Increase social sector spending

Economic policies should aim to achieve growth and inclusive development. The budget also should reflect these objectives. The following three major issues should be addressed regarding budget and economy.

First, for raising growth investment has to be revived, particularly private investment. There is a debt problem for private sector. It may take some time for revival of private investment and the climate has to be created. The global economic situation is not in good shape. There has been a slowdown in Europe and BRICS countries with the exception of India. Particularly, the slowdown in China is worrying. Exports in India showed negative growth consecutively in the last 13 months. Therefore, one has to concentrate on the domestic economy. Public investment in infrastructure and other areas is crucial as a counter-cyclical measure to revive the economy. This can also raise private investment. The problem of large NPAs in public sector banks has to be resolved. One issue is whether we should deviate from the fiscal deficit targets while increasing public investment. There can be small deviation in the targets but one should stick to medium term announcements. Both the objectives of raising public investment and sticking to fiscal deficits can be achieved if non-merit subsidies are removed and disinvestment targets are achieved. Another objective should be to create productive employment through appropriate policies in industry and services. SME sector can be given focus. On corporate tax, reduction in the rate must be accompanied by reduction in exemptions, which are to the tune of Rs.5.8 lakh crore. This can be used for infrastructure and social sector development.

Second, a big push for rural and agriculture sector is needed in the forthcoming budget. Crash in global prices for agri commodities created problems for our farmers also. Two measures are needed for agriculture: raising productivity and measures for risk mitigation. Investment in irrigation and rural infrastructure, technology and extension can raise agricultural productivity. More focus can be given to rain-fed areas including the eastern region. For risks due to droughts, floods and price risks, measures such as water conservation and drought proofing are required. Announcement of new crop insurance scheme with good features is in the right direction. Some of the subsidies like fertilizers can be reformed to stimulate public investment. Agricultural growth is not commensurate with credit flows as many small and marginal farmers are benefiting less than others.

Third, budget should provide a medium term framework for social sector which is important for its own sake and raising growth. We need increase in expenditures in social sector. More importantly delivery systems have to be improved in health and education for better outcomes. MGNREGA is working better now than in the last few years and can create assets. China took a lead in promoting Millennium Development Goals. Now India should take a lead in achieving sustainable development goals in the next 15 years. The role of states is equally important particularly in infrastructure, agriculture and social sector.

The author is Director, Indira Gandhi Institute of Development Research, Mumbai

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Printable version | Jun 12, 2021 1:50:58 PM |

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