Post Covid, the economy is still limping back to the normal and normal is the level at which it was in 2019-20.

It is good to remember that recovery from a continuing shock, like the pandemic, is quite different from growing GDP in real terms.

Slow Recovery ; Continuous Shocks

The best way to evaluate the health of economy as a layman is to look at our Friends/relatives who recovered from corona after having spent a week in ICU, and examining as to How did they recover?

They initially had a foggy mind and often forgot things, weakness lingered on for months, sugar level went up and might have had depression for few weeks and quite possible they might have developed some permanent damage also.

Not only Indian economy but many other economies are also going through the same phase.

However, we also need to understand that If the friend was not healthy when he was infected the recovery is not likely to be early.

Indian economy as a whole which was still in the process of recovering from the shocks of GST and Demonetization had to face corona and therefore the jolt would be very severe and it cannot be evaluated in terms of GDP.

The GST and demonetization had a severe impact on the unorganized sector which contributes 90% to the total employment of our economy.

The RBI predicts growth to be 7.8 percent this year which, if achieved, would set the stage for India to enter the “rehabilitation” phase of economic reconstruction, albeit with large dozes of social protection.

Key factor will be controlling consumer inflation, which was already coasting along at high level of 6 percent but then suddenly came the Russian-Ukraine war which has hiked the oil prices.

Entering A Difficult Phase

So, now we are entering a Phase where the strength of our character and also the strength of the economy will be tested i.e we need to utilize our capacity to enhance productive investment, our ability to draw out better output from existing investments and our ability to invest in or buy research and development advances to lift the Indian economy to the next level.

But are we on the Right Path ?.

It appears No. The recent CAG report indicates that our States are not in a good health and they are unable to make optimum utilization of funds.

How Are Indian States Faring

The CAG report says that ;

Borrowings by States have almost doubled between fiscal years 2013 and 2018, with the trend picking up after 2008.

Here we are taking as a sample of only three states, as reported by CAG to indicate as to how the funds are not utilized properly for the purpose they have been allotted.

Gujarat

One. CAG report has warned the state government about falling into a “debt trap” .

Two. It has Pointed out that the government would have to pay 61% of the total debt in next 7 years, which may put strain on its resources.

Three. The government had understated the revenue deficit by Rs 10,997 crore.

Four. Under the Pradhan Mantri Gram Sadak Yojana, the state in 2020-21 revised its targeted road-length by one-third and ended the year with 54% of the released funds unspent.

Five. The state PSUs in Gujarat have accumulated losses of Rs 30,400 crore, and the government continues to invest in them, like the Gujarat State Road Transport Corporation and the Gujarat State Petroleum Corporation, despite their net worth having eroded completely.

Bihar

One. Three of five sampled district hospitals were short of 52-92% beds and none of them had an operation theatre, while the ICU facility was available in only one of them. Four hospitals in encephalitis-prone areas had no testing facility for Japanese Encephalitis.

Two. Under the Namami Gange programme, there was inadequate planning for sewage treatment in Patna as the sanctioned capacity of the sewage treatment plants (STP) was able to treat only half of sewage.

Odisha.

One. It finds that incomplete irrigation projects since 1980s have seen a cost escalation ranging from 182% to 4,596%. Of the seven projects audited, three have been completed so far. The total initial cost was estimated at Rs 955.73 crore. However, the revised estimate stands at Rs 19,103.63 crore, of which Rs 12,742.11 crore has been spent so far. Even though the amount spent is 66.69% of the total revised cost, the area covered is only 24% of the target area. So far the irrigation projects have covered 1,22,418 hectares against the proposed area coverage of 5,02,842 hectares.

Now lets have a look at their Fiscal deficit and the Debt situation of the states. The RBI data shows following ;

So we find that almost all the states finding themselves in a tight position economically and therefore RBI is not wrong in stating that ; Indian states have increased debts to fund widening deficits. They now have to borrow more to meet repayment commitments.

In 2017, government wooed the states towards the implementation of GST by assuring that the revenue loss would be compensated if the tax revenue collection fell short. Coronavirus pandemic led recession has shaken the cart.

States which are totally under the fiscal distress, have no option other than to borrow. But if the states are already under high debt and they go for more borrowing the situation may worsen.

However, if they do not spend how would they solve the employment problem.

Employment

According to CMIE, there were Five states where the unemployment figure is in double digits.

Although the Centre for Monitoring Indian Economy’s monthly time series data revealed that the overall unemployment rate in India was 8.10 per cent in February 2022, and it has fallen to 7.6 per cent in March. But even 7.6 percent is pretty high for a poor country like India.

Secondly, the data does not reveal the complete picture i.e What about the Quality Jobs.

In view of this the recent CII report is a warning for the Centre as well as states to focus on Governance rather than on other petty issues. The highlights of the report are as follows ;

One. The country will have additional 183 million people of 15-64 years in working age group between 2020-50. This is a whopping 22% increase in work force.

Two. In 2019-20 barely 73 million Indians received any form of vocational training.

Three. Lets look at the percentage of skilled workforce in Global context ;

The above is an indicator of India’s ; work force market imbalances, skill mismatch , the condition of education system in the country.

Hence, if India does not create enough jobs and its workers are not adequately prepared for those jobs its demographic dividend may turn into a liability and the small window of opportunity may be lost forever.

When we see the above factors in TOTALITY ; Fiscal deficits, Debt positions, Unemployment issues we find India is at cross roads.

The World Inequality Report 2022, released recently, has brought out certain very important aspects about India which were although known to many of us but we preferred to shove them under the carpet, as we Indians love to live in DENIAL MODE.

The World Inequality report is brought out by the World Inequality Lab which is a research laboratory focusing on the study of inequality world wide. The Lab is composed of about forty people: co-directors, coordinators, research fellows, research assistants. It is hosted at the Paris School of Economics and the University of Berkeley, California. The World Inequality Lab works in close coordination with the large international  world inequality Database network.  The World Inequality Database (WID.world) relies on the combined effort of an international network of over a hundred researchers covering more than seventy countries from all continents.

Thus those who wish to see the facts and also comprehend what it actually means and what can be its future implications can take the pains to read the article and the rest can continue to live in illusion ; MODI HAI TO MUMKIN HAI.

The major highlights of the report are ;

1. Nobel laureate economists Abhijit Banerjee and Esther Duflo in the preface of the report say that India is "among the most unequal countries in the world.
2. "The top 1 per cent took 38 per cent of all additional wealth accumulated since the mid-1990s, with acceleration since 2020. No wonder in last three years Adanis have grown their wealth manifolds.
3. The top 1 per cent of Indians now own 33% of the country's wealth compared to 31.7 per cent previously. The top 10 per cent own 64.6 per cent of the country's wealth, up from 63.9 per cent. The share of the bottom 50 per cent now stands at 5.9 per cent, down from 6 per cent earlier. The average household wealth in India stands at Rs 9,83,010. The bottom 50 per cent owns an average wealth of Rs 66,280/ which is virtually nothing.So, now we know why few business houses have their presence everywhere and enjoy monopoly in Business ; TATAs have ; TCS, TANISHQ(Jwellery), Watches, STEEL, Hotels, Aviation, Mobile communication, Automobiles , Chemicals etc. Reliance has ; Petrochemicals, Retail, Communication, Infrastructure, Def manufacturing, etc. Adanis ; Power, Ports, mining etc. Birlas …
4. India's female labour income share of 18 per cent in 2021 was one of the lowest in the world.
5. The report also highlighted that the quality of inequality data released by the Indian government has "seriously deteriorated" over the past three years. The Indian Govt has not been releasing any data for almost last 3-4 years and the data that is released by any other agency is quickly disapproved by the Govt. So, no one knows , what is the state of economy.

If the above has been reported by a reputed agency , then the first thing that we must do is - Accept that everything is not hunky dory with the nation and if things do not fall in place soon the implications can be severe.

Although some of us may ask what is so new about it, what difference does it make if the top 10% is now managing a percentage extra, India has always been like this since many decades . therefore, Inorder to comprehend the full implications of it we need to look at following ;

The first thing that happens in such an UNEQUAL SOCIETY is that Rich keep growing richer and poor keep becoming poorer. So, in last three years the rich have accumulated huge wealth and corona has further accelerated that process.

Two. Inequality can lead to numerous challenges that can lead a nation towards disastrous consequences.

1. INEQUALITY is one of the main drivers of social tension., which can lead to LAW AND ORDER PROBLEMS.
2. It will pose a challenge to the eradication of extreme poverty.
3. World bank and many such agencies have agreed that inequality tends to reduce the pace of growth and durability of growth.
4. The Research by the World Bank indicates that when markets are imperfect that is, if it does not provide equal opportunities in terms of credit, insurance, land and human capital, it leads towards inequalities in power and wealth that would further enhance the INEQUALITY in terms of opportunities.
5. Unequal power also leads to the formation of institutions that will further aggravate the inequalities in power, status, and wealth, which are also bad for the investment, innovation, and risk-taking that can have an impact on long-term growth
6. Recent research done by World Bank suggests that. Inequalities have also been found to undermine social cohesion.

Four . For a layman, the above means, that the affluent ; Political class, the Bureaucracy, the Rich and the Police and off course the judiciary will operate hand in glove and the entire administrative machinery will be at their back and call . The common man would find it difficult to get justice. For instance the Minister’s son who crushed the farmers under his SUV is now out on bail and we should not be surprised that he will be acquitted of all charges .We have already witnessed How Salman Khan got away from the clutches of law. In short the rich and affluent will be able to buy justice. India will become a Matsaya Rajya ; i.e where the Big fish eats the small fish.

Inview of the above, and as things stand today in terms of law and order, the communal situation , the overall mis Governance and in effectiveness of various institutions, the Govt must take a HOLISTIC view of entire gamut of aspects that lead to INEQUALITY and address them as per a concerted plan of action, instead of encouraging social strife. 

The issue for  Common man is not whether the Budget is Good or bad, because , its quality can only be assessed by the qualified economists.

For a common man the Best way is to Look back at the last year’s Budget and a Year before that and ask Has his life improved  ? The last years budget which was heralded by Govt as the - Path breaking Visionary budget , the Common man must and ask himself “ Could the last year Budget help mitigate some of our problems ?”

Yes many Kms of Highways have been constructed, many bridges have been constructed but For a common man, his life has not improved a bit and may be for some it has become more agonizing. None can deny the importance of Roads and Highways, but what if these Roads and Highways only lead to opening of Dhabas and sharing of bribes amongst various stake holders. 

Path Breaking Budget of 2021 

The common man still has to take his sick family members to a Private clinic and pay from his savings. Because Govt did nothing to improve its Hospitals.

His kids are at home these days and he is paying school fees as they go to private schools, the Govt did nothing to improve the standard of its schools.

The common man is also bearing the additional burden of internet due to Of line classes.

Many young ones who lost their jobs have not got any as yet and many of them are living a difficult life in small dingy rooms shared by sometimes 5-10 people.

Many sectors of our economy have been hit for instance Hospitality sector, manufacturing, tours and travels and so millions lost their jobs. MSMEs, startups and entertainment provide employment to millions of people in the country and make up a substantial amount of the nation’s entire GDP.

And Many have not been receiving Full salary, for last two years now.

Most of these jobs do not provide any social security also ; No medical reimbursement, no pension, even no gratuity, No PF.

Many young students who have just finished their Engineering/ MBAs /Graduations are staying at home searching jobs. As per the economists India inorder to meet the employment needs of its growing young population, its economy should be capable of generating 20 million jobs every year where as India has been adding only around 4 million jobs a year for last one decade.

According to the estimates of Pew Research “ More than 25 million people have lost their jobs since the start of 2021. And more than 75 million Indians have plunged back into poverty, including a third of India's 100 million-strong middle class, setting back half a decade of gains .”

The recent agitation by students in UP and Bihar where in for barely 30000 vacancies more than a crore applications were received indicates the gravity of the crisis

The Fuel prices have gone up enormously and so have the prices for vegetables, LPG, grocery.

So, the path breaking Budget of 2021 did not ease the life of a common man . The Union finance minister had although called the Union Budget for 2021-22 as ‘once in a century’ budget.

It is quite possible that some may have different yard sticks for evaluation.

So, in short the current budget has come amid LOW DEMAND, JOB LOSSES, HIGH INFLATION and offcourse on going corona crisis.

For a layman if the prices are high inflation will mount, there will be less demand, there will be less jobs.

How will the Govt handle this challenge?

One. FM ANNOUNCED a mammoth spending plan on Roads and highways, cargo terminals , trains etc.

All these provide low quality jobs and their gestation period is too much. The land acquisition takes time. And lastly where will the money come from, the Fiscal deficit is already touching 5% , borrowings will come with additional challenges.

Two. Incentives to start ups and more emphasis on Manufacturing to create jobs.

India is not an island it is dependent on the world also , if the world economy continues to remain sluggish , we will not grow at a pace that is needed to create so many jobs. A recent Bloomberg report suggested that 20 crore jobs are missing from the economy and restoring balance would be difficult without adequate fiscal policy support from the government.

As per the report Almost 85% Indian start ups have failed , this may cause problems for bankers.

Manufacturing has remained stagnant at 15 % of GDP for last 10 years and worse With higher inflation in 2022, price of essential commodities may rise substantially and it could worsen the situation for middle income and poor.

The question therefore should be - Can these challenges be handled by a budget ?

If we have a problem that our hospitals do not work, our courts do not provide timely justice, our gestation period of projects is high, the land acquisition takes a lot of time, the cost of electricity is too high, the freight rate is too high, the availability of skilled labour is difficult then these cannot be solved by the Budget. This implies that the country has deep structural problems.

The CIIs Business excellence model clearly explains that if structural issues . i.e THE PROCESSES are not addressed any amount of money or any other resource put into the system will go waste and will not serve the purpose. Although it is a Business Model but it is applicable to all Organisations including the NGOs and Govt, with appropriate modifications. The crux is ; THE PROCESSES , And these structural issues cannot be solved by the Budget.

But instead of just addressing the structural problems what the Govt has done is ; it has used its revenue to score some political brownie points for its electoral gains.

One of my friends with IT Company sarcastically commented ; chotta sa khet kharid letey hain ab aur kisan ban jaatey hain…har saal compensation account mey aa jayega, bank sey loan bhi maaf ho jaayega aur subsidy ka paisa bhi milega.

Jokes apart, the main issue is Even the Farmer is also having a tough time, the man on the street is also facing difficult times. Its not difficult to find households with four members managing with just 250 ml of millk daily. 

So, what We really need today in order to ease the life of a common man is take a Holistic view of the entire economy and bring out structural reforms.

In the absence of any structural reforms; Let me put it Bluntly , despite what PM and Sitharaman has talked about the Budget, come Feb23, we will still be finding ourselves at the same stage where we are now ; Youngsters short of jobs, Kids going to Private schools, Offline education taking its toll, Price rise, Sick to be taken to Private hospitals and so on .....

By Ranu , Economist 

Economic policies seldom invoke political consensus. The latest uproar over the National Asset Monetisation Pipeline (NMP) is one such example.

First of all, let’s try to understand (very briefly, I promise) what NMP is. It is a central government scheme, first announced in the Union Budget for FY21/22 (April 2021 to March 2022), to ‘monetise’ its assets, with voluntary participation from the states. This effectively involves leasing or renting out government’s assets to private companies over a period of 25-30 years. The private companies will be responsible for the operations and management of the assets, and will not be ‘owners’ of these assets. The right to sell and lease-out the assets will lie with the central government or the states. Think of a piece of land lying idle right now, which can be leased out to private companies that can use it to build factories or offices, generating employment in the country.

To understand as to how these assets worth lakhs of crores are lying in disuse and their plight one has to just go through the few articles and picture that have been published . https://timesofindia.indiatimes.com/city/bhopal/ghost-town-half-on-bhel-quarters-unoccupied/articleshow/70440123.cms.

BHEL Bhopal Once a Flourishing Township is in Ruins Now. 

Thousands of such houses/dwellings and vast open grounds where once children played have now turned into rubble because the previous Govts did not show courage to put them into good use. 

This is sheer callousness and utter disregard to the tax payers' money. Now let’s look at the criticism levelled against this scheme by some of the politicians and understand whether the criticism is valid or not.

Read more ...