Invest in People for a Better Tomorrow

As the finance minister noted in his Budget speech on February 1, the world is indeed looking up to the Indian economy as a bright star. In 2020, India accounted for 20.6% of the global population aged 15 to 29. That means that one out of every five workers deployed globally in the coming years could be an Indian. The rest of the world, without a doubt, sees a fortune in India’s young population. But, are our policymakers doing enough to recognise the opportunities that are emerging?

The following are the key proposals in this year’s Union budget:

  • Increase in infrastructure capital expenditures: Capital expenditures for the construction of physical infrastructure, primarily in transportation, energy, and defence, will rise significantly. The figures under this heading are expected to be higher in 2023-24 than they were in 2022-23. (revised estimates).
  • Tax revenue is modest: Although tax revenue growth will be modest, the government remains committed to reducing the fiscal deficit to 5.9% of GDP. That could only have been accomplished by cutting spending in other areas.
  • Subsidies and social sector spending have been targeted: In 2023-24, the Union government will spend 0.9 trillion (or 90,000 crore) less on food subsidies, 0.5 trillion less on fertiliser subsidies, and 0.3 trillion less on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
  • A minor increase is unlikely to have an impact: After accounting for the effect of inflation, the marginal increases in allocations for health, education, agriculture, and the Angwandi scheme are unlikely to have an impact.

Complementarities between the public and private sectors

  • Capital spending reflects a country’s productive capacity: A boost in government capital spending, as proposed in the Budget, is a much-needed step towards revitalising the Indian economy. Investment as a percentage of income or GDP indicates how quickly a country’s productive capabilities are expanding.
  • High rates of investment; rapid rates of economic progress: In India, this proportion rose steadily during the mid-2000s, peaking at 42% in 2007, surpassing China’s record at the time. High investment rates translated into extremely rapid economic growth in the country, which lasted until the early 2010s.
  • Crowd in Private Investments: If the government’s proposed investments are implemented and crowd in private investments, as the finance minister has predicted, it could pave the way for the Indian economy to recover.

The global financial crisis of 2007-08 was a watershed moment.

  • China responded by increasing domestic investment: China responded to the crisis by increasing domestic investment, the majority of which came from the government sector.
  • India reduced its spending: Concerned about rising fiscal deficits, the Indian government reduced its spending. As government spending fell, so did private investors’ confidence. Investment as a percentage of GDP has been steadily declining.

Investing in people is a long-term investment

  • Expenditure on the social sector: Public spending on the social sector is an investment in the future, especially in a country with a predominantly young population.
  • As an example: A destitute mother’s income from MGNREGA work may ensure that her children do not have to go to school on an empty stomach.
  • Underinvestment in education and health: Underinvestment in education and health will harm India’s chances in a global economy dominated by knowledge. Millions of young people are frustrated because they lack access to affordable education and decent jobs.
  • For example, in 2022, only 2.6% of the nearly 1.9 million candidates who took the NEET were able to secure a seat in a government college for MBBS.
  • Government spending on health and education can help both supply and demand in a knowledge-driven economy, with more new jobs as teachers and doctors, particularly for women, and a greater supply of younger professionals and skilled workers.

The value of social sector spending in terms of long-term growth and social welfare

  • Putting Capital Expenditures in Comparison to Social Sector Spending: Subsidies and social sector spending are frequently labelled as wasteful, in contrast to capital expenditures, which are generally considered productive. It is widely assumed that cutting social sector spending will not harm economic growth; however, this is not the case.
  • Reduced Social Sector Spending Has a Negative Impact: Cutting social sector spending not only exacerbates existing social inequalities, but also dampens long-term growth prospects.
  • For example, in India, only 9.8% of workers have regular jobs that provide some form of social security. As a result, policies such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and free food distribution have provided a lifeline to millions of poor Indians affected by the COVID-19 pandemic and joblessness.

Unfounded concerns about the fiscal deficit

  • Inflated Fears Have a Negative Impact: Fears about the fiscal deficit and government debt will be counterproductive in a country like India, which has vast reserves of untapped human and other resources.
  • The fact that the majority of India’s government debt is held by domestic financial institutions does not pose a threat: External agencies are only owed a small portion of India’s public debt (4.2 percent of GDP in 2022), which does not pose a threat. Domestic financial institutions, such as public sector banks and insurance companies, hold the majority of India’s public debt. This is a debt owed by the government to the people of this country, whose savings have been mobilised by financial institutions.
  • For example, Greece and, most recently, Sri Lanka’s economic crisis were caused by external debt.
  • A Virtuous Debt Cycle: Higher levels of development and income will result in the accumulation of new savings, which can be used to pay off debts. Borrowing to feed and educate all of its young citizens will allow asset-poor and socially disadvantaged households to gain the skills needed to enter the new job market.

@the end

This is without a doubt a “make or break moment” for a generation of young Indians. There is little hope for them to escape poverty, a lack of skills, and discontent unless public spending on human capabilities increases. However, if the government invests in food security, health, and education, India’s youth can thrive and shine brightly around the world.

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