Budget 2024: An amazing display of perversity

India is facing massive unemployment that especially afflicts its youth. There is a huge and persistent inflation in food prices; there is acute and unprecedented rural distress; there is a crisis in the petty production sector; and income and wealth inequality has reached such levels the whole world is talking about it.

One would have thought that a Budget presented in the midst of all this would have shown some urgency and boldness. But no, not the 2024–25 budget presented by the National Democratic Alliance (NDA) government in Parliament on 23 July.

Neither in overall State spending (that stimulates aggregate demand and hence employment), nor expenditure on specific employment generation schemes, welfare programmes, education, or healthcare is there any increase in allocation relative to GDP (gross domestic product). On the contrary, there is generally a reduction. This cannot be blamed on a lack of fiscal resources, as fiscal effort has been totally absent.

The strategy underlying this budget is exactly the same as in previous years — to make no effort at mobilising additional fiscal resources; to use the growth in non-tax revenue (a large part of which consists of the profits of the Reserve Bank of India) to increase, to an extent, capital expenditure, including on infrastructure. If welfare expenditure goes up under some heads, then curtail it under other heads, and provide budgetary transfers to big capital for answers to pressing problems.

Let me establish these propositions seriatim. Total Central government spending, including transfers to states, is slated to increase by 7.35 per cent between 2023-24 (revised estimates) and 2024-25 (Budget estimates). This means a decline in the share of Central government expenditure in GDP, which is the exact opposite of what is needed to stimulate employment.

This perversity is not because of any fiscal tightness. In fact, the ratio of tax receipts to GDP, primarily at the discretion of the Central government, was 11.5 per cent in 2021-22 and 11.7 per cent in 2023-24; it is now slated to be 11.8 per cent in 2024-25. This shows a complete absence of fiscal effort on the part of the government, just a projection of past experience. It is gross non-tax revenue that is supposed to go up by 36 per cent between 2023-24 and 2024-25, of which the largest item ‘dividends and profits’ is budgeted to increase by 70 per cent.

On the expenditure side, while the Central government’s total expenditure is supposed to increase by only 7.35 per cent, its capital expenditure, excluding what it transfers to states for capital projects, is to increase by 17 per cent, which continues a trend observed in the past few years.

This may appear to be a positive development, but much of this investment is in projects that scarcely affect the lives of the working people. What is more, their multiplier effects leak out abroad to such a large extent they scarcely generate much employment domestically. Instead, the squeeze on other items of expenditure that could have larger multiplier effects domestically ensures, on the whole, a negative impact on employment.

While finance minister Nirmala Sitharaman referred to the unemployment problem in her budget speech, her solution shows a complete lack of understanding. She announced three schemes for employment, involving transfers to employees and employers, for incentivising the creation of new employment.

These schemes are for the formal sector; the benefit is likely to leak out wholly to employers who would cut back on salary payments to offset transfers made to employees. She also announced a programme for skilling, which she claimed would help employment.

The theoretical presumption behind the transfer scheme is that lower wages paid will lead to larger numbers employed. This is a pet theme of bourgeois economics, but there is absolutely no reason to believe it. Employers will simply pocket the transfers, and employment will remain the same.

The skilling scheme likewise is an off-shoot of bourgeois economics, according to which unemployment is merely the result of a skill mismatch, i.e., there are always enough jobs, the only problem is that the skill requirements of the jobs available are different from the skills the unemployed possess.

The basic assumptions of both schemes are wrong, based as they are on Say’s Law — ‘supply creates its own demand’, i.e., there is never a deficiency of demand. Karl Marx had attacked this theory, as did John Maynard Keynes 75 years later. So influential was this position prior to Keynes that US President Herbert Hoover had tried to cut wages to raise employment in the midst of the Great Depression, naturally to no avail.

The Narendra Modi government’s intellectual stock does not extend beyond these discredited ideas of nearly a century ago; ithas effectively done nothing to alleviate unemployment.

The futility of making transfers to capitalists for stimulating the economy comes through on rare occasions in official pronouncements, such as in the Economic Survey. But the question why capitalists do not make investments despite such transfers is never asked. It is taken to be a moral failure on their part, even though there is an obvious economic reason for it.

Capitalists do not invest more just because they have larger profits; they invest more only when they expect the market to expand. If the market is expected to remain stagnant, any addition to capacity will simply mean this newly added capacity remains unutilised, which will mean earning zero profit on the investment that went into creating it.

Capitalists, in such a situation, would much rather use their profits to buy real estate or financial assets on which they can hope to earn significant capital gains in addition to whatever rate of return these assets normally yield. The entire economic thinking of the Modi government, therefore, is wrong, based on vacuous propositions broadcast by the International Monetary Fund and the World Bank.

The government’s intent is clearest in its allocation for the MGNREGS (the rural job guarantee scheme), which has been kept at Rs 86,000 crore, the same as was spent in 2023-24, which means a reduction in real terms.

It will, of course, be claimed that this amount will be raised if there is a larger demand. But demand itself goes down if wages are not paid on time, which is what happens when the allocation is low. Besides, many were deliberately excluded from the MGNREGS last year, for instance in West Bengal, so that last year’s expenditure had fallen short of demand. This is sought to be repeated in 2024-25, which is unpardonable.

The same is true of the allocation for the National Social Assistance Programme (NSAP) that covers pensions and disability benefits. The amount given is ludicrously low to start with; but the allocation for 2024-25 is the same as was spent in 2023-24, which again means a cut in real terms, and hence in the real transfer to each beneficiary.

Compared with the budget estimates (BE) for 2023-24, the BE for 2024-25 for education shows a 7.8 per cent increase and for health, virtually none, which means a fall relative to GDP in both sectors. But last year’s actual expenditure in these sectors fell below the BE. This itself is serious, but to use that as an excuse for cuts in the current budget is again unpardonable.

Food subsidy is budgeted to fall from Rs 2.12 lakh crore in 2023-24 (RE) to Rs 2.05 lakh crore in 2024–25 (BE). In effect this means that a part of the food subsidy has been shifted on to the shoulders of the kisans, whose support prices have been kept inordinately low.

Far from acceding to their demand for the enactment of a law on minimum support prices (MSP), the NDA government is actually squeezing our farmers in order to economise on food subsidy. Such niggardliness also means that while Bihar and Andhra Pradesh may benefit from large transfers, other states will be unfairly pressed to accommodate them.

What stands out about this budget is its utter indifference to the immense problems facing the people of the country. It used to be said of the Bourbon kings of France (who were overthrown in the 1789 revolution) that “they learn nothing and they forget nothing”.

This is also true of the NDA government. The budget it has presented is an amazing display of ignorance and obduracy.

This article first appeared on newsclick.in