Central Idea
- The world is indeed looking up to the Indian economy as a bright star, as the finance minister noted in the Budget speech on February 1. In 2020, India accounted for 20.6% of the worldwide population of 15- to 29-year-olds. Which means that in the years ahead, one out of every five workers deployed globally could be an Indian. No doubt, the rest of the world foresees a fortune in India’s young population. But are our policymakers doing enough to realise the possibilities that are unfolding?
Get your Rs 10,000 worth of UPSC Strategic Package for FREE | PDFs, Zoom session, Tests, & Mentorship
The key proposals in this year’s Union budget are the following
- Increase in capital expenditures for infrastructure: There will be a considerable increase in capital expenditures, for the building of physical infrastructure, mainly in transport, energy and defence. The figures under this head are expected to be higher in 2023-24 compared to the corresponding level in 2022-23 (revised estimates).
- Modest tax revenue: The growth of the tax revenues is going to be modest, the government is nevertheless committed to reducing the fiscal deficit to 5.9% of GDP. That could have been achieved only by reducing the spending on some other sectors
- The axe has fallen on subsidies and social sector expenditures: Compared to its previous year, in 2023-24, the Union government’s expenditure on food subsidy will fall by ₹0.9 trillion (or 90,000 crore), on fertilizer subsidy by ₹0.5 trillion, and on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) by ₹0.3 trillion.
- Marginal increase unlikely to make impact: The marginal increases in the allocations on health, education, agriculture and the Angwandi scheme are unlikely to make an impact, after taking into account the effect of inflation.
Public-private complementarities
- Capital spending indicates country’s productive capability: A jump in capital spending by the government, as proposed in the Budget, is a much-needed step to reinvigorate the Indian economy. Investment as a proportion of income or GDP indicates the rate at which a country’s productive capabilities are growing.
- High rates of investment; Fast rates of economic progress: In India, this proportion rose steadily during the mid-2000s and peaked at 42% in 2007, which was even better than China’s record at that point in time. High rates of investment translated into extremely fast rates of economic progress in the country, which lasted until the early 2010s.
- Crowd in Private investments: If the proposed investments by the government come through, and they indeed crowd in private investments as the finance minister has predicted, that can set the stage for a revival of the Indian economy.
Global financial crisis in 2007-08 was a turning point
- China responded with high domestic investment: China responded to the crisis by increasing domestic investment, a large part of which coming from its public sector.
- India restrained its expenditures: In India, the government restrained its expenditures, worrying about the rising fiscal deficits. As public expenditures nosedived, private investors lost confidence as well. Investment as a proportion of GDP was on a steady downward slide
Investing in people is an investment in the future
- Expenditure on social sector: Public expenditures on the social sectors constitute an investment for the future more so for a country with a predominantly young population.
- For instance: The income a destitute mother receives for work through MGNREGA may ensure that her children do not have to go to school with empty stomachs.
- Underinvestment in education: Underinvestment in education and health will undercut India’s chances in a global economy that is increasingly dominated by knowledge. Millions of young people are denied access to affordable education and decent jobs, leading to frustration.
- For instance: In 2022, only 2.6% of the nearly 1.9 million candidates who wrote the NEET managed to secure a seat for MBBS in a government college.
- Government expenditure to boost to supply and demand: Government expenditure on health and education can provide a boost to both the supply and the demand fronts in a knowledge-driven economy, more new jobs as teachers and doctors, especially for women, and a greater supply of younger professionals and skilled workers.
- Contrasting Capital Expenditures with Social Sector Spending: Unlike capital expenditures, which are generally considered productive, subsidies and social sector spending are often labeled as wasteful. It is commonly believed that cutting social sector spending will not harm economic growth; however, this perception is incorrect.
- The Negative Impact of Reducing Social Sector Spending: Cutting social sector spending not only exacerbates existing social inequalities but also dampens the prospects for long-term growth.
- For instance: In India, for example, only 9.8% of workers have access to regular jobs that provide some form of social security. Therefore, measures such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the free provision of food have been a lifeline for millions of poor Indians who have been affected by the COVID-19 pandemic and joblessness.
Unwarranted fears about fiscal deficit
- The Counterproductive Nature of Inflated Fears: Inflated fears about the fiscal deficit and government debt will only be counterproductive in a country possessing vast reserves of untapped human and other resources as India does.
- India’s government debt is held largely by domestic financial institutions does not pose threat: Only a small portion of India’s public debt is owed to external agencies (amounting to 4.2% of GDP in 2022), which does not pose a threat. India’s public debt is held largely by domestic financial institutions, including public sector banks, insurance companies. This is a debt the government owes to the people of this country, whose savings the financial institutions have mobilised.
- For example: Greece and the most recent example of Sri Lanka’s economic crisis was a result of external debt.
- A Virtuous Cycle of Debt: Higher levels of development and incomes will lead to the creation of fresh savings, which can help pay off the debts. Borrowing to feed and educate all of its young citizens will provide asset-poor and socially disadvantaged households the opportunity to pick up qualifications required to enter the new job market.
Conclusion
- For a generation of young Indians, this is, without a doubt, a ‘make or break moment’. without increased public spending on human capabilities, there is little hope for them to escape poverty, lack of skills, and discontent. However, if the government invests in food security, health, and education, India’s young people can thrive and become bright stars that illuminate the world.
Mains question
Q. Without increased public spending on human capabilities, there is little hope for young Indians to escape poverty and discontent. Discuss.
Attempt UPSC 2024 Smash Scholarship Test | FLAT* 100% OFF on UPSC Foundation & Mentorship programs
