The Finance Minister had the unenviable task of presenting a Budget which would sustain the fiscal discipline promised in the Interim Budget in February but at the same time contain enough new proposals for the remaining eight months of the financial year. While the debate over the revenue measures or tax changes in the Budget rages on, it is important to take stock of the expenditure proposals that have long term implications for the economy. Theory of economic growth tells us that long run prosperity is achieved by enhancing physical capital, labour force, human capital and availability of natural resources. The Budget seems to have followed this theory to the T.

The allocation of 3.4 per cent of GDP towards capital expenditure in this Budget is the highest in 20 years. There is some shuffling of priorities though. While schemes such as AMRUT and Smart Cities have suffered budget cuts, there is a hike in allocation for national urban digital mission and e-bus Sewa scheme. The emphasis on roads, highways and railways continues with increase in capex for these key transport infrastructures. Long term interest free loans have been promised to State governments for investing in infrastructure. Infrastructure creation boosts the productivity of the economy, crowds in private investments, thereby raising GDP per capita in the medium to long run.

The sustained public investments along with policies such as the production linked incentives scheme are finally yielding results as seen in growth of private capex by 9 per cent in FY24. However, this has not trickled down to create sufficient jobs and the Budget has taken on this challenge head-on. Successful implementation of the proposed employment linked incentives will help. The policy of reimbursing employers the wages of new workers and their EPFO contributions (up to a limit) will reduce hiring costs and act as a nudge to create jobs.

India has one of the lowest female labour force participation rates in the developing world. The announcements of creating working women hostels and crèches, support for women-specific skilling and enhancing market access for women enterprises will go a long way in reducing the gender gap in the labour force.

The Micro, Small and Medium Enterprises (MSME) sector is the biggest job generator in India, contributing 62 per cent to employment. However, many MSMEs find it difficult to cope because of low accessibility to funds, especially during crises. Consequently, their loans get marked as non-performing assets (NPAs) which further hinders credit access. The MSME sector has received a massive stimulus in this Budget. A new credit assessment model will enable public sector banks to use digital footprints for credit scoring and, thereby, lend to the smallest of firms.

The reduced turnover threshold of buyers for mandatory on-boarding on TReDS platform (from ₹500 crore to ₹250 crore) will help more MSMEs to unlock their working capital. The enhanced credit limit for MUDRA loans (from ₹10 lakh to ₹20 lakh), new SIDBI branches, setting up of e-commerce export hubs and a new credit guarantee scheme for manufacturing will provide additional credit support to MSMEs. These proposals will help sustain the post-Covid momentum in the growth of MSME credit and add lakhs of jobs in the economy.

Generous hikes

Human capital formation is key to productivity and therefore education and skilling are thrust areas in the Budget. Allocation to higher education is up 8 per cent this year with emphasis on digital education, technical education, AI and innovation. There is a thrust on National Education Policy (NEP) through generous hikes in allocation for STARS (Strengthening Teaching-Learning and Results for States) scheme to improve teaching quality and governance and PM SHRI (Schools for Rising India) scheme that intends to upgrade 14,500 existing schools to create new standards in school education. With the Covid pandemic delivering a setback to teaching and learning, it is critical to transform higher education and school education for shaping the workforce of the future.

An important contribution of the NEP has been to recognise that education and skilling go hand in hand and are best not separated. However, special efforts for skilling may still be required for the youth entering the workforce. The Budget has proposed to upgrade 1,000 industrial training institutes through hub-and-spoke model and increase loans for skilling and education. The government will fund a new internship scheme for the youth, helping them acquire valuable work experience. Coming to natural resources, the Budget has several proposals for energy security. These include rooftop solar plants, pumped storage for electricity, nuclear reactors and advanced thermal plants.

The gains from these initiatives will be seen in the coming years. But the importance of laying the foundations now for Viksit Bharat 2047 cannot be overemphasised. Time is running out before India loses the demographic dividend in 2041 (when the working age share of the population will peak at 59 per cent). Short term temptations to turn populist must be resisted with fiscal discipline and a steadfast control over long-term spending. The Budget needs to be commended for staying the course.

Ansari is Assistant Professor of Economics, IIM Kashipur, and Sensarma is Professor of Economics, IIM Kozhikode. Views are personal

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