The budget for financial year (FY) 2022-23 was tabled in the parliament today. In the run up of the budgets IPD has discussed the critical challenges in front of the economy in terms of the growing inequality, rising unemployment and not much significant investments. Let us examine the budget in the light of these aspects.
Any budget covers two major components. It gives an account of what has been the estimates of the spending in comparison with the budgeted estimate of the current financial year. So basically a comparison of the budgeted estimates of the current financial year with the revised estimates. Second it also gives the budgeted estimate for the next financial year. In our context for this year we will have the comparison of the budgeted and revised estimates of FY 21-22 and the budgeted estimates of the FY 22-23.
Assessment of spending in FY 21-22
One of the major aspect of any budget remains how much of the allocated fund has been spent in the current fiscal year. Because the budget happens before the fiscal ends, we get a revised estimate and not the true actual figures. But a comparison of budget estimates and revised estimate will be a good measure on how much is expected to be spend out of the total allocated fund for different aspects.
As expected, given the pandemic, there has been more unplanned spending in health and welfare than the budgeted amount. It was debated during the last budget itself, that the allocation on health should have been more. The allocated amount for FY 21-22 was less than the actual spending of FY 20-21 by about 7%. In reality the revised estimate of FY 21-22 is actually even 7% more than the actual spending in FY 20-21. So the higher spending in health over the budgeted amount is purely because of the lower allocation. The spending on both agriculture and education is some what less than the allocated amounts.
If we look at the spending on key government schemes, again it is seen that there is a significant increase in MGNREGA to address the loss of job and reverse migration to rural areas during pandemic. This lead to a significantly higher revised estimate in employment generation schemes in total and MGNREGA in particular this fiscal. Direct money transfer has been considered as a key to boost up demand. PM Kisan has been a key scheme for direct money transfer. However there is no significant increase in spending under this scheme. “Nal se Jal” is a flagship proagramme of the government and last year there has been a significant increase in allocation in this regard. However not all was spend as per the revised estimates.
Let us now analyse the allocation and announcements for the next financial year.
FY 22-23 Budget Allocation Assessment
Let us first look into the total allocation of the budget and how that has moved over the years.
As compared to the budgetary allocation of FY 21-22, the government had to spend more leading to a rise in the revised estimates of FY 21-22. This suggests that there has been increase in unplanned expenses of government. The advanced estimates of FY 21-22, released earlier in January, suggest that the private consumption in the economy is still significantly lesser than the pre pandemic level. In this event increasing government expenditure becomes necessary and that is reflected by the 8% rise in revised estimate. Taking the need of higher investments as a signal from the increase in revised estimates, the government has increased the budgetary estimates of FY 22-23 by 13% from last year’s budgetary allocation.
Increase in Capital Expenditure
The two components of the government expenditure are the revenue expenditure and capital expenditure. Capital expenditure by the government goes into the creation and maintenance of assets like schools, colleges, hospitals, roads, bridges, dams, railway lines, airports and seaports. This time the government announced PM Gati Shakti focusing on the capital formation in the infrastructure development. There has been a significant increase in the share of capital expenditure since last budget. The government has continued in the same direction this year with the budgetary allocation share of capital expenditure is as high as 19% in FY 22-23 Budgetary estimates.
This is a move in the right direction. It has two fold advantage. One higher capital expenditure will mean higher spending in infrastructure, hence generate more employment.
Further as government increases capital expenditure, this boosts the trust in the economy and can crowd in more private investments. Dwindling share of private investment in GDP has been a huge cause of concern for almost a decade. For the investment to reach to its previous share, the government needs to take a sustained effort and this increase in capital expenditure share second year in running is a move towards the same.
This year there has been a 35% increase in capital expenditure allocation when compared to the same for last budget.
Sector wise Budget Allocation – FY 22-23
This has been one sector which showed positive growth in terms of production during the pandemic years. This sector is were a majority of the population is involved. The government has two flagship schemes PM Kisan ( in hand cash delivery) and PM Asha ( Minimum support price) for this sector since 2018-19. The allocation for this sector sees only a 0.7% increase this year in comparison to last budget. The share of allocation to this sector declined significantly for the last three years. From as high as 4.7% of total allocation in FY 20-21, it sees a drop to 3.4% of total allocation this year. The allocation for PM Kisan has also remained in similar range over the years and its share on total allocation has also declined over time. There was only a token allocation in PM Asha scheme. It is at best close to zero. So overall there has been a shift of focus away from agriculture. This sector did not get its due in this budget. Given a vast majority is dependent in this sector and also that the country is facing a significant inequality as per many data sources, this sector could have been given focus.
This is one sector that has got severely impacted during the pandemic years. There has been a size able section of students from both rural and urban who dropped from school or missed the education for two consecutive years because they were not able to attend in the virtual mode. The mid day meal scheme was devised to bring people to education system. With the virtual mode that program also did not work making the things more worse. So this year becomes important as things becoming normal it is important to focus more on this sector. But there was no significant increase in the allocation in this sector. There was a 12% increase in the education budget this year. But the share of education in total allocation actually declined to 2.6% from 3.3% in FY 2020-21 Budget estimates. The same trend is visible both for school education and higher education.
This is one sector in which we have seen increase in unplanned expenses in the budget. There needs to both short term and long term focus in this sector. In the short term while the focus remains on COVID vaccination, in the long term the focus should be develop a stronger and sustained health infrastructure. During the second wave of the pandemic, there has been many examples of struggle due to lack of the infrastructure. So a focused programme in this regard with a long term and vision and plan is crucial. In terms of allocation, this year there has been a 16% increase in the health budget which is more than the overall budget allocation increase of 13%. This is a welcome measure. But still our allocation in health as a percentage of total allocation stands at 2.4% which is significantly less when compared to many developed countries. So the expectation of a more focused vision for health infrastructure and a initiation of a long term plan with allocation on the same has been missing in this budget.
The latest CMIE data puts the unemployment at over 8 percent for the month of December. Unemployment has been a major concern from the pre pandemic level itself with the PLFS data published by Ministry of Statistics and Programme Implementation in 2017-18 put the unemployment levels at a 45 years high. Moreover recent data suggest that 84% of the country has seen a decline in income over the last year. The informal sector which has been a source of employment for 90% of the country has shrunk over the years and the people were not absorbed in the formal sector in the similar proportion.
Given this context, employment generation becomes a key focus. The increase in capital expenditure will be able to create more employment opportunities and as discussed above is a step in the right direction. Further it will also help in crowding in private investments as the issue of lack of trust in the system gets addressed. This will again help in creating more jobs. However some of these will have a medium term or long term impact and so in the immediate run the problem will continue to persist. So focus on more employment guarantee schemes becomes important. The expectation from the budget was that like the MGNREGA which given employment guarantee in rural India, a similar employment guarantee scheme will be launched for urban India. There has been no such announcement in the budget in this regard. Further the allocation of MGNREGA was reduced by 25% in comparison with the revised estimates of 21-22. The share of allocation for MGREGA also declined to 1.9% from 2.1% in the previous budget.
So while the budget gives some direction in employment generation in the medium or long run, there has been no such policies taken for the immediate run.
This budget can be regarded as a mixed budget with some policies taken to solve some of the impending issues, but some of the issues are not addressed. The sustained focus on capital expenditure will boost up the investment scenario. But the impending issue of inequality remain un addressed in the budget. There has not been much scheme to boost the income of the vast majority specially in the short run. Also there has been no direct transfers of money or tax reduction to boost up the private consumption which is a measure of demand in the economy. Yes more investment will have an positive impact on consumption. But that is also a long term impact. So in a nutshell, a lot was expected from this budget. It gives some but also misses a few.
The critical analysis of the budget is simple and understandable and highlights the important issues too. Please review my blog too.