The political context behind this year’s budget is compelling: It comes close on the heels of a prolonged standoff with protesting farmers, and in a few weeks, important state elections will be due in agrarian states such as Uttar Pradesh and Punjab. Many had therefore expected copious presents for India’s voluminous and politically active farm sector.
Yet the budget did not give in to those expectations. For months, even as Modi his contentious farm reform laws, protesting farmers have been clamoring for on the government’s Minimum Support Price (MSP) scheme — a policy under which the government procures crops from farmers at a guaranteed minimum price, regardless of market fluctuations. Those legal guarantees were never conceded. Instead, Finance Minister Nirmala Sitharaman responded by ($32 billion) over the coming financial year to procure rice and wheat at the MSP rate.
But unlike in past election years, Sitharaman did not roll out a flurry of subsidies to woo the agricultural vote bank. Instead, she listed the Modi government’s key priorities for the — leading up to the 100th anniversary of India’s independence — and thereby exuded her confidence in the Modi government’s political durability.
The overwhelming priority set out by Sitharaman within that agenda was a massive investment binge on infrastructure. To that end, Sitharaman allocated a total of to capital expenditure overall — more than 35 percent over last year’s budget — including nearly 3.3 trillion rupees for and alone.
In some ways, this is a sensible pursuit. For years, India has been in desperate need of a significant infrastructure upgrade. Its potholed roads and outdated railways have deprived smaller towns and villages of connectivity. Travel time can often be significant even for relatively short distances. Train coaches are often squalid and uncomfortable. All of these issues demand massive investment sooner than later.
But unlike its predecessors, the Modi government also appears to see infrastructure as its first-choice job creator. The road to this year’s binge was laid as early as last year, when Sitharaman marked out the infrastructure sector as a key job creator within Modi’s economic vision. “You spend on infrastructure, you create a capital asset whose effect will be on the economy for the next couple of decades, it gives you instant jobs,” the finance minister had last February.
That narrative was echoed again only a few days ago by Modi’s principal economic adviser, Sanjeev Sanyal. In response to a question on the lack of job creation in public sector enterprises, Sanyal : “[There] are areas where the public sector is generating jobs; it may not be government jobs but when you are talking about capital expenditure on infrastructure, that is also a job created by government spending.”of China’s GDP comes through investment each year. Close to a comes from investment in infrastructure. The need to create jobs has only fueled a vicious cycle of its own: Even as rising wages drag down jobs in manufacturing, the infrastructure sector in an attempt to fill that gap.
Yet the mania has proved unsustainable. Unprofitable projects arising out of the perpetual binge helped push China’s government debt to of GDP before the pandemic, according to the IMF. Last year, China’s leading real estate giant Evergrande became the company.
In the age of the internet, many countries are therefore trying to build a knowledge economy instead — to propel sustainable value creation and social mobility in the long-run. That requires significant investment on human capital, including education, healthcare, and the like.
But for years, the Modi government has curiously neglected these sectors in its spending portfolio. This year, the education ministry was a little over 1 trillion rupees — barely 0.5 percent of India’s GDP and less than a third of the investment package for roads and railways. Spending on medical and public health has, in fact, . The budget documents have defended it by citing “lower requirement for vaccination.”
In the wake of the pandemic, this orientation of priorities is all the more baffling. Owing to prolonged school closures, hundreds of millions of children were either forced out of school or suffered long-lasting losses in learning outcomes. Ballooning healthcare costs and job losses also sent some back below the poverty line for the first time in years. Meanwhile, the share of the workforce seeking employment in agriculture has , for lack of better opportunities.
Modi hopes that investment in infrastructure would have a trickle-down effect — spurring private investment in the cities, and enabling self-employment and small-scale entrepreneurship in the towns and villages. But such a strategy is unlikely to prove sustainable in the long run without a well-educated and skilled workforce, capable of expanding India’s knowledge economy. India needs to balance those priorities better.