Budget 2022-23: Mixed bag on tackling joblessness

Open unemployment was at a 48-year high (NSO, PLFS) in 2019-20 at 8.8%, by the internationally recognised measure of current weekly status (CWS). There has been no change in the open unemployment over three years (2017-2020) by the current weekly status of the worker — hardly surprising, given that the economy was slowing each quarter over that period. That implies underemployment was increasing, but PLFS measures that poorly. Did the Budget address the problem of falling labour force participation in India and rising unemployment?

The only serious intervention that the FM’s Budget for FY23 has made for jobs is the increase in capital investment. From its normal level of 1.3% of GDP it plans to continue FY22 Budget’s commitments to capital investment to increase it to 2.9% of GDP. This is important for several reasons.

First, most public investment in India is undertaken by state governments and much less by the Union government. It seems that the FM realised that the states are in no position to increase public investment this year, since they have borne the responsibility of Covid-19 management in the second wave. In any case, they have strict commitments on borrowing on account of the Fiscal Responsibility and Budget Management Act.

Second, an increase in public investment was required to crowd in private investment — a typical Keynesian measure. This is rather contrary to GOI’s policy stance for the last two years, when the size of the fiscal stimulus was barely 2.1% and 1.9% of GDP over FY21 and FY22. This is very stingy, measly in fact, compared to: a. the emerging market economies in 2020 alone stimulating their economies by 4.7% of GDP; and b. the GOI’s own fiscal stimulus in 2008, after the much smaller global economic crisis, post-Lehmann collapse, of 3.5% of GDP.

However, the good news on jobs in the Budget stops there, and bad news begins. First, the FM recognised the problem of joblessness — which clearly it is in denial of — in stating early in her speech that GOI plans to create six million jobs over five years. Recognising a problem is not the same understanding the scale of the problem, which has three dimensions: (a) about five million young people, mostly educated, each year join the labour force looking for work; (b) there were already 30 million unemployed in 2019, and another at least 10 million have been added to that number since Covid-19 began; and (c) 32 million semi- and unskilled migrant labourers went back to agriculture between 2019 and 2020, thanks to Covid-19, thousands walking back in the heat of summer 2020, and received little succour (with nearly a 1,000 dying en route, before reaching their destination!). This last constituted a reversal of the trend of the absolute reduction of works in agriculture between 2004-05 and 2019.

The reverse migrants have come to depend upon MGNREGA since their return to their villages. MGNREGA is a life-saver at a time of desperation. There are already too few livelihood opportunities in source states of migrant labour (the Hindi belt, WB, Odisha, Assam). A saturated labour situation in these states is now having to support at least 32 million more returnees. GOI had allocated 60,000 crore in FY21, then increased it to1.1 lakh crore, but still there were arrears left to be paid to states in FY22. In FY22, it allocated 70,000 crore, to which another15,000 crore was added, but has not sufficed. Millions of workers were denied work.

Worse, notified MGNREGA wage rates increased by 4% between FY21 and FY22, but actual wages paid remained lower than the notified wage rates for most states till December 31, 2021. The percentage of unmet demand, which is the difference between employment demanded and employment provided, was highest in April and September 2021 at 33% and 31%, respectively. For FY22 till December 31, 2021, around 91 lakh households that demanded work had not yet received it. According to a 2019 survey by the National Statistical Office (NSO), there was not much difference in who participated in the scheme, i.e. the proportion of rural agricultural households that undertook work under MGNREGS was similar for the bottom (22%) and top quintile (20%). In other words, both poor and better off households need MGNREGA work in this crisis.

Finally, from the jobs perspective, in Budget FY23 the credit guarantee scheme for MSMEs (ECGLS), has been given more funds — 50,000 crore in FY23 — which takes the earlier allocations to ECGLS to a total of5 lakh crore over FY21 to FY23. This might have some uncertain implications for saving some jobs in MSMEs that fear closing down, because of lack of aggregate demand in the economy.

In any case, the GOI in general does not seem to recognise that FY21-23 have seen a crisis in aggregate demand. Similarly, what the new allocation for MSMEs does not recognise is that per capita private consumption expenditure had dropped by 5% in real terms between FY22 and FY23 (according to the first advance estimates of FY23 GDP). The GOI’s fiscal stimuli in the last two years have not been large enough to reverse the collapse in jobs Covid-19 lockdowns triggered, on top of a pre-existing shortage of jobs. This is what has driven rising poverty and increasing inequality in India.

(The author is Former head of Development Policy Division and Rural Development Division, and Director General of the Research Institute of Planning Commission.)