Union Budget 2024: Focus should be on welfare of citizens, allocating more funds for manufacturing sector, says former World Bank chief economist

Basu, the former World Bank chief economist, said the inflation faced by poor families is much greater than the national average of 5.08 per cent and the inflation that rich households face.

New Delhi: The Modi government needs to focus on welfare of ordinary citizens in the upcoming Budget and earmark more funds for the manufacturing sector to boost small businesses and create more jobs, former World Bank chief economist Kaushik Basu said on Tuesday.

In an interview with PTI, Basu further said it is critically important for the government to shift some of its attention to ground-level economic welfare.

"I hope that, starting with the Union Budget this month, the government will turn its attention to the welfare of ordinary citizens and not just to climbing up the chart of aggregate GDP," he said.

Union Finance Minister Nirmala Sitharaman is scheduled to present the Budget for 2024-25 in the Lok Sabha on July 23.

"I believe that the rich can afford to pay higher taxes and using this money to incentivize the manufacturing sector can go a long way in boosting demand for labour, helping small businesses and raising the income of ordinary people," the eminent economist suggested.

Basu, who was also Chief Economic Adviser, said India's overall GDP growth over the last two years has been good.

"But by focusing so much attention on this aggregate statistic, we are missing out on two major ground-level challenges India is facing: steeply rising inequality and high unemployment, especially youth unemployment, which is among the highest in the world," he said.

Basu said the inflation faced by poor families is much greater than the national average of 5.08 per cent and the inflation that rich households face.

Retail inflation was 5.1 per cent in June.

The RBI, which has been mandated to ensure that inflation remains at 4 per cent (with margin of 2 per cent on either side), mainly factors in CPI while arriving at its monetary policy.

On a question concerning the correlation between coalition governments and economic reforms, he said single-party, majority-run governments are typically more effective in making policy, but for the nation what is good depends on what the government's aim is.

"If the aim of the single-party majority run government is to raise GDP at all cost, even if this means ordinary people are left worse off, it is better to have a coalition government because that can put a brake on such policy," Basu, currently a professor of economics at Cornell University, said.

With the support from N Chandrababu Naidu's TDP and Nitish Kumar-led JD(U), along with other alliance partners, the Narendra Modi-led National Democratic Alliance (NDA) crossed the halfway mark in the recently held Lok Sabha elections to form the government at the Centre.

Responding to a question on high unemployment, Basu said all political parties have a self-interest in high youth unemployment since this is the catchment of cheap labour from which they get their political volunteers.

While expressing hope that the parties will rise above their own interest and implement policies in the interest of the nation, he said at this point of time, the most important policy should be job creation, even as there can be no denying that a part of the problem is global.

"With the advance of technology, the demand for labour is declining worldwide.

"However, for middle-income countries like India, where labour is still very cheap, it is possible to continue to increase the demand for labour," he said.

According to him, countries like Vietnam do this successfully.

Recently, the International Labour Organization (ILO) report showed that in 2022, the share of unemployed youths in India's total unemployed population was nearly 83 per cent.