Government Budgets

What the budget needs to do

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- How can budget address the issues of informal sector

Context

We need to insure the most vulnerable against shocks such as Covid, but even more, we need to create good job opportunities for the unskilled. What can the budget do?

Impact on informal economy

  • The last two quarters have seen a substantive recovery in the Indian economy.
  • Corporate profitability of our largest firms has hit a new record this year.
  • So have GST collections, another indicator of the formal economy, with an average monthly collection of Rs 1.2 trillion in the second and third quarters.
  • The glass though is half full, the informal economy was particularly badly hit by Covid and its associated lockdowns.
  • Small enterprises, retail, hospitality, and construction were all hammered.
  • These were our main source of recent employment growth.
  •  Agricultural employment has risen in the last year-and-a-half, while manufacturing and services employment has fallen — this is the opposite of development.
  •  Informal service sector jobs may not seem like great jobs to us, but they are greatly prized relative to eking out a marginal existence in agriculture.
  • We need to insure the most vulnerable against such shocks, but even more, we need to create good job opportunities for the unskilled, equip people at all levels to participate more fully in the modern economy, and systemically promote wider policies of inclusion.

What can the budget do?

  • Create good jobs for unskilled: The way it can do so directly is through accelerating spending on infrastructure.
  • The National Infrastructure Pipeline has identified a good set of projects.
  • The government should be complimented for its intention and ambition; what we need now is implementation.
  • Labour-intensive manufacturing: Most countries developed by putting millions to work in labour-intensive manufacturing.
  • We do not have the huge firms in export-oriented labour-intensive sectors that employ millions in China, Vietnam, and Bangladesh.
  •  Bangladesh has thrived by putting millions to work in manufacturing.
  • A booming garment sector employs 4.4 million.
  • As 80 per cent of those employed in garment factories are women, Bangladesh has twice the female labour force participation ratio of India.
  • Implement labour laws: In June and September 2020, the government passed four labour laws.
  • These laws have since been left dormant.
  • The budget should announce a time frame for implementation, notification by the Union government and then by the states.
  • Investment in education and skilling:  India has among the least skilled workforces in the world.
  • Under 5 per cent of our workforce is formally skilled, compared to 96 per cent in South Korea, 75 per cent in Germany and 52 per cent in the US.
  • That is why the work of the National Skills Development Corporation is so important.
  • Can the budget specify it as an independent entity controlled and run by the private sector that is then held accountable for delivering on our skilling targets.
  • Education is even more important, especially primary education.
  • Pratham’s education reports make for sobering reading.
  • The New Education Policy has a proposal that every second standard child should be able to read and do arithmetic at the second standard level as a foundation for further education.
  • This welcome initiative must receive greater dedication and focus from both government and industry.
  • School education is a state subject, so the Union budget can at best incentivise states to do the right things, say by linking the flow of additional funds to those that demonstrate improved second standard learning outcomes.
  • As a part of CSR, many companies work actively with schools.
  • Education is already the largest single area for CSR spending, accounting for one-third of the Rs 9,000 crore spent by the top 100 companies.

Conclusion

Other policies for economic inclusion must go beyond social inclusion. These include measures like reducing tariffs to benefit millions of consumers instead of thousands of firms. Industrial policies that help all firms such as the ease of doing business, instead of incentivising a selected few.

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