Interim Budget 2024 Can Afford To Be Bold

It is capital expenditure from the government (capex), that has fuelled the stellar growth over the last ten years. This, despite Covid, that marred the benefits of a cut in corporate taxes briefly, and the wobble making pressures of inimical global winds. But now, the possibility of further reduced taxes for new manufacturing entities of about 15% in interim budget 2024 is likely to give a boost to those relocating in whole or in part from China, plus others. There are also the generous

PLI schemes that are attracting high investment manufacturing such as semiconductor micro and computer chips. Union Minister Ashwini Vaishnav says the first semiconductor microchips, made in India at Gujarat by US major Micron, at an investment of $ 825 million, will roll out in December 2024.

The defence sector aatmanirbhar programme is going from strength to strength, fuelling the rapid rise of various PSU and private sector stocks associated with it. The US, France and Israel have become major collaborators, even as good relations and connections continue with Russia. Israel has put in the anti-drone system to protect the grand temple at Ayodhya for example.

The success of the Indo-Russian Brahmos missiles in all their variety for land, sea, undersea and air use have put India’s defence/offence preparedness on a solid footing and have earned the admiration and commercial interest of a host of countries.

The Indian stock market itself has reached 4^th place globally, having overtaken Hong Kong.  

Social welfare for the poor and marginalised, incentives for the informal and MSME sector, are de rigeur in an election year budget, and they will definitely feature prominently.

It is the prospect of a further 20 percent enhancement in capex in 2024, up from 35% this fiscal, on the productive side, that will lubricate Modi’s  consecutive term-two to segue seamlessly into an almost surefire growth inducing term-three.

Prospects of 7 per cent GDP growth are being asserted now, up from anywhere between 6.3 to 6.5 per cent earlier, citing global headwinds, not only for 2024-25 but onwards, for the seven years to 2030.

India is widely expected to have a GDP of $ 7 trillion by 2030, according to its own government report just released, with $ 5 trillion coming on by 2027.

The RBI is wary of inflation, which has cooled, but is still, at 5.9%, well away from the target of 4.5%, and this will prevent interest rate cuts for some period.

There are strong possibilities of manufacturing and exports both growing by 5 percentage points by 2030 according to a recent Goldman Sachs report. This would mean a doubling for both volume and quantum figures of exports and manufacturing from those of 2021. And, of course, an enhanced share of the GDP for both. This will offer significant job opportunities to trained manpower as the China plus one story propels these sectors forward.

Automobile and Smartphone manufacturing are  great Indian successes already with excellent growth prospects. Samsung not only proposes to catch up with Apple sales in India and export, but will also start making laptops in Noida shortly.  The electronics industry has grown to Rs. 830,000 crores and exports have crossed 200,000 crores.

Many are anticipating a strong fillip given to affordable housing, including easier financing, and enhanced tax incentives on home loan interest and release of government owned land for the purpose.

This is understandable in an election year, but the potential exists to do much more than help the relatively poor own their own pucca homes with amenities and facilities at hand.

The residential and commercial real estate sector as a whole, presently at $ 120 billion according to Statista, aims to be at $ 1 trillion by 2030, and account for 13 per cent of the enhanced GDP. This is one sector that has been absorbing the migrants from rural India for decades and provides employment to millions of unskilled and skilled people of both sexes. While our  real-time statistical collection is much behind our adoption of digital means in other areas, it would be useful to know how many people work in construction when it is booming.

Pushed hard, as is being projected by the real estate sector, perhaps inclusive of industry status, financing, tax incentives, and its attendant benefits, this  segment of the economy, can certainly be a major employer, moderniser and growth driver towards overall development.

Of course, infrastructure, the other adjunct to huge economic generation, now has come to mean super roads and highways with hotels, motels, other supportive infrastructure, railways, including multiple freight corridors, rolling stock, track, wheel and digital signalling equipment manufacture, tunnels, bridges, high-speed trains, bullet trains, rapid transport linkages, complete train-set manufacture, electrification, expansion into areas and territories not previously served, a great expansion of the metro system in multiple cities, ports including transshipment ports, airports, revamping of airports and railway stations. All this has been steadily increasing avenues of employment, and will continue to do so in tandem with GDP growth. The NHAI is now constantly recruiting people.

The real estate and infrastructure sector is also a great buyer of mechanisation, heavy equipment, earth movers, bull dozers, graders, consumables and the like.

The more efficient taxation system under GST and direct taxes is increasingly providing investible development and sustenance funds for the centre and the states. Most of the leakages have been plugged.    

Former RBI Governor Duvvuri Subbarao has cited ‘jobs and inequality’ as the Modi government’s biggest failures. Youth unemployment he writes is as high as 40%. If only all those gone into services, growing tourism, part-time employment, the great unknown of the informal sector, were statistically captured, this kind of alarmism would not exist.

In line with the accusations of the Left-Liberal analysts, Subbarao cites ‘jobless growth’, a basic oxymoron, because growth needs legs to stand on. But even if this slur goes unchallenged for the sake of argument, Subbarao goes on to expand by  criticising the ‘quality of growth’ as opposed to ‘quantum of growth’.  I can’t think of one thing Subbarao suggested while in the saddle that threw light on this distinction. Let alone now.

While one can argue with this overall perspective, as the shibboleths associated with a socialist mindset, that is probably hinting at the creation of millions of government jobs, however inefficient that has proved to be in the past. This may be thought of as a popular panacea, but is akin to having five people change a light bulb, never mind the waste of talent. Another of his criticisms is however undeniable.

Subbarao says female labour force participation (GLPR), ‘presents a distressing picture’. He is right, but is it only the government’s fault that only 28% of women participate in the workforce, and this soon reduces to 8% as many drop-out? The potential for harnessing the female work force better, as in China, could add another 1 to 1.5 % to the GDP.

Is this therefore also a societal and patriarchal problem that will need time, even as women today are prominent, albeit in small numbers, in almost every field of endeavour, both high and low.

Arvind Panagariya, Professor at Columbia University and also currently India’s Chairperson of the Finance Commission, is, in a way at the other end of the  economic thought spectrum from Subbarao.

He has consistently advocated a lowering or elimination of tariff barriers right from his time as the Vice Chairman of Niti Udyog and even before. He argues  that the Indian automobile industry has only grown behind a government imposed tariff wall, and could do much better for itself and the customer if this were to be removed, or reduced to the level of the ASEAN countries.

He disagrees with the increasing protectionism since 2014, and says no country can grow at 8 to 10 per cent without free trade.  But then, does the US, the EU, the UK or China practice free trade? They certainly do not. In some ways laissez faire free trade is an imperialist notion that suits only the imperial power.

Panagariya is perhaps being a little theoretical, though the thrust of his argument is well meant. It is to be expected from an academic. Would this sort of policy enhance job creation at the same time or lead to Indian business and industry as well as its agriculture sector being overwhelmed by dumping and other aggressive trade practices?

Maserati sold 103 of its super cars in India at a price of over Rs. 4 crores each in 2023 India, despite very high import taxes. It too asks for lower duties and better infrastructure to sell even more. There is, it appears, no shortage of money at the top in India, as in the developed countries.

In a country with such a large population however, where a good quarter of the people to forty percent are undeniably poor, targeted welfarism without leaks is mandatory. This includes development of facilities such as rural roads, provision of gas, electricity and water connections, free rations when unemployment strikes, healthcare, education, digital connectivity, and also a measure of subsidy and pure give-aways.

The Modi government has been mindful however to push growth at the same time, and address, at least partially, the needs of the other sixty per cent of the population, including the movers and shakers at the top. This, no doubt, as the crucial balancing act, of neither being abject socialists, nor heartless capitalists, will continue in the interim budget 2024.

(1,575 words)

January 30^th, 2024

For; Firstpost/News18.com

Gautam Mukherjee