The budget has ignored the poor

Contact Counsellor

The budget has ignored the poor

  • The setting for the 2022-23 Union Budget was quite unprecedented: Acute unemployment, growing poverty, burgeoning wealth and income inequalities, and accelerating inflation.
  • One expected to find in the budget some measures for stimulating the economy, and also some gesture towards alleviating distress.
  • However, the budget ignores the economy’s travails and provides neither stimulus nor succour to the poor.

Less hits more misses

  • The budget envisages a rise in capital expenditure by the government but if we look at total government expenditure, which is what matters from the point of view of aggregate demand, the increase is only Rs 1.75 lakh crore, from Rs 37.70 lakh crore in 2021-22 (RE) to Rs 39.45 lakh crore in 2022-23 — a 4.6 per cent rise.
  • This is even lower than the inflation rate.
  • In real terms, the budgeted total expenditure change is thus negative. Government expenditure as a proportion of GDP is set to decline sharply, entailing a dampening effect on the economy.
  • Likewise, the provision for MGNREGA, a lifeline for the poor, is pegged at Rs 73,000 crore, lower than Rs 98,000 crore in 2021-22 (RE) and Rs 1,11,000 crore in 2020-21.
  • It would be argued that this being a demand-driven scheme, the outlay can be expanded if necessary.
  • What this argument misses is that such an expansion of outlay takes time, and delayed wage payment in the interim discourages demand.

Wrong remedial strategy: Inhumane, Inegalitarian and hence anti-democratic

  • It goes against what advanced capitalist countries like the US have been trying to do.
  • The Biden administration’s recovery strategy entails spending more, including on welfare schemes, by resorting to heavier, not lighter, corporate taxation.
  • For this, it has even negotiated an internationally-agreed minimum corporate tax rate to prevent corporations from parking profits in tax havens.
  • The inflationary recession is plaguing the Indian economy.
  • Rising fuel taxes raises prices in general and since the money incomes of the working people do not increase in tandem, there is a reduction in real demand, and hence a recession.
  • Precisely because of this recession that develops, the increase in private corporate investment, that had supposedly constituted the justification for such tax concessions, does not materialise.
  • On the contrary, the larger unutilised capacity in existing units, that arises because of the recession, causes a curtailment in private investment.
  • This perverse fiscal strategy, which one hoped would be abandoned in the current budget, continues even as the government itself admits that private investment is unresponsive to tax concessions.
  • This is why it has decided to increase public investment hoping that it would “crowd in” private investment.

Worsening Internal and external indicators

Internal developments

  • Internally, whatever recovery has occurred in 2021-22 relative to 2019-20 has not touched real consumption expenditure, which continues to be below its 2019-20 level.
  • The level of capacity utilisation in consumer goods sectors, therefore, cannot be higher than in 2019-20.
  • In fact, since there has been some addition to capacity meanwhile, because of the lagged effect of investment decisions taken earlier, unutilised capacity in these sectors has obviously increased.
  • This means that investment will come down, and its multiplier effects on consumption will make it shrink further.
  • This recovery, therefore, unlike what the Economic Survey predicts, cannot last.

External developments

  • Externally, the oil price is on the rise, with many expecting it to reach $100 per barrel soon.
  • The current government, whose revenue comes substantially from taxing petro-products, will then have to pass on the higher import price to the consumers for fear of losing revenue otherwise, which will only exacerbate domestic inflation.
  • The near-zero interest rate policy pursued in the US and elsewhere till now, which had enabled India to access global financial flows easily for balancing its external payments, is coming to an end because of the acceleration of inflation there.
  • This threatens a depreciation in the external value of the rupee that will add further to the rate of inflation in the economy, including through higher rupee prices of imported oil whose dollar price itself is rising.
  • This, in turn, will add further to recession and unemployment, as curbing inflation acquires priority.


  • Imposing wealth tax
  • Increasing corporate tax
  • Reducing excise duty on petroleum to curb inflation
  • Increasing spending on welfare schemes
  • Timely payment of wages under MGNREGA