Creating jobs by increasing Capex 

News: Recent budget has put a lot of attention into enhancing capital expenditure. It is due to the huge potential of capex to generate employment.  

What is the employment scenario in India? 

Employment to population ratio: According to data from ILO, India’s employment to population (over the age of 15) ratio has steadily dropped from 55% in 2005 to 43% in 2020. This was much lower than in other neighbouring countries like 52% in Bangladesh, 63% in China and 73% in Vietnam. 

Female labour force participation: Women form just 20% of India’s workforce, while they comprise between 30% and 70% of the workforce in the other three countries. 

What is capex and its multiplier effect? 

Read here. 

What are the provisions in recent budget regarding capital expenditure? 

Read here. 

What are other positive trends in the budget which can help in generating employment? 

Centre’s revenue receipts of the current fiscal year 2021-22 (FY22) are going to reach the full year target in just nine months.  

This has been possible due to higher income tax and Goods and Services Tax (GST) collections, increased formalisation of the economy, conservative Budget projections of last year. 

A sustained momentum in tax collections will provide an additional degree of fiscal policy freedom to the government to foster domestic jobs and output.   

What are the challenges that can arise? 

Not all the headline capital expenditure is indicative of fresh greenfield investments. Some of it comes from the disinvestment. 

Higher fiscal deficit: Thrust on capital expenditure has resulted in notably higher fiscal deficit numbers than expected, which can raise the risk of inflation, higher current account deficits, and also be a threat to financial stability.  

What is the way forward?

There is a visible thrust on hard capital expenditure. However, spending towards critical areas such as education, healthcare and urban infrastructure is equally important.   

Execution risks: Although the budget has provided ample funds for the infrastructure thrust. It is up to the entire administration – Central, State, and local – to ensure that the funds are utilised in a timely fashion, and result in delivery of world-class infrastructure. 

For this it is significant to maintain ease of doing business, especially around key areas such as land acquisition, contract enforcement, and policy stability.  

For more about challenges, read here. 

Source: This post is based on the article “Creating jobs by increasing Capex” published in The Hindu on 3^rd Feb 2022.