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.
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.