Ease of Living’ was what the Finance Minister promised when she presented the Budget in 2020. Little would she have known that that was exactly what would get hit throughout the year. Living itself became fragile and vulnerable, partly because of a deadly enemy that came in from across the border and partly because of a draconian lockdown announced internally that would bring the entire country and the economy to a dead stop, destroy millions of livelihoods, and shutter thousands of businesses.
This year, the FM will have to work on a far simpler theme of just ‘living’. The State must do all it can to save people from death, joblessness and impoverishment. In an unprecedented situation, this Budget will not talk of fast-paced growth, it should focus on rebalancing the economy to help the recovery process a little. The FM will do well to avoid repeating the fond fantasy of ‘V’ and ‘U’ shaped recoveries that some of her cabinet colleagues are claiming has already happened.
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The reality is grim. The economy has seen an unimaginable contraction. The Ministry of Statistics itself says it will shrink by 7.7% this fiscal. Those of us who would get upset at a growth rate of 7.7% a decade ago, asking why we can’t have double-digit growth, are now sheepishly looking away. We are witnessing something that two generations of Indian never even imagined possible. The economy, after having steadily slowed down since demonetisation, has now plunged into negative territory. In simple words, our economy will be smaller this year than what it was last year.
Back to poverty for millions
What does this mean? The lesser of the evils will be lower consumption, lower factory output, etc. The greater problem is on the development front, where we are set to see a rise in the number of the poor, higher prevalence of hunger, lower wages and greater misery. Our social indicators are looking fragile and ugly. The precarious status of healthcare and disease incidence is well-known. And we will have many more students out of school, higher number of dropouts, and lower enrollment rates in schools and colleges.
In 2015, all UN member-states had pledged to work toward Sustainable Development Goals (SDG), to be reached by 2030. It was obvious even before Covid-19 that India would not reach those goals by 2030. The year 2020 was to have initiated the Global Decade of Action to add vigour, and money, to help catch up on the goals. Instead, it became a year of crisis, when almost the entire world had to abandon social indicators and use all resources to fight the pandemic and provide urgent relief to populations.
India, with its vast swathe of poverty and deprivation, faces the biggest threat. Almost all those who had been brought out of poverty over the last 15 years are estimated to have fallen below the poverty line again. When the numbers for 2020 come out, India could well have surpassed Nigeria as the country with the largest number of the very poor. This is a straight fallout of the joblessness that came about after the lockdown, with 121 million people losing jobs and some 40 million migrant workers returning home, hundreds of miles away, on foot, on bicycles and in cargo containers.
Malnutrition is a tragic, and automatic, outcome of rising unemployment. The number of those who sleep hungry, already at a staggering 100 million, is estimated to have gone up by 50 million more. Some 200 million people, 15% of the population, were already malnourished in 2019. This number is estimated to have gone up by another 100 million. Mental health problems, a rise in maternal and infant mortality rates, and an increase in vulnerability to infectious diseases – experts have warned that all these are coming.
There is no good news on the education front, either. Globally, the pandemic has badly impacted students in low and lower-middle income countries like India. Some 24 million children will drop out of school, possibly forever, and about 30% of them will be Indians. Thousands of schools have been shutting down – by one estimate, 40,000 across the country just last month. We are yet to see clarity on when the education system will get restored to a near normal.
Whatever it takes
What can the FM do to arrest this dangerous slide into poverty and misery? She already faces a nearly Rs 2 lakh crore deficit in GST collections. The ministry has also indicated a 26% decline in direct tax collections. What this means is that the Budget is going to be really stretched and will need a huge rebalancing act by the government. Since 2014, the Modi government has been wary of incurring fiscal deficits and has made it a major goal to keep inflation low. It will have to abandon both these premises. Fiscal deficit matters little in a situation like this. An increase in government debt is not something anyone can complain about when the State must increase its spending to save lives, give sustenance allowances, and ensure that everyone gets the vaccine for free and education access is quickly restored. The fiscal deficit will have to go up, and the Fiscal Responsibility and Budget Management Act allows for it.
The FM’s focus should be on the poor, the stock market can take care of itself, like it seems to be doing so very well amidst the penury and the grimness. She should give the self-employed, the farmworker and the unemployed enough help -- via benefit transfers -- to get by and be able to pay rents, school fees and healthcare costs. Anything that can wait should be postponed – we do not need a new Rs 20,000 crore Central Vista when millions are falling into poverty.
There will be enough pressure on the FM from her many constituencies. Petrol and diesel prices are already at their highest ever, but if a Covid-19 cess has to be imposed, the FM must do so. If she must roll back her rather generous corporate tax cut, given through an Ordinance in 2019, she should do so unhesitatingly. Her middle-class constituents will not want her to raise allocations to NREGA and Ayushman Bharat. She can let them be annoyed for a while. And if the protectionist ‘Atmanirbharta’ initiative has to be put on hold, so be it. This Budget must be for the poor, if at all we are to get back on track to achieve at least some SDGs by 2030.
(Amir Ullah Khan teaches economic policy at the Indian School of Business and the Nalsar University of Law)