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Budget 2023- 24: Unorganised Sector continues to Suffer – IMPRI Impact and Policy Research Institute

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Budget 2023- 24: Unorganised Sector continues to Suffer - IMPRI Impact and Policy Research Institute

Arun Kumar

The Union Budget for 2023-24 has come at a time when the economy is ostentatiously doing well but is facing challenges both internally and externally. The unorganised sector is suffering due to the policies the government has been pursuing for some time. Externally, the war in Ukraine and the ongoing ‘New Cold War’ are adding to the problems. Both these challenges needed to be addressed in the Budget. Unfortunately, that is not in evidence.

The external challenges are hard to address because India does not exert the influence on the world economy to mould it to suit its requirements. At best, it can try to minimise the challenges that will come it’s way, especially if the Ukraine war persists. For that, it will have to focus on strengthening the Indian economy.

The internal challenges are due to the nature of the growth and its extent, high unemployment, rising inequity and persisting inflation. The budget needed to address these.

Budget is populist of a different kind

Growth has been in the organised sector at the expense of the unorganised sector, which is declining. The latter is being colonised by the former. Also, this results in a lower growth rate than what the official figures indicate. The government is happy that the Indian economy’s growth rate is the highest among the major economies and feels it can continue as it has been doing.

Actually, after a shock to the economy, it is not the growth rate that matters but the level of the GDP. India’s official GDP is now only 8% more than 2019-20 (pre-pandemic). In other words, the economy has grown an average of 2.8% per annum. The state of the economy is yet to recover to where it was pre-pandemic. Since this growth has come from the organised sector while the unorganised sector is declining, actually the economy has not grown at all. That is why unemployment is high, and consumption and investment levels have not recovered to the earlier levels. The Budget needed to tackle these factors, but does not.

It is a populist Budget, not the way financial analysts understand this term but in the real sense. For financial analysts, a populist budget is one that allocates funds for the poor and gives subsidies to them. The populism of this budget is that it is apparently giving to every section of society – women, tribes, Dalits or farmers and MSMEs. But, announcements have real content only if adequate amount of funds are allotted for each of them. 

Low stimulus for growth

If these announcements were for real, the overall expenditures would have risen sharply. But at Rs 45,03,097 crore, the total expenditures will rise by only 7% over the revised expenditures in the current year. This is less than the projected 10.5% growth in nominal GDP. Thus, even if more is allotted to some schemes, it will be at the expense of some other schemes. 

Further, the budget should have been used to stimulate the economy’s growth. With such a small increase in the budget allocations, that will not happen. The allocations should have risen by much more than 10.5%. Further, it is the primary deficit that adds to the demand and stimulates the economy but that is set to fall from 3% of GDP to 2.3%.

The financial experts set store by the increased capital expenditures planned in the budget. That will be helpful but not as much as is required. Most of this increase is in the big projects – highways, railways and so on. Most of these are capital-intensive and will hardly generate much employment. They will of course help big businesses by boosting demand for the organised sector. Instead, the capital expenditures for rural areas and for employment generation required a boost. 

Unfortunately, the allocation for MGNREGA is cut from Rs 89,400 crore in the revised estimates to Rs.60,000 crore next year. Further, rural development allocation has been reduced from Rs 2,43,317 crore in the revised estimate to Rs 2,38,204 crore. Of the total budget expenditure, it is getting 5% and that shows the low priority of the government for the rural sector.

Thus, the budget is not going to stimulate growth of the economy, which is needed to take care of the various ills.

Inequality will grow

If growth remains negative for the unorganised sector, then they will suffer a substantial loss of income. This will be far greater than any allocation for them in any new schemes now announced. The government’s show of concern for their welfare will prove to be mere words. The continuing high inflation is another tax on them which will lower their standard of living since they are not able to bargain for higher wages.

The budget is lowering the direct tax rates for the well-off and they do not need that. Their incomes have been rising as the organised sector is doing well at the expense of the unorganised sector. Their stock market wealth has shot up in spite of the overall economy not doing well. So, they also benefit from the wealth effect. They needed to pay more tax so that more public goods could be provided in the country and that would benefit the marginalised sections.

A wealth tax could have been initiated. It is frowned upon by financial analysts. They argue that the rich are generating wealth due to their own effort and should not have to bear higher taxes. They treat it as extortionary. They also buttress their argument by saying that this tax failed earlier. The tax became infructuous due to the large number of exemptions given. Vertical equity suggests that a wealth tax should be levied in the economy. Further, it has been shown to be the most efficient way of raising taxes. 

It could be used to reduce indirect taxes, which are both regressive and inflationary. They are also the most inefficient way of collecting taxes since they are stagflationary. Largely leaving the wealthy untouched leads to a low tax/GDP ratio, which prevents increasing expenditures on public goods like education and health. These sectors are also employment generating.

In brief, the budget is drafted with an eye on the nine state elections in 2023 and the coming general election next year. Without doing much, the government can claim that it has given to all the marginalised sections. It has also created a façade to hide the benefits that it grants to the well-off sections.

This article was first published in The Wire as Union Budget 2023 Cleverly Camouflages Its Real Intent on 1st February 2023.

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