THE GIST of Editorial for UPSC Exams : 25 January 2020 (Budgeting for jobs, skilling and economic revival (The Hindu))

Budgeting for jobs, skilling and economic revival (The Hindu)

Mains Paper 3: Economy
Prelims level : Not much
Mains level : India’s economic growth and development


  • The forthcoming Union Budget will determine whether India’s economic engine gets the steam needed for a rebound, or the current economic situation becomes even worse.
  • Not just the future of the economy, the future of the country’s youth depends on the Budget.

About the economic condition:

  • The unemployment rate at 6.1% (Financial Year 2017-2018) is the highest in 45 years.
  • The rate for urban youth in the 15-29 years category is alarmingly high at 22.5%. These figures, however, are just one of the many problems, as pointed out by the Periodic Labour Force Survey.
  • The Labour Force Participation Rate has come down to 46.5% for the ‘15 years and above’ age category.
  • It is down to 37.7% for the urban youth. Even among those employed, a large fraction get low wages and are stuck with ‘employment poverty’.

Structural factors:

  • The prolonged, and ongoing, slowdown, is the main reason behind the depressing employment scenario, though several structural factors have also contributed to the situation.
  • The GDP growth for the second quarter of Financial Year 2019-2020 is 4.5%, the lowest in the last six years, for which a decline in private consumption and investment are the factors primarily responsible.
  • The aggregate investment stands at less than 30% of the GDP, a rate much lower than the 15-year average of 35%. The capacity utilisation in the private sector is down to 70%-75%.

Need to addressing:

  • In the interim, the Budget should also focus on reviving demand to promote growth and employment.
  • Schemes like PM-KISAN and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are good instruments to boost rural demand.
  • Though the current fiscal year, a significant proportion of the budgetary allocation for PM-KISAN will go unutilised.
  • Farmers and landless labourers spend most of their income. This means that income transfers to such groups will immediately increase demand.
  • The rural India consumes a wide range of goods and services; so, if allocation and disbursement is raised significantly, most sectors of the economy will benefit. And, the payoff will be immediate.
  • Besides, rural unemployment can be reduced by raising budgetary allocation for irrigation projects and rural infrastructure like roads, cold storage and logistical chains.
  • These facilities, along with a comprehensive crop insurance scheme, can drastically increase agricultural productivity and farmers’ income.
  • By integrating farms with mandis, such investments will reduce wastage of fruits and vegetables, thereby leading to a decrease in the frequency of inflationary shocks and their impact.

Boosting urban employment:

  • In urban areas, construction and related activities are a source of employment for more than five crore people; across the country, the sector’s employment figures are second only to those of the agriculture sector.
  • These projects, along with infrastructure, support 200-odd sectors, including core sectors like cement and steel.

Crisis in real-estate sector:

  • Due to the crisis in the real-estate and infrastructure sectors, construction activities have come to a grinding halt.
  • At present, many real-estate projects are caught up in legal disputes — between home-buyers and developers; between lenders and developers; and between developers and law enforcement agencies like the Enforcement Directorate. The sector has an unsold inventory of homes, worth several lakh crores.
  • Even worse, multiple authorities — the Real Estate Regulatory Authority (RERA); the National Company Law Tribunal (NCLT); and the many consumer courts — have jurisdiction over disputes.
  • Consequently, restructuring and liquidation of bad projects is very difficult, and in turn, is a main source of the problem of Non-Performing Assets faced by the Non-Banking Financial Companies.

How to address?

  • To revive demand for housing, the Budget can raise the limit for availing tax exemption on home loans.
  • The ₹25,000-crore fund set up by the centre to bailout 1,600 housing projects should be put to use immediately.
  • The funds should be used to salvage all projects that are 80% complete and not under liquidation process under the NCLT.
  • Several additional measures can also help. For example, there should be a single adjudication authority.
  • The multiplier effects of spending on infrastructure and housing in terms of higher growth and employment are large and extensive.
  • Therefore, the ₹102-lakh-crore National Infrastructure Pipeline (NIP) programme is a welcome step.
  • For successful implementation, it will boost the infrastructure investment over the next five years by 2%-2.5% of the GDP annually.

Private sector’s risk appetite:

  • The problem is that more than 60% of the planned investment is expected from the private sector and the States.
  • The government does not seem to realise that for private investment, regulatory certainty is as important as the cost of capital.
  • Many infrastructure projects are languishing due to regulatory hurdles and contractual disputes between construction companies and government departments.
  • This is the major reason behind non-availability of private capital for infrastructure.
  • In this scenario, where the private sector has very little appetite for risky investments and State finances are shaky due to low GST collection, the onus is on the Centre to ensure that the programme does not come a cropper.
  • The budgetary support to infrastructure will have to be much more than the NIP projection at 1.11% of the GDP.

Distress in small medium enterprises:

  • The distress among Small and Medium Enterprises (SMEs) is another area of concern.
  • For many products produced by these enterprises, the GST rates are higher for inputs than the final goods.
  • Around ₹20,000 crore gets stuck with the government annually in the form of input tax credits. This has increased cost of doing business for SMEs, which employ over 11 crore people.

Way forward:

  • To stop the demographic dividend from becoming a national burden, there is a need to invest heavily in skilling of the youth.
  • Besides, the Budget should give tax incentives to companies and industrial units to encourage them to provide internships and on-site vocational training opportunities.
  • This work experience can be supplemented with teaching of relevant theories. at educational centres set up at district levels. Distance education mode can also used for the purpose.

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Prelims Questions:

Q.1) With reference to the Sexual Harassment of Women and Workplace Act, 2013, consider the following statements:
1. It made the employer responsible to prevent or deter acts of sexual harassment at the workplace.
2. It only imposed a fine of ₹50,000 on employers for non-compliance.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C
Mains Questions:
Q.1) How the budget needs to provide direction to India’s tottering economy and a boost to aggregate demand and investment? Elucidate with examples.