THE SLUGGISH PACE of investments by Corporate India has been possibly the biggest policy conundrum leading up to the first Budget of the NDA government’s third term under Prime Minister Narendra Modi.
However, the Union Budget speech for 2024-25 is silent on why private sector investments haven’t quite commenced despite the corporate tax breaks in 2019, the significant ramping up of government’s capex over the last few years, the improving profitability of India Inc, and healthy bank balance sheets.
On Monday, the Economic Survey, authored by Chief Economic Advisor V Anantha Nageswaran, sought to answer if “the corporate sector had responded” to the cut in taxes in September 2019 to facilitate capital formation.
Delving deeper into the issue, the Survey had found that in the four years till FY23, the private sector was investing more in ‘dwellings, other buildings and structures’ and not in ‘machinery and equipment and intellectual property’. “This is not a healthy mix,” it said.
This, however, was not the only question on which the Budget remained silent. Nor was this the only issue on which there was an alignment between the Survey and the Budget, something that hasn’t happened in recent years.
For instance, both the Budget and the Survey acknowledge the need for greater job creation in the economy. The Survey had estimated that 78.5 lakh jobs need to be created annually over the coming years to absorb those joining the labour force and those exiting agriculture. On Tuesday, the Finance Minister announced three schemes to boost employment.
The Budget is also quiet on the other big policy question: Why is private consumption low? It did attempt to boost household purchasing power by rejigging income tax slabs and leaving more money in the hands of the people. For its part, the Survey had pointed out that private consumption grew at 4 per cent last year at a time when the broader economy grew at over 8 per cent.
Another key issue to which the Survey merely paid lip service and the Budget speech sidestepped is the disinvestment of public sector enterprises. In the past, disinvestment was front and centre to the BJP-led NDA government’s promise of “minimum government, maximum governance”. Modi had, in fact, said there was no business for the government to be in business.
The issue of pushing through long pending second generation reforms was also acknowledged in the Budget. In essence, these reforms relate to various factors of production such as land, labour, capital and entrepreneurship, and technology. Reforms in these factors are expected to make them more efficient and improve productivity.
In the Budget, the Finance Minister announced that the government will formulate an economic policy framework that will initiate and incentivise reforms for improving productivity of factors of production. And while the Budget did announce some proposals, these fall short of a full set of factor market reforms as have been envisioned in the past.
The Modi-led government had, in its first term, attempted to reform land acquisition. However, the ordinances brought to this effect were eventually allowed to lapse. In the second term, the government tried to bring about labour market reforms by introducing new labour codes. But, as the Survey notes, these “are yet to be fully operationalised and many states are found to be reintroducing the older restrictions under the new laws”.
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