India needs a Budget for its young Premium

A boost in government expenditures to provide food security, health and education will only brighten the future for millions of India’s youngsters

The world is indeed looking up to the Indian economy as a ‘bright star’, as the Finance Minister noted in the Budget speech on February 1. In 2020, India accounted for 20.6% of the worldwide population of 15 to 29 year olds. Which means that in the years ahead, one out of every five workers deployed globally could be an Indian. No doubt, the rest of the world foresees a fortune in India’s young population. But are our policymakers doing enough to realise the possibilities that are unfolding?

The key proposals in this year’s Union budget are the following. On the one hand, there will be a considerable increase in capital expenditures, for the building of physical infrastructure, mainly in transport, energy and defence. The figures under this head are expected to be higher by ₹3.2 trillion (or lakh crore) in 2023-24 compared to the corresponding level in 2022-23 (revised estimates). While the growth of the tax revenues is going to be modest, the government is nevertheless committed to reducing the fiscal deficit — the shortfall in government’s receipts relative to its expenditures — to 5.9% of GDP. That could have been achieved only by reducing the spending on some other sectors.

The axe has fallen on subsidies and social sector expenditures. Compared to its previous year, in 2023-24, the Union government’s expenditure on food subsidy will fall by ₹0.9 trillion (or 90,000 crore), on fertilizer subsidy by ₹0.5 trillion, and on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) by ₹0.3 trillion. The marginal increases in the allocations on health, education, agriculture and the Angwandi scheme are unlikely to make an impact, after taking into account the effect of inflation.

A jump in capital spending by the government, as proposed in the Budget, is a much-needed step to reinvigorate the Indian economy. Investment (for buying new machines and building roads and factories) as a proportion of income or GDP indicates the rate at which a country’s productive capabilities are growing. In India, this proportion rose steadily during the mid-2000s and peaked at 42% in 2007, which was even better than China’s record at that point in time. High rates of investment translated into extremely fast rates of economic progress in the country, which lasted until the early 2010s.

The disruptions and the uncertainty caused due to the global financial crisis in 2007-08 had been a turning point. China responded to the crisis by increasing domestic investment, a large part of which coming from its public sector. On the other hand, in India, the government restrained its expenditures, worrying about the rising fiscal deficits. As public expenditures nosedived, private investors lost confidence as well. Investment as a proportion of GDP was on a steady downward slide, falling to 33.8% in 2013-14 and 27.3% in 2020-21. If the proposed investments by the government come through, and they indeed crowd in private investments as the Finance Minister has predicted, that can set the stage for a revival of the Indian economy.

In contrast to capital expenditures, subsidies and social sector spending are considered ‘wasteful’ and, therefore, it is believed, a cut on their outlays will not hurt economic growth. Quite the contrary, a reduction in social expenditures not only worsens the existing social inequalities but can also dampen the prospects for long-term growth. Only 9.8% (in 2020-21) of India’s workers are in regular jobs that provide some form of social security. Therefore, measures such as MGNREGA and free provision of food have been a clutch at straw for millions of poor Indians, hit as they have been by the COVID-19 pandemic and joblessness.

Public expenditures on the social sectors constitute an investment for the future — more so for a country with a predominantly young population. The income a destitute mother receives for work through MGNREGA may ensure that her children do not have to go to school with empty stomachs. Underinvestment in education and health will undercut India’s chances in a global economy that is increasingly dominated by knowledge. In 2022, only 2.6% of the nearly 1.9 million candidates who wrote the National Eligibility cum Entrance Test (NEET) in India for admission to undergraduate medical courses managed to secure a seat for MBBS in a government college. Every year, millions of young women and men in the country are denied the opportunity for affordable basic and higher education. At the same time, there is frustration among the educated that there are too few decent jobs for many of them. Government expenditure on health and education can provide a boost to both the supply and the demand fronts in a knowledge-driven economy: more new jobs as teachers and doctors, especially for women, and a greater supply of younger professionals and skilled workers.