Does Budget 2024 address the economic challenges India faces today?
The announcement of a new Union budget is an occasion for media attention. But whether or not it is, in fact, a significant budget — one that addresses the big economic challenges before the country — depends on it setting a new direction for economic policy or considerably cementing an existing one. Small changes that affect the common person, such as tax rates on income or consumption items, draw a great deal of media attention because they affect the pocketbook. Such shifts are part of the essential everyday work of governance and play a role in any budget, but they do not necessarily have strategic importance. Unfortunately, Budget 2024 has not addressed the strategic challenges India currently faces.
What are these challenges? The country must find a pathway of growth and development that is less regionally imbalanced and more inclusive, generating employment and opportunities for the vast majority. Its growth process, however robust it may appear in global terms, remains confined to islands of prosperity.
Hollow shells
The gigantic problem of youth unemployment, which fed the discontent with the ruling party in the 2024 Lok Sabha election, gains some attention in the budget, but without being addressed in a fundamental way. Consider more carefully the three main youth employment-oriented announcements in Budget 2024.
The first is a subsidy to first-time employees and their employers. Unfortunately, this measure is cosmetic. The main reason for youth unemployment is not that the country’s young are too expensive to hire but that they are often unprepared and unqualified for the labour market. International experience suggests that wage subsidies have to be sizable and long-term as well as paired with a significant element of training (none of which is the case here) to make any difference, and even then this is unlikely, especially if they are to involve more than a symbolic and short-term benefit.
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The second s a mass internship programme in large corporate houses (which depends on the latter’s voluntary participation). The problem with this measure is much the same. Although there is no doubt that the demand for such internships is likely to be enormous, the supply is less likely to be adequate. If corporate houses are not already hiring youth in large numbers, it is because most available young people are unsuitable and organisations’ needs are limited. And this is occurring in an era when production processes are changing in a way that greatly decreases labour demand. Equally fundamentally, the demand for labour is not necessarily where the supply is, and relocation may not be feasible for such short-term experiences. A successful internship depends on mentoring and training, both of which are unlikely to be part of such a mass exercise. Cajoling corporate houses to superficially comply with the demands of such a programme is likely only to create false starts and disappointment.
The third proposed action is a planned expansion of vocational and technical education. But a massive scaling up of the existing highly inadequate system is unlikely to have much impact. Technical education requires skilled instructors and close links to industry, which cannot be magicked into existence and must be developed over time. India desperately needs a major investment in vocational and technical education, which is the backbone of manufacturing and integration of young people into the labour market on remunerative terms in countries such as Germany. But getting it right requires far more than an announcement. It is likely to work best if undertaken through active collaboration with industry.
The budget’s newly announced student loan programme does not help much either since the unemployment among educated youth shows that it is relevant training, and not merely the acquisition of credentials, that matters. The measures announced in the budget appear to be hollow shells, where substance is needed.
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Where the real problem lies
All of these ideas are, on the surface, reasonable enough, but none of them come to grips with the heart of the problem, which involves both an inadequate supply of trainable workers and tepid demand. Many youth in India are poorly served by their education and are unprepared to take up the kind of work that is available to them. In addition, many production activities are not economical in India. Improvements in infrastructure, reductions in energy costs, improvements in work culture, and other factors can help, and all of these require attention, since the whole package matters, as China’s experience (of international competitiveness through low unit costs) shows. But it is unlikely that the vast majority of aspiring youth can be absorbed in the existing islands of services-based activities, or in prospective manufacturing activities, both of which are highly dependent on possessing or gaining relevant skills. What is missing is a realistic understanding of why hiring is chronically weak, leading to the pattern of relatively jobless growth that India has been experiencing.
The measures announced in the budget to address the problem of thwarted aspirations of crores of young people in the country seem – unsurprisingly — to be grounded more in the desire for high-profile announcements than a thoughtful examination of, and strategic response to, the underlying issues.
Other initiatives in the budget raise similar issues. It is self-evident that the measures announced for Andhra Pradesh and Bihar, however deserving both states may be (the former because it contains a number of deprived areas and faces new needs while entering a dire fiscal state after bifurcation, and the latter because it remains the poorest state in India by per capita income) are ad hoc. The concessions to these states satisfy a political imperative and are not part of a considered strategy aimed at integrating more deprived regions of the country into the growth process. The budget plans for continued robust investment in infrastructure promise more of the same pattern of investment that has been present in the last decade — high-profile large infrastructure projects that benefit large firms’ production activities and higher-income people more than they do the vast majority of the population. The budget shows one thing clearly: despite plentiful talk of bringing about a developed India, the country is in need of a more substantial long-term economic strategy.
The author is an economist at the New School for Social Research, New York. Follow him on X @sanjaygreddy. Views are personal.
(Edited by Humra Laeeq)