How the budget can generate higher growth, jobs
- Although Omicron has had a minor impact on the economy, the GDP loss over the last two years has been significant.
- It is also worth noting that the pre-Covid year FY20 had a low starting point, with GDP growing at a rate of 4%.
- As a result, it is clear that higher growth must be prioritized in the upcoming budget and over the medium term, that is, beyond India@75.
Challenges in creating quantity and quality of jobs in the economy
- Unemployment is high in both rural and urban areas; work participation rates are declining, particularly among women; and employment recovery is still below pre-Covid levels.
- The informal sector employs 85 percent of the workforce.
- Lack of skill: Less than 5% of India's workforce has received formal skill training.
- The need for structural change: Manufacturing and services both require structural change.
- A focus on the MSME sector is required for increased employment.
Policies needed to achieve higher economic growth and jobs
Capital expenditure and infrastructure
- The government has outlined a pipeline of infrastructure projects worth more than Rs 102 lakh crore, as well as an asset monetisation pipeline worth Rs 6 lakh crore, to be implemented in the medium term.
- The government's continued emphasis on infrastructure and capex is critical because it is a key driver for the "future of India."
Focus on export growth
- It is well understood that an increase in exports is one of the main engines of growth and is also important for job creation.
- India's export growth has accelerated and is expected to reach $400 billion by the end of FY22.
- One concerning aspect of India's export performance is the country's failure to increase the proportion of labor-intensive products in the export basket.
- Trade protectionist policies: However, one issue in recent years has been that India's trade policy has become more protectionist, with import tariffs increasing.
- Join the RCEP: India should also join the Regional Comprehensive Economic Partnership (RCEP) in order to integrate our industries into Asian value chains.
Manufacturing and service sector growth
- Manufacturing's share of GDP and employment has barely increased over time.
- Performance can be improved with Production Linked Incentive (PLI) schemes.
- More efforts, however, are required to improve the manufacturing sector.
- Similarly, there are numerous opportunities in the service sector for India.
- The importance of brand and customer-centricity cannot be overstated.
- India can also consider expanding its business in the service sector.
- Growing startups in manufacturing and services, including unicorns, is part of this effort.
Banking Sector reforms
- Banking reform is critical because bank credit growth is a leading indicator of economic growth.
- India has a low credit-to-GDP ratio: In India, the credit-to-GDP ratio is around 55%, compared to 100% to 150 percent in many other countries.
- Credit should be available to all types of economic agents, such as firms and households.
- The bad bank, a key initiative of the previous budget, has yet to materialise.
- The importance of fintech firms in the financial sector has grown significantly.
- Even though they compete in payments, they may not be able to replace banks.
- Banks must now consider ESG (environment, social, and governance) factors when extending credit.
- Banks also require large amounts of technology and a digital push.
K- shaped Recovery
- The economy's K-shaped recovery is still ongoing.
- Policies must focus on boosting the MSME sector, increasing investment in agriculture and rural infrastructure, bridging health and education divides, social protection measures such as foodgrain distribution, cash transfers, MGNREGA in rural areas, urban employment guarantee schemes, and so on.
- This will also stimulate the economy's demand.
- Fiscal policy must play an important role in achieving the goals of growth and jobs in the short term by expanding fiscal space, while the fiscal deficit can be stabilized in the medium term. It may take some time for private investment to increase.