Audio podcast: Union Budget – the juggling act is on

Ashraf Engineer

January 15, 2022


Hello and welcome to All Indians Matter. I am Ashraf Engineer.

Even as the first advance estimates peg India’s economic growth for 2021-22 at 9.2%, there are a couple of factors looming over the Union Budget which will be presented on February 1. First, how the latest wave of COVID-19 will impact it is anybody’s guess – the number of cases is rising and many states are announcing curbs of varying degrees. Also, the Budget will be presented just before the state elections of Goa, Uttarakhand, Manipur, Punjab and Uttar Pradesh. Of these, Uttar Pradesh is the most important politically and it’s bound to get a lot of attention in the Budget. This could skew not only the way finances are structured, analysts fear it could even affect policy momentum.


So what does the data so far indicate, not just about the economy but also what the Budget could look like?

The key worry, of course, is whether the growth rate will sustain given weak private consumption demand and shaky consumer sentiment. A Reserve Bank of India survey confirms that the share of private consumption in the overall GDP is falling. Private consumption is still 2.9% below the pre-pandemic year – that is, 54.7% of the GDP in 2021-22 compared to 55.6% in 2019-20.

Consumer sentiment has picked up, according to the survey, but it still lags pre-pandemic levels.

Construction, a major GDP and employment driver, is barely above pre-pandemic levels. Trade, hotels, tourism and other contact-based services, which provide massive employment, trail pre-pandemic levels. The latest wave of COVID-19 and variants such as Omicron will certainly impact these segments, and have a domino effect on job creation and growth. These sectors will need help.

What we’re also seeing is a significant rise in demand for MNREGA jobs. This indicates a lack of rural employment and a rise in rural distress. The demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act, or MNREGA, has risen since November 2021 after falling to its lowest level since the COVID outbreak of September and October.

As many as 21.1 million and 24.7 million households demanded work under the rural job guarantee scheme in November and December 2021 respectively. This is a rise from 20.7 million households in October 2021, which had recorded one of the lowest demands since May 2020 when the sudden lockdown was imposed.

This pattern is underscored by the monthly unemployment rate of 7.91% in December 2021, the highest since September when it was 6.86%, according to the Centre for Monitoring Indian Economy. To add to the bad news, rural wages across agriculture and non-agriculture have been flat. Another indicator of this distress is the weak tractor and motorcycle demand. This means Finance Minister Nirmala Sitharaman will need to budget more support for rural areas.

The informal sector has also been scarred by the pandemic, which too affects demand.

Investment, meanwhile, needs a boost. The data shows that investments are doing better than private consumption with their share of the GDP crossing 2019-20 levels. However, this is due to government investments. India needs to accelerate private investment but the uncertainty over the latest COVID wave could put a spanner in the works.

So, the finance minister will need to find the money for a hard push on infrastructure-focused capital expenditure, which not only has a multiplier effect on growth but also catalyses private investment.

While on the subject of COVID-19, keep in mind that the virus is far from done. We don’t know if there will be more variants or waves. Given the risks, the focus on healthcare cannot waver. The sector badly needs an upgrade and so spending must rise exponentially in this Budget and the next few ones.

Then there are the external threats. China has been usurping Indian territory and the Narendra Modi government has failed to stop it. India needs to upgrade defence systems and equipment urgently if it is to keep its borders secure, and that requires truckloads of money.

So, what are the options before Finance Minister Sitharaman?

First, India will need serious foreign investment. However, given the high spends needed, the government will have to look at other avenues too while ensuring its soaring debt levels don’t rise further.

The script will most likely play out predictably – the government will turn to privatisation, disinvestment and asset monetisation. This would mean fund inflows but it needs to be executed well – not a strong suit of this government. Also, it’s politically dicey, so the government will need to be cautious.

Lastly, if the money is mainly used to finance projects designed to attract votes in the Assembly elections, it’s not going to achieve the desired results for the overall economy.

The Budget will be a barometer of whether the government has us all on its mind or just the objective of winning the upcoming state elections.

Thank you all for listening. Please visit for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at Catch you again soon.