Finance minister Nirmala Sitaraman is scheduled to present her first Union Budget next week, which will set the agenda for the next five years.
Budget announcements are an annual media spectacle and are often analysed extensively for the ‘signaling effects’ they carry in the form of market sentiment and the government’s own priorities.
In some ways, budgetary outlays announced during the interim Budget or vote-on-account presentation earlier this year by Piyush Goyal, are likely to be actualised in Sitharaman’s presentation with certain revisions and additions.
However, India’s current economic situation demands a bolder action plan from the finance minister to touch upon some critical areas.
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The economy’s current position is on a downward trend in terms of sectoral performance for almost all key growth drivers.
While more work is clearly needed on the private investment and labour-and-land law reforms front, there are four other focal areas that this budget can tackle. These areas should ideally be the focus of this government in the first year of its second term.
W for Women
As India’s first full-time woman finance minister, it would be timely for Sitharaman to make structural changes that can help empower the agency of women (across age groups and classes), by increasing their employability and participation in the organised labor force.
The under-performance seen in India’s growth levels in recent years can be in part chalked up to the lack of women in organised employment opportunities across sectors.
By 2013, only 27% of adult Indian women who were looking actively for employment had a job, compared to 79% of men then.
A careful observation of the charts below, drawn from the recent employment survey numbers, reflect how female-male unemployment rates have only worsened in the last five years.
Source: Author’s Calculations from PLFS and NSS survey results
The female unemployment rate in 2017-18 came to an all-time high of 12.8% in urban areas and 7.7% in rural areas (do note these are numbers only for organized formal employment which is less than 20-25% of India’s overall employment landscape).
Between 2005-2012, almost 20 million women dropped out of the workforce, which is equivalent to the entire population of Sri Lanka. India’s rapid urbanization process hasn’t allowed the situation to get any better and there are a number of reasons for this including including lack of transport and mobility for women, safety conditions in employment and living opportunities in urban metropolises along with pre-existing social conditions.
Source: Author’s Calculations from PLFS and NSS survey results
A national-level budgetary signal for women safety and mobility – at the rural, urban and inter rural-urban connectivity levels – will be a huge boost for not only enhancing overall economic productivity. It would act as a catalyst for employers to hire more women in sectors where women work participation has stayed low.
A strong case can also be made for increasing the number of ‘working-women hostels’ and promoting ‘exclusive transport for working women’ across urban spaces.
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Two other significant areas where fiscal support from the Centre can help improve ‘employability’ of women, especially for those entering the workforce after completing graduate level education, are increased public funding for existing/new girl-enrolled schools & colleges across states and subsidising ‘care services’ to help working women with children.
Most evidence from research undertaken in recent years – which have analysed the ‘missing’ state of women in India’s employment landscape – have attributed this trend to predominantly these two factors. Tackling the increase seen in dropout of girls from college in rural and semi-urban spaces shall require an exclusive focus and support from the government. This can come in the form of offering more scholarships and funding opportunities to girls across social classes in fields of science and technology in addition to making schools and college more accessible and safe for girls.
The rise in India’s care economy – important specifically in the deeply patriarchal zones of family structures, where women are expected to spend more hours at home to take care of children or the elderly – requires financial and government support. Both in terms of increasing ‘care-sensitive’ infrastructure for dependents (children and senior citizens), and complimenting this with subsidised costs for affording such infrastructure (especially within rural areas where the presence of anganwadis have tried to provide nutritional support to infant kids).
Feminising India’s growth trajectory requires bold, persistent reforms in this regard and this year’s budget offers an opportunity to be a step in this direction. If done right, women will have greater time for themselves, which in turn will jump-start their ability to skill themselves and enter the workforce. Any national government that only recognises female agency in terms of ‘motherhood’ is deeply problematic.
A national message shared to increase women employability would require a comprehensive financial push in financing multiple areas for gender-equality – education, transport, employment creation and subsidizing care costs, Such measures, if taken, can go a long way in not only providing a women-centered direction to India’s employment trajectory.
A for Agriculture
The second area requiring a budgetary focus is the ailing agricultural landscape. The common consensus is that the Narendra Modi government failed to push for any structural reforms in the agricultural sector – starting from reorganising land markets – to other difficult decisions on pricing, market connectivity, crop insurance and easier credit.
Most of these warrant legal reforms too, especially for changes land ownership and acquisitions.
While direct cash transfers to India’s farmers shows that the government has an agenda, it needs to fine-tune its thinking. A key step in this regard would require the Centre to recognise an average farmer’s needs (and concerns), more from the lens of an entrepreneur who finds it difficult to make maximum economic benefits. What to cultivate? Where to cultivate? How to cultivate and at what price to sell? And for whom to cultivate?
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Raising farm productivity is crucial not only from the perspective of increasing farm incomes, but critical in raising rural demand and thus further reviving the manufacturing sector. What fiscal announcements are made in increasing credit supply channels for farmers across states, and in increasing their access (and affordability) to crop insurance will be key.
For the industrial sector to revive itself, agriculturally-speaking, we need to grow at a minimum of 4% (currently from a GVA level at 2011-12 base price, this growth rate is at -0.1%).
There are leaves to be taken out of China’s book, specifically what it did in the 1980s and 1990s, where the country’s agri-sector saw an average growth rate higher than 3-4%, enabling their manufacturing sector to grow as well.
While direct cash transfers to India’s farmers shows that the government has an agenda, it needs to fine-tune its thinking. Photo: Anindito Mukherjee/Reuters
E for Exports
For any increase in agricultural productivity to benefit the macro-economic landscape, a robust ‘farm-to-factory’ supply channel remains vital for the manufacturing sector to also benefit from rise in production of agri-based commodities. As observed previously, India’s significant leverage in domestic production has been in its cooperative style of business across states (as seen in cases of sugar, dairy, textiles, micro-finance- to cite a few).
Local development of ‘Commodity-based Cooperatives’ (CBCs) can not only help in providing a ‘self-sufficient’ environment for food, clothing and financial needs for almost a 1.3 billion population base, but can also add great export value for India’s expansion in regional export markets.
Figure 3 below breaks down the pattern seen in India’s export market over the last five to six years. A deeper look into product-wise categories of exports from India to all exporting partners over last five years shows a substantive decline in exports – sharpening since year of 2015.
Some might argue that the introduction of the Goods and Services Tax (GST) regime worsened these trends then and in the following years. 
Source: Author’s calculations from WITS DatabaseConsidering more than 50% of the rural population is engaged in producing agri-products, their overall representation in export shares and margins – including for those sourced from animal husbandry, wood and other raw materials – remain dismal.
Strengthening the ‘farm-to-factory’ connect is vital in structurally addressing this. And financially supporting this through tax-based and other targeted expenditures – if announced in the Union Budget – can allow for boosting production in large scale ‘agri-based commodities inputs’, as part of other manufacturing products (like textiles and clothing, cement, metal etc.).
This would help in both, enhancing agricultural productivity for higher income-returns and improve India’s troubled export sector.
T for Textiles
A critical area where Indian export potential (and demand for its products) has remained high but supply-side bottlenecks have inhibited its rise is in the textile and clothing segment (export share in 2017 being at 12.6%).
The Interim Budget made provisions for increased allocations in ‘Remission of State Levies’ (ROSL) with the aim of encouraging textile sector production. Some have argued that an inclusion of cotton-yarn and fabrics under the ROSL scheme can perhaps benefit their production patterns too.
However, it is useful to point out that while budgetary outlays or incentives through tax-exemptions are often argued as the ‘most ideal’ scenario for textile-led (or other medium scale) export production, a reflection from Arvind Subramanian’s Economic Survey study – released a couple of years ago – offered some useful insights on how most of such announced packages don’t work as desired.
In June 2016, the Union Cabinet announced for a Rs 6,000 crore package for the apparel sector. The largest component of this package included rebates on state levies (ROSL) in an attempt to offset indirect taxes levied by the states (when VAT was there) that were embedded in exports. After the package, the ROSL increased export incentives by between 2.8 % – 3.9%.
Subramanian’s team, in testing the success of this export package, highlighted how “the package increased exports of readymade garments (RMG) made of man-made fibres (MMFs)”, but made no “statistically positive impact” on readymade garments made of other fibres (silk, cotton etc.), and the impact man-made fibres increased gradually over time (by September 2017).
An important policy implication from this observation made then with insights for now too, includes allowing the GST council (and finance ministry) to do a comprehensive review of ‘embedded taxes’ for products left outside the GST (say petroleum and electricity) and those that arise from the GST itself (for example: in case of input tax credits that get blocked because of ‘tax inversion’ – where taxes further back in the chain are greater than those up in the supply chain).
Such a review can help in bringing significant changes to the structure of financial benefits – usually offered via Budget based announcements – and over time help in elimination of certain ‘embedded export taxes’ that otherwise inhibit manufacturing exports in textile and clothing.
Deepanshu Mohan is associate professor and director, Centre for New Economics Studies at O.P. Jindal University. He is a visiting professor to Department of Economics, Carleton University, Canada.
