due to regulatory hurdles and contractual disputes between construction companies and government departments.
    • The reason behind the non-availability of private capital: As a result of the regulatory hurdles infrastructure investment has come to be perceived as very risky.
    • This is the major reason behind the non-availability of private capital for infrastructure.
  • Role to be played by the Centre: This is a scenario, where the private sector has very little appetite for risky investments and State finances are shaky due to low GST collection.
    • Responsibility of the Centre: The onus is on the Centre to ensure that the programme does not come a cropper. The budgetary support to infrastructure will have to be much more than the NIP projection at 11% of the GDP.

Way forward to revive the economy

  • Focus on completing the incomplete projects:
    • Bidding a lengthy process: Bidding and contracting for new roads, highways, railway tracks and urban development projects is a lengthy process.
    • This is also the reason why several infrastructure-linked Ministries like those for civil aviation and roads have not been able to spend money allocated to them in the current fiscal year.
    • Completing the projects a priority: Therefore, rather than earmarking budgetary support for new projects, the focus should be on projects that are currently under implementation so as to complete them as soon as possible.
    • Funding should be front-loaded: That is, funding should be front-loaded. In addition to creating employment, timely completion of infrastructure projects will help increase the competitiveness of the economy.
  • Address the distress in SMEs: The distress among Small and Medium Enterprises (SMEs) is another area of concern.
    • GST anomaly and stuck money: For many products produced by these enterprises, the GST rates are higher for inputs than the final goods. Due to this anomaly, around ₹20,000 crore gets stuck with the government annually in the form of input tax credits.
    • This has increased cost of doing business for SMEs, which employ over 11 crore people.
  • Fill the vacancies in the Government jobs: According to some estimates, there are more than 22 lakh vacancies in various government departments.
    • Focus on vocational training program: The government needs to provide affordable and good quality vocational training programmes.
    • To stop the demographic dividend from becoming a national burden, there is a need to invest heavily in skilling of the youth.
    • Besides, the Budget should give tax incentives to companies and industrial units to encourage them to provide internships and on-site vocational training opportunities.

 

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