A considerable section of the commentary around the Budget is about the continuing importance of public spending, as private consumption remains tentative — exacerbated by the uncertainty around the pandemic and the need to build back reserves that have depleted over the past two years. Private capital formation too, influenced by the tentativeness of private consumption, remains moribund. The burden of carrying the economy thus continues to rest on the government’s none too broad shoulders.
Given the hesitancy to spend, cash transfer and schemes like MGNREGS (yes, with good panchayat governance, it can build much needed local infrastructure, but this condition is often not fulfilled) may not be up to the task and the call is for the government to spend directly. But, to what end? Surely, the intent is to boost employment through public expenditure, in addition to generating direct demand for certain products. Besides, the secondary employment gains from such production may be low, due to excess capacity and low labour intensity.
In this context, the government’s splurge on production linked incentives (PLI) is worth watching. It relies more on external demand than domestic and it would be gratifying to see it succeed because it would generate both exports and employment. However, it would be good to see how the initial push pans out before pouring more resources into this strategy.
The other approach is a massive push on new infrastructure projects — a strategy used by China both in the aftermath of the Asian Financial Crisis and the Global Financial Crisis. But, while this approach arguably helped China avoid a hard landing, it is unclear whether it is the appropriate strategy for India at this time. New projects are capital intensive and slow start — they will not help to maximise employment.
Besides, new projects can be of dubious value and, unlike China, often not well coordinated with other investments, e.g. the Mumbai Ahmedabad high-speed rail project is not part of the Mumbai regional plan. Similarly, it is unclear how the $4 billion Delhi-Mathura regional rail will affect the evolution of the National Capital Region. Where, then, should government expenditure be directed?
One immediate high job generator can be the maintenance and improvement of existing assets.
The United States is a cautionary tale of the consequence of postponed investments in infrastructure maintenance and rehabilitation. Here, there are existing schemes that can be scaled up quickly. The Dam Rehabilitation and Improvement Project (DRIP) currently covers a tiny percentage of over 5,000 large dams in India, with a total expenditure that is a fraction of even local projects like the Delhi Mathura regional rail. Over 300,000 kilometres of rural roads built under the Pradhan Mantri Gram Sadak Yojana (PMGSY), perhaps India’s most transformative central scheme, are now more than 10 years old and needs extensive rehabilitation.
While there are initiatives like e-MARG to facilitate this, the expenditure needs to be ramped up significantly. A third area is electricity distribution, especially in smaller urban areas, where rising use and increased connections means that antiquated networks are no longer fit for purpose. Nor are they renewable energy ready.
A recent NITI Aayog report recognises that “loss-making discoms are unable to invest in the upgradation and maintenance of their equipment due to lack of resources”. These are just three examples in the infrastructure sector where there are existing initiatives that can be supported and where a quantum jump in expenditure can lead to significant benefits and increased employment.
The second focus should be to look beyond physical capital to human capital, which has been badly hit during this pandemic.
India is among the countries that have used prolonged school shutdowns in order to manage the pandemic. While online education has helped to some extent, the loss in learning is likely to be substantial and unequally distributed, with the largest losses among the poorer and rural populations. Learning deficiencies in primary school are especially pernicious and affect lifelong learning and skill acquisition. Without intervention, these school closures may massively affect the quality of our workforce in the coming years, just as we need to accelerate our growth.
Consequently, over the next two to three years it is important to provide supplementary teaching support, to enable students to catch up on the learning backlog that has accumulated in the last two years. This cannot be done by the existing teachers alone. It needs an extensive national teaching volunteer program, with a small honorarium, with a goal to match the number of primary school teachers. This would not only be employment-intensive, but it is also an essential input to ensure a persistent and continued growth spurt, necessary to achieve the $5 trillion economy goal and go beyond.
The third area of focus can be India’s pledges to the planet, for 2030 and beyond to 2070, made at Glasgow.
These have to be detailed further in our commitments at the upcoming Sharm El-Sheikh meeting this year. India needs to be and be seen as an exemplar of LIFE, lifestyle for the environment, as articulated by Prime Minister Narendra Modi.
The recently announced tender for 5,500 electric buses by CESL (Convergence Energy Services Limited) is an encouraging signal in this direction. Such initiatives need to be scaled up multi-fold, instead of limited metro rail projects that only have marquee value, especially in smaller cities. Each kilometre of metro rail costs at least 200 electric buses. Extensive road-based electric urban transport systems, coupled with the already announced ramp up in green power investment, can be a more widely spread and significant support to LIFE.
To reiterate, this Budget and near-term growth strategy should focus on increasing jobs by focusing on three goals. First, a Mega Maintenance Mission to refurbish our existing infrastructure. Second, a Learning Leap, to ensure that the pandemic does not constrict the life chances of young Indians and impede the attainment of our development goals. Finally, over the medium term — just one additional electoral cycle — it needs to support LIFE, helping to attain India’s 2030 goals and its longer term 2070 net zero pledge. These three will propel India to a job-intensive and green high growth trajectory.
The author is Senior Fellow at the Centre for Policy Research. Views are personal.