As another Union budget arrives, there is a palpable air of disenchantment and disinterest. Last year was supposed to be Union Finance Minister Nirmala Sitharaman’s speech. Notable for its acknowledgment of the dire fiscal situation, nothing else stands out from the event.
This year, even the pre-budget energy that one usually sees in the stock market is lacking. Although there is intense discussion and focus on the current market drop, on the budget itself, the market has cleared up – divestment targets will not be met, announcements to large scale will not be made and a GST 2.0 seems very unlikely.
The result would then be that the budget does not matter. Politics is a running treadmill of course. But here is why and for whom this event means a lot. Two areas require urgent and intensive attention, money and solutions.
No Jobs, No Plan: A Dull Brahmastra
Data from the Center for Monitoring Indian Economy shows that India’s unemployment rate hit a four-month high of 7.9% in December 2021. January 22 already shows a figure above 8%. The urban unemployment rate rose to 9.3% in December from 8.2% the previous month, while the rural unemployment rate rose to 7.3% from 6.4%, the data showed.
While the monthly numbers may be erratic, two crucial areas deserve special mention amid a growing and frankly alarming jobs crisis.
First, unemployment hits educated urban youth the hardest.
CMIE Managing Director and CEO Mahesh Vyas explains in his note:
“While young people in the 20-24 age group had an unemployment rate of 37%, the graduates among them had a much higher unemployment rate of over 60%. 2019 was the worst year for these young graduates. The average unemployment rate for them in 2019 was 63.4%. This is much higher than the unemployment rate they faced in the previous three years. An overall unemployment rate of around 7.5% does not reflect the real challenges facing India. Graduates between the ages of 20 and 29 face a much higher unemployment rate of 42.8%. This is India’s real challenge. An equally important challenge is that graduates of all ages also have a very high unemployment rate of 18.5%”.
In other words, the ‘demographic dividend’ that India is meant to reap is eating away at itself.brahmastra‘, or his most powerful weapon.
There is a second problem. Much of the employment and labor has been provided by the service industry.
After all, it accounts for over 54% of the economy. Even before the third wave hit us, contact-intensive services lagged pre-pandemic levels. This is reflected in the “commerce, hospitality, transport, communication and broadcast-related services” segments, which still remain 8.5% below FY20 levels. With the increase in Omicron cases, the localized restrictions and city-level curfews, service sector jobs are sure to slump in January and February.
In sectors such as trade, hospitality and transport, nearly 64% of the workforce is unorganized, in sectors such as construction even more so. Without support for the service sector and everything in it, jobs will slowly but surely dry up.
In 2020-21, the first year of the pandemic, 11.19 crore people worked under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA), compared to 7.88 crore in 2019-20. In the current fiscal year, 9.52 million people have already been registered as beneficiaries. This safety net for rural India needs to be extended and now is the time for an urban version of the same.
Violent attacks on job applicants protesting against the railway recruitment exam screening process and subsequent protests are a stark reality of the jobs crisis we face. The government may choose to eliminate this ticking time bomb, but it is essential that the Union budget increases expenditure for the MGNREGA program in rural India and presents a plan and an intention to tackle urban unemployment in our cities.
Households: Strengthen the core
Households play two roles in an economy: as consumers, they contribute to demand; as savers, they contribute to the level of investment that can be financed on the internal market.
Obviously, a healthy mix of the two is ideal, but during recessions and downturns, consumption takes on more importance. Let’s see what the reality is.
Auto sales, especially for two-wheelers, are at their lowest in a decade. Motorcycles and scooters, once seen as the barometer of a better life for many low-income households, are now languishing with extremely low sales right now. This, despite the fact that car loan interest rates are between 7% and 10%
For many quarters, the RBI has characterized the rise in inflation as “transient” in nature. Each wave of COVID-19 has resulted in supply chain disruptions for logistics and labor, and with that higher markups between retail and wholesale prices. As we navigate through the third wave, we have a situation where oil prices are rising, input cost pressures are mounting, and households are struggling to cope with rising fruit and vegetable prices.
In the words of HUL Chairman and CEO Sanjiv Mehta, “We haven’t seen this kind of inflation for many years.”
Brokerage Nomura warns: “The main concern, in our view, is that the rise in price levels triggered by past pandemic waves does not fully correct when the wave ends, resulting in higher price levels after each pandemic wave, even if the following month -the monthly price increase normalizes. Therefore, we believe that January and February will bear the brunt of the inflationary impact of the third wave. We expect headline inflation to decline from 5.6% year-on-year in December to 6.0-6.5% in January, with core inflation rising from 6.0% to 6.5% . Overall, we raised our projection for headline inflation in Q1 2022 by 0.2pp to ~6.4% and 2022 by 0.3pp to 5.9%.
Why is inflation so important?
I asked Nobel laureate Dr. Amartya Sen about inflation and its impact during a recent conversation. This is what he told me: “We have a situation somewhat analogous to the famine in Bengal when inflation was very high. What is common is a shared disregard for the interests of the poor and that was as strong in the 1940s as it is today. We must therefore examine the similarities and differences between the Bengal famine and the challenges of hunger today and explore solutions. There are a lot of very good Indian economists thinking about this, but there is a need to focus on this especially by the ruling establishment.
The budget must create a respite and an opportunity to stimulate household demand. Not for the affluent upper middle class for whom nothing has changed, but for homes and families who are limiting their spending as they struggle to make ends meet.
A deepening K, a deepening crisis
What does the new India look like? On the one hand, Indian companies are showing relatively stable profits and manufacturing is showing a timid but steady recovery. On the other hand, households are struggling to feed their members, job losses are a lived reality and, overall, women are increasingly falling behind, with opportunities and access. It seems counter-intuitive. In the face of clear evidence of the economic suffering that citizens and families are experiencing in India, why does it matter so little to those who run the country, why does the refrain remain “everything is fine”?
The answer is here. Oxfam’s report, ‘Inequality Kills’, released ahead of the World Economic Forum’s Davos Agenda, says that in 2021 the collective wealth of India’s 100 richest people hit an all-time high of Rs 57 .3 lakh crore.
In the same year, the share of the poorest 50% of the population in the national wealth was tiny
6%. During the pandemic (March 2020 to November 30, 2021), the report states, the wealth of Indian billionaires increased from Rs 23.14 lakh crore to Rs 53.16 lakh crore. It is estimated that more than 4.6 million Indians fell into extreme poverty in 2020. Nearly half of the world’s new poor according to the United Nations.
Further evidence for the same conclusion emerged in a recent 2021 ICE360 survey, conducted by People’s Research on India’s Consumer Economy (PRICE), a Mumbai-based think tank. They write: “In a trend not seen since economic liberalisation, the annual income of the poorest 20% of Indian households, which has been rising steadily since 1995, plunged 53% in the pandemic year 2020-21 compared to at their 2015-16 levels. Over the same five-year period, the top 20% saw their annual household income increase by 39%, reflecting the stark contrast the economic impact of COVID has had on the bottom of the pyramid and the top. »
The same country where people struggle to buy a bottle of mustard oil is also the country where iPhone maker Apple had its best year ever in India in 2021, shipping a record over six million units. . Which India do you want to see? And which India should the finance minister’s budget speech address? If this event is to have any significant impact, it must address the plight and economic suffering that the majority of India is feeling today.