Despite facing criticism for failing to arrest the declining household consumption over the past few years, the Union Budget 2022-23 made it clear that the Centre has yet again decided to stick to its strategy of building roads, highways and gas pipelines to propel growth. While this is possibly being done with the hope that it will create low-end jobs and push consumption in the lower income group, will the strategy yield results this year?
Former finance secretary Subhash Chandra Garg is not exactly in the optimists’ camp. He says that roads and highways do not create the requisite jobs that India needs in its economy. “Building roads and railways lines is a slow process of providing jobs and income support to poor people in the economy. Today, roads are built with high-end technology, and a large part of the money invested in highways goes in deploying heavy machines, not labour,” Garg explains.
Garg states that in 2019, the National Highways Authority of India (NHAI) spent about Rs 25 crore per kilometre of road construction. In that entire expenditure, the wage component accounted for just Rs 2 crore. This is why the theory of direct income transfer to the poor is much better than building roads if the purpose is to create jobs, Garg has explained a part of this calculation in his recently published book The $10 Trillion Dream.
Between April 2014 and November 2021, the total length of national highways in the country increased by 54 per cent— from about 91,287 kilometres in 2014 to 1,40,937 kilometres in November 2021.
However, one would believe that great roads lead to an increase sales in the automobile sector. Contrary to the assumption, the next immediate economic activity in the form of auto sales has stagnated. Industry bodies estimate the total vehicle production in 2021 till December at 2,40,67,787 units, which is less than one per cent growth from the number of units produced in 2015-16, which stood at 2,40,16,599. Two-wheeler sales data—a more important indicator of social mobility since it is a barometer for income in the lower middle-class families in rural and urban areas—for April-December 2021 stated that just 10 million units were sold, showing that this demand is at a decadal low in the country.
The decreased spending on automobiles tallies with the overall consumption levels in the country. The latest government estimates peg private final consumption expenditure—the expenditure incurred on final consumption of goods and services by the resident households and non-profit institutions serving households—for 2021-22 at Rs 80.81 lakh crore, down from the 2019-20 level of Rs 83.22 lakh crore. From FY15 to FY22, India’s private consumption has grown at a compounded rate of five per cent, whereas it grew at 6.33 per cent from FY12 to FY15, suggesting a clear drop in the consumption pattern, especially during two years of pandemic. The auto spending and the household spending figures do not suggest that there is any immediate gain in demand on account of heavy spending on highways.
Data from the consumer pyramid household survey conducted by the Centre for Monitoring India Economy shows that the share of agriculture in total employment went up from 35.3 per cent in 2017-18 to 36.1 per cent in 2018-19 and then to 38 per cent in 2019-20. Though other organisations have measured employment in agriculture differently, if this data indicates a trend, it shows that even before the pandemic, India had failed to create jobs in the manufacturing and services sector.
India’s demographic dividend is expected to peak in 2041 which leaves India with a window of less than two decades. Garg believes that India should not waste its energies trying too hard to create jobs in manufacturing. “We have to shift 12 crore people out of agriculture. Our strength is services and human resources. It is possible only if we focus on training our workforce to work abroad which will not only improve their lifestyle but also help India generate remittances,” he adds.
Garg says that India needs to have a Central policy to train people according to job requirements in developed economies. “There's a huge shortage of workforce in those countries. All we need to do is train our people through an all-India skill development programme and focus on finding them jobs abroad,” the former finance secretary proposes.
Fiscal Deficit Dents Finances
Due to the government's excessive focus on building roads and highways over the years, India’s average fiscal deficit between FY15 and FY22 has been 4.9 per cent—a good 1.7 per cent above the level mandated under the Fiscal Responsibility and Budget Management Act. Such a high level of fiscal deficit over the years has deteriorated the government's finances. In 2022-23, the government expects to pay Rs 9.40 lakh crore in interest payments, which is 43 per cent of its revenue receipts. In 2011-12, interest payments accounted for 36 per cent of the Centre’s revenue receipts, indicating that the government may not be able to sustain a borrowings-led growth in the coming years in the absence of investments from the private sector.
Given the fact that the government is aiming to reduce its fiscal deficit to only 4.5 per cent of the GDP by 2025-26, the situation is set to get worse in the coming years, leaving little scope for real capital expenditure. “It is unsustainable even in the medium term, as we are getting caught in the vicious cycle of debt and interest payments,” says Garg.