The Budget has ignored the poor 

News: The 2022-23 Union Budget was presented in the backdrop of acute unemployment, growing poverty, burgeoning wealth and income inequalities, and accelerating inflation which affect the poor disproportionately.

However the recent budget falls short of addressing these concerns. 

Where is the current budget lacking in addressing the problems of the poor?  

Not enough government expenditure: Although the budget shows a rise in capital expenditure, but the rise is just 4.6 per cent which is even lower than the inflation rate. This means that the government expenditure as a proportion of GDP will decline, and this will have a dampening effect on the economy. 

Decline in allocation of MGNREGA: As expansion of increased allocation takes time, and delayed wage payment can discourage demand. It is essential that any increase in allocation in such a demand-driven scheme takes place in the budget itself. 

Fuel prices: Oil price is set to increase for consumers because of the additional excise duty. 

Why the current fiscal policy strategy may not serve the needs of the poor? 

The government has reduced corporate tax and is also not introducing wealth tax, which is sharp contrast to fiscal policy followed in other countries.

For example, USA is spending more on welfare schemes, by resorting to heavier corporate taxation. For this, it has even negotiated an internationally-agreed minimum corporate tax rate to prevent corporates from parking profits in tax havens. 

This policy may lead to recession. As raising fuel taxes raises prices in general and since the money incomes of the working people do not increase in parallel to it, there is a reduction in real demand, and hence a recession. 

Due to this recession, private corporate investment that was supposed to increase in lieu of decreased corporate taxation, actually will decrease.  

What conditions demand a change in fiscal policy? 

Internal scenario: Although there was some recovery that had occurred in 2021-22 relative to 2019-20, but it did not affect real consumption expenditure, which continues to be below its 2019-20 level.  

Unutilised capacity in the consumer goods sector has increased, which means that investment will come down, and its multiplier effects on consumption will make it shrink further. 

External scenario: The oil price is on the rise and this will prompt the government to pass on the higher import price to the consumers for fear of losing revenue, which will only exacerbate domestic inflation. 

The near-zero interest rate policy pursued in the US is coming to an end because of the acceleration of inflation there. This threatens a depreciation in the external value of the rupee. It will further add to the rate of inflation in the Indian economy and higher rupee prices of imported oil. 

Source: This post is based on the article “The Budget has ignored the poor” published in The Indian express on 3rd Feb 2022.