Creating jobs by increasing capex

• The Prime Minister told BJP workers that the massive four-fold jump in capital spending compared with 2013-14, will bring more investment and open multiple job avenues for the youth.
• It was intended to explain its key proposals and their impact to party workers across the country, especially those in the five states going to Assembly polls this month.

Context

• International Labour Organization (ILO) data suggests that India’s employment to population (over the age of 15) ratio has steadily dropped from 55% in 2005 to 43% in 2020.
• In 2020 - it was 52% in Bangladesh, 63% in China and 73% in Vietnam.
• Women form just 20% of India’s workforce, while they comprise between 30% and 70% of the workforce in the other three countries.
• CMIE data suggests that across manufacturing and services, India lost nearly 1 crore jobs between December 2016 and December 2021.

Momentum in tax collections

• Data released by the Controller General of Accounts (CGA) shows that for the first nine months of the current fiscal year 2021-22 (FY22), the Centre’s revenue receipts across taxes and dividends already stood at ₹17.3 lakh crore, just shy of the full year budget of ₹17.9 lakh crore.
• Higher income tax and Goods and Services Tax (GST) collections are on the back of a robust performance of India’s organized sector.
• The government deserves full credit for the conservative Budget projections of last year, even as it enhanced credibility by coming clean on expenditures hidden in off-balance sheet in the books of the Food Corporation of India.
• For the first time in many years, notwithstanding the pandemic and the intense hurt amongst the unorganized sectors, tax collections for this fiscal year will end well ahead of the original Budget projections.
• The revised FY22 Central revenue receipts to ₹20.8 lakh crore, nearly ₹3 lakh crore higher than the original Budget.
• Actual revenue receipts may exceed by an additional ₹0.5 lakh crore-0.7 lakh crore.
• The overall FY22 fiscal deficit is projected to end at ₹15.9 lakh crore (6.9% of GDP), higher than the Budget Estimates of ₹15.1 lakh crore.
• Additional spending on food and fertilizer subsidies, increased allocations to the MGNREGS and export incentives, all contributed towards increased expenditures.
• For the next fiscal year FY23, There is an increased capital expenditure budget or investments into productive capital creation to ₹7.5 lakh crore(24% higher than the FY22 revised estimate of ₹6 lakh crore).
• Between FY11 and FY21, capital expenditure averaged just 12% of the government’s overall expenditure.
• For the current FY22, that ratio increased to 16%, and for FY23, it is to take it to 19%.

Intent behind the step

• Sustained investment in roads, railways, freight corridors, power and renewable energy.
• Production-Linked Incentives (PLI) and other enabling legislation will create the conditions for drawing in private sector investments into manufacturing.
• It will foster job creation and sustainable growth.
• It will provide additional degrees of fiscal policy freedom and foster domestic jobs and output.

Repercussions of the above measure

• Above strategy does come with a few caveats and risks.
• Not all the headline capital expenditure is indicative of fresh greenfield investments. Example: ₹0.5 lakh crore of clean-up of Air India this year counts as capital expenditure.
• For FY23, the government has set aside ₹0.8 lakh crore to partly clean up the books of NHAI and BSNL.
• While there is a visible thrust on hard capital expenditure, the outlays towards critical areas such as education, healthcare and urban infrastructure remain subdued.
• The thrust on capital expenditure has resulted in notably higher fiscal deficit numbers than expected.
• High fiscal deficits can put pressure on interest rates and the Reserve Bank of India, also it raises the risk of inflation, higher current account deficits, and the attendant threats to financial stability.

The key lies in execution

• The FM has provided ample funds for the infrastructure thrust.
• It is up to the administration – Central, State, and local – to ensure that the funds are utilised in a timely fashion, and result in delivery of world-class infrastructure.
• Also ensuring ease of doing investments being continually addressed, especially around key areas such as land acquisition, contract enforcement, and policy stability.
• Sustained investments in manufacturing and value-added services hold the key for the growth of small businesses, jobs, and our economic well-being.