Union Budget 2024-25-A Welfarist Rather Than Transformational Budget | Ajit Kumar Singh

The people were waiting with bated breath for the Union budget for 2024-25 mainly for two reasons. One what strategy the budget would outline for achieving the goal of Viksit Bharat 2027 and two how would the government respond to the demand of special package for Andhra Pradesh and Bihar. On both counts the budget fails to meet the expectations. The budget does not present a road map for transformation of India into a developed country by 2047. PM Modi has totally succumbed to the political blackmail of Naidu and Nitish, giving them special projects amounting to nearly one lakh crore rupees. As expected, this has created tension in the cooperative federalism, with most of the non-BJP Chief Ministers boycotting the meeting of the Niti Ayog in protest. The best way was to leave the issue to the discretion of the Sixteenth Finance Commission which is deliberating upon the fiscal transfers from the centre to the states.

In this paper we will mainly focus on the two important issues, that is, the likely impact of the budget on economic growth and on employment.
Push to Demand Negligible

What was needed to boost growth rate of the economy at the present juncture was to give a push to private and public demand. The budget fails on both these accounts. Total expenditure in 2024-25 is slated to increase to Rs. 48,20,512 crore from the expected expenditure of Rs. 44,42,542 crore in 20023-24. This is a mere 8.5 per cent growth, only a bit higher than the inflation rate. In fact, the proposed increase in revenue expenditure is only 6.2 per cent. Though capital expenditure is projected to increase by 17.1 per cent, it is not likely to generate additional demand on the required scale as most of the capital expenditure in on capital intensive infrastructure projects. One should also note that there was a shortfall of expenditure amounting to Rs.46,203 crore on revenue account and Rs. 52,455 crore on capital account over 2023-24 BE (Table 1).

Table 1: Total Expenditure Union Budget (Rs. Crore)

Source: Union Budget 2023-24.

Nor the budget gives relief to the middle classes through lower taxes to boost their expenditure. The exemption limit has not been raised and only a marginal decrease in tax rates has been promised. These changes will hardly benefit lower middle class reeling under high inflation of essential goods. The loss on government revenue from changes in the direct taxes is estimated at merely Rs. 29,000 crore. Thus, private sector demand is not likely to increase much to boost the economy.

Impact on Employment

The budget seeks to give push to employment. But there is no overall strategy to promote employment. Only piecemeal measures have been announced. The budget mentions nothing about filling the lakhs of vacant positions in the government itself. Fairly large employment can be generated in a short term by filling of government posts on a crash basis.

Three measures have been announced for generating more employment in the private sector by providing financial assistance for creating new jobs.

1. Government will provide one-month wage to all persons newly entering the workforce in all formal sectors. The direct benefit transfer of one-month salary in 3 instalments to first-time employees, as registered in the EPFO, will be up to Rs. 15,000.

2. It is proposed to provide financial support both to the employee and the employer with respect to their EPFO contribution in the first 4 years of employment.

3. The government will reimburse employers up to Rs. 3,000 per month for 2 years towards their EPFO contribution for each additional employee.
A critical look at these provisions will show that they do not provide incentive to increase employment but provide some financial help to those new employees who are able to procure a job in the formal sector. This is only a mechanism for promoting formalisation of jobs and not for generating additional employment. Whether it will encourage employers to register employees under EFPO is doubtful. The employer will go for additional employment only if he thinks that there is need of additional employee to support his productive activity.

The government aims at facilitating higher participation of women in the workforce through setting up of working women hostels in collaboration with industry, and establishing creches. This is more of a welfare measure than employment generation programme. The emphasis on women-specific skilling programmes, and promotion of market access for women SHG enterprises are welcome measures.

Skilling programme

The government has announced a new centrally sponsored scheme for skilling in collaboration with state governments and Industry. 20 lakh youth will be skilled over a 5-year period. 1,000 Industrial Training Institutes will be upgraded in hub and spoke arrangements with outcome orientation. Course content and design will be aligned to the skill needs of industry, and new courses will be introduced for emerging needs. The Model Skill Loan Scheme will be revised to facilitate loans up to Rs. 7.5 lakh with a guarantee from a government promoted Fund. This measure is expected to help 25,000 students every year. The Finance Minister has announced a financial support for loans upto Rs. 10 lakh for higher education in domestic institutions. E-vouchers for this purpose will be given directly to 1 lakh students every year for annual interest subvention of 3 per cent of the loan amount. This measure may help students from middle class and is not likely to help students from poor and needy families. The outcome of the national Skill Mission has not been very encouraging. The real issue is to create demand for the trained workers, which will come only when private investment will pick up.

Internship Programme

The government has announced a scheme for providing internship opportunities in 500 top companies to 1 crore youth in 5 years. An internship allowance of Rs. 5,000 per month along with a one-time assistance of Rs. 6,000 will be provided. Companies will be expected to bear the training cost and 10 per cent of the internship cost from their CSR funds. Interestingly this scheme is announced under measures for promotion of manufacturing & services. It is not known who will be the eligible candidates and how they will be selected. Also, one does not know about the likely response of the companies to cater to 4000 interns every year on average. One also does not know how many of the internees will be absorbed in regular jobs.

The Budget Priorities

Before we end, we would like to comment upon the budget priorities as revealed by the budgetary allocations given in Table 2. The first thing to observe is that in many sectors the allotted funds were not fully utilized. For instance, Rs. 3681 crore allotted to education could not be spent. This short fall wasRs. 7539 crore in case of health and Rs. 9735 crore in case of rural development. Similarly, the unspent allocation were Rs. 8339 crore in case of energy and as much as Rs. 39926 crore in case of transport. This speaks volumes about the administrative capabilities of the government.

Table 2: Budget Allocations to Main Sectors

Source: Budget Documents

The allocation in 2024-25 budget for various sectors are only nominally higher than the previous budget. Rural development allocations have been increased by 11.6 per cent and urban development and education allocations by 8 per cent. Health allocations remain almost at the same level. On the other hand, energy budget is 27.6 per cent lower than 2023-24 budget. Allocations to the agriculture and allied activities have been increased by 5.3 per cent. But fertilisers subsidy has been cut down.

The sectoral allocations reveal continued neglect of the social sector. The expenditure on education and health constitutes a bare 2.6 per cent and 1.9 per cent of the total Union budget. The neglect of the health sector is particularly shocking in a country with poor health infrastructure and health indicators. The combined expenditure of the centre and state governments on education is around 9 percent and that on health is around 6 per cent of their total expenditure against the UNDP recommendation of 30 per cent expenditure on education and health. No wonder we are at 134th rank in HDI among 180 countries. We are far from the nationally accepted goal of 6 per cent expenditure of GDP on education.

Concluding Remarks

The budget does not lay down policy framework or roadmap for attaining the goal of Viksit Bharat by 2047. It has only announced its intention to bring out policy documents in several sectors in future as can be seen from the following statements:

 We will formulate an Economic Policy Framework too delineate the overarching approach to economic development and set the scope of the next generation of reforms for facilitating employment opportunities and sustaining high growth.

 A comprehensive review of the Income Tax Act will be carried out.
 Our government will undertake a comprehensive review of the agriculture research setup to bring the focus on raising productivity and developing climate resilient varieties.

 Our government will bring out a National Cooperation Policy for systematic, orderly and all-round development of the cooperative sector.
 We will formulate a plan, Purvodaya, for the all-round development of the eastern region of the country covering Bihar, Jharkhand, West Bengal, Odisha and Andhra Pradesh.

 For meeting financing needs of the economy, our government will bring out a financial sector vision and strategy document to prepare the sector in terms of size, capacity and skills.

No specific time line has been fixed for bringing out these documents. It looks the government is still groping in the dark what to do to accelerate growth and productivity. To conclude, on the whole the budget appears to be welfarist rather than a transformational budget.

(Author: Professor Ajit Kumar Singh, Former Director, Giri Institute of Development Studies, Lucknow)