Bankruptcy of Ideas and Betrayal of Hope

Yesterday the Finance Minister Nirmala Sitharaman presented the Union Budget for 2025-26. It was her 8^th consecutive Budget and was presented amongst great expectations from the people. It was hoped that the NDA Government led by the Hon’ble Prime Minister Narendra Modi would come up with some concrete policies to help the country emerge from the current challenges it faces.

The Economic Context

The Union Budget was being presented at the backdrop of acute unemployment, rising inflation, rural distress, decline in manufacturing, stagnant incomes and declining savings. Data from the Centre for Monitoring Indian Economy (CMIE) shows that in 2022-23, youth unemployment was at 45.4%¹. A study of the International Labour Organisation notes that graduates had an unemployment rate of 29.1%². The Labour Force Participation Rate in rural areas increased from 24.6% in 2017-18 to 47.6% in 2023-24. While the increase in LFPR is good, we must not ignore that more women participation in rural areas may also indicate rural distress, which is compelling women to join work.

Another point of concern is the decline of manufacturing sector. Agriculture Labour in 2004-05 was 58.5% and Manufacturing Labour was 11.7%. The UPA Government of Dr Manmohan Singh expanded the manufacturing sector due to which Manufacturing Labour increased to 12.6% and Agriculture Labour declined to 48.7%. The cause of concern now is that Manufacturing Labour is declining continuously under the Modi Government and has now gone below the 2004-05 level to 11.4% in 2023-24. According to the Central Government’s own Department of Personnel and Training (DoPT), around 22 crore individuals applied for central government positions but only 7.22 lakh persons were employed³. This itself, in my view, highlights the unemployment crisis. The poorest 20% of the households have faced drastic decline in their incomes and household debt has risen to around 39% of GDP.

It was in this background that the Finance Minister was presenting the Budget.

The Chief Economic Advisor’s words of wisdom

The Chief Economic Advisor to the Government of India, has given prudent advice to the Government in the Economic Survey tabled in parliament by the Finance Minister on 31^st January 2025. The CEA’s advice to the Government to ‘get out of the way’ has been completely negated by the Finance Minister in the Budget.

Cuts in Expenditure on Major Schemes

To achieve its target of fiscal deficit, the Government has effected very harsh expenditure cuts on major schemes in the current year as shown in the following table:

Scheme	Budget Estimate	Revised Estimate	Cut in Expenditure
Rashtriya Krishi Vikas Yojana	7,553	6,000	1,553
Krishionnati Yojana	7,447	7,106	341
PM-POSHAN	12,467	10,000	2,467
Strengthening Teaching-Learning and Results for States (STARS)	1,250	850	400
PM Schools for Rising India (PM SHRI)	6,050	4,500	1,550
Pradhan Mantri Uchchatar Shiksha Abhiyan     (PM-USHA)	1,815	895	920
Pradhan Mantri Matsya Sampada Yojana (PMMSY)	2,352	1,500	852
Human Resources for Health and Medical Education	1,275	579	696
Modernisation of Police Forces	3,720	2,624	1,096
Vibrant Villages Programme	1,050	209	841
Pradhan Mantri Awas Yojana (PMAY) Urban	30,171	13,670	16,501
AMRUT (Atal Mission for Rejuvenation and Urban Transformation)	8,000	6,000	2,000
National Urban Digital Mission (NUDM)	1,150	109	1,041
Swacch Bharat Mission – Urban	5,000	2,159	2,841
PM e-Bus Sewa Scheme	1,300	500	800
Pradhan Mantri Krishi Sinchai Yojana	8,250	6,621	1,629
Interlinking of Rivers	4,000	2,000	2,000
Jal Jeevan Mission	70,163	22,694	47,469
Rashtiya Gram Swaraj Abhiyan (RGSA)	1,064	785	279
Pradhan Mantri Gram Sadak Yojana	19,000	14,500	4,500
Pradhan Mantri Awas Yojana – Grameen (PMAY –G)	54,500	32,426	22,074
Watershed Development Component-Pradhan Mantri Krishi Sinchai Yojana	2,501	1,800	701
New ITI Upgradation Scheme	1,000	294	706
Post Matric Scholarship for SCs	6,360	5,500	860
Pradhan Mantri Anusuchit Jaati Abhyuday Yojana (PM AJAY)	2,140	800	1,340
PM Young Achievers Scholarship Award Scheme for Vibrant India (PM YASASVI) for OBCs, EBCs and DNTs	1,836	1,381	455
PM Vanbandhu Kalyan Yojana	4,300	3,360	940
Saksham Anganwadi and POSHAN 2.0 (Umbrella ICDS-Anganwadi Services, Poshan Abhiyan, Scheme for Adolescent Girls)	21,200	20,071	1,129
Mission Shakti (Mission for Protection and Empowerment for Women)	3,146	1,451	1,695
Nuclear Power Projects	2,228	1,500	728
Development of Pharmaceutical Industries	1,300	359	941
Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)	2,05,250	1,97,000	8,250
New Internship Programme	2,000	380	1,620
Construction Works (Defence)	12,017	10,562	1,455
Projects of the Air Force	1,697	377	1,320
North East Special Infrastructure Development Scheme (NESIDS)	2,491	1,500	991
Prime Minister's Development Initiative for North East Region (PM-DevINE)	2,200	1,394	806
PM Uchchatar Shiksha Protsahan (PM-USP) Yojna	1,558	1,000	558
India AI Mission	552	173	379
Modified Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India	6,903	3,816	3,087
Production Linked Incentive Scheme (PLI) (MeiTY)	6,200	5,777	423
Livestock Health and Disease Control Programme	2,465	1,980	485
Production-Linked Incentive Scheme for Food Processing Industry	1,444	700	744
Pardhan Mantri Swasthya Suraksha Yojana	2,200	1,736	1,464
Production Linked Incentive (PLI) Scheme for Automobiles and Auto Components	3,500	347	3,153
Border Infrastructure and Management	3,757	3,070	687
Police Infrastructure	3,152	1,986	1,166
National Ganga Plan	3,346	3,000	346
Atal Bhujal Yojana	1,778	600	1,178
New Employment Generation Scheme	10,000	6,779	3,221
e-Courts Phase III	1,500	1,200	300
Khadi Gramodyog Vikas Yojana	1,037	866	171
Prime Minister’s Employment Generation Programme (PMEGP)	2,300	1,918	382
Guarantee Emergency Credit Line (GECL) facility to eligible MSME borrowers	9,813	7,500	2,313
Raising and Accelerating MSME Performance - RAMP	1,170	750	420
PM Vishwakarma	4,824	4,000	824
Solar Power (Grid)	10,000	1,300	8,700
Direct Benefit Transfer – LPG	1,500	500	1,000
New Lines (Railways)	34,603	31,459	3,144
Electrification Projects (Railways)	6,472	6,072	400
Traffic Facilities – Yard Remodelling and Others (Railways)	8,983	8,599	384
Road Works (Ministry of Road Transport and Highways)	1,15,093	1,10,576	4,517
Skill India Programme	2,686	2,318	368
Space Technology (Department of Space)	10,088	8,986	1,102
Eklavya Model Residential Schools (EMRS)	6,399	4,749	1,650
Integrated Development of Tourist Circuits around specific themes (Swadesh Darshan)	1,750	350	1,400

Expenditure cuts in these major schemes should mean any of these two: 1) the Government does not have the money to spend or 2) the Government has been in-efficient in planning & implementation.

 Rural Distress

The Finance Minister was silent on major demands of farmers such as legal guarantee for MSP. The Finance Minister was also silent on issues such as Inflation indexation of PM-Kisan payouts and reforms to PM Fasal Bima Yojana. The Finance Minister has also not increased the allocation for MGNREGA despite increase in rural labour. Cuts in expenditure of PMGSY and PM Awas Yojana-Gramin also shows that Government’s focus is not on rural development. 

Unemployment

As I have written in the earlier part of this essay, unemployment remains a challenge. This Budget does not spell out any concrete action plan for employment generation. The Government has also failed to effectively implement the Internship programme announced in the last Budget.

Tax Policy

The most discussed aspect of the Budget is rebate for those having income of 12 lakh per annum (other than capital gains). Without any hesitation, I welcome the announcement of tax relief. But we must also not ignore the fact that this decision shrinks the tax base of the Government, which has already cut public expenditure. The budget documents indicate that income tax revenue will make up around 33% of total tax revenue. This means that the Finance Minister will depend more on a shrunk tax base. I feel that this might increase scrutiny and empower the IT Department (despite the FM’s statement that tax policy will be based on trust).

If the Finance Minister really wanted to give relief to middle-class across the board, she should have cut taxes on fuel, thought of some mechanism to regulate private school fees, and initiated complete reform of GST. The Government has also become completely silent on Direct Tax Code which was piloted by the UPA Government. 

Corporate Tax is estimated to grow by only 6% whereas income tax is expected to grow by 21%. Despite this, the Finance Minister has cut capital expenditure in the current year and hasn’t significantly increased it for the next year and has decided to stress on PPPs. This shows that the Government is expecting private investment to pick up but the Budget doesn’t spell out how it expects it to happen.

Conclusion

This Budget, in my view based on the above reasons, does not address the crucial problems faced by the country, ignores the demands of many states, and places too much emphasis on up-coming elections. To me, itseems like the Government is bankrupt of ideas to help the economy navigate the current challenges. I also feel that by effecting cuts in expenditure on key schemes (in current year) and by not spelling out concrete policies to tackle unemployment, rural distress, inflation, and sluggish private investment, the Finance Minister has betrayed the hopes of those in need.

References:

1.    https://www.cmie.com/kommon/bin/sr.php?kall=warticle&dt=20230926184023&msec=816

2 https://www.business-standard.com/economy/news/young-indians-more-likely-to-bejobless-if-they-are-educated-ilo-data-124032900038_1.html  

3.   https://indianexpress.com/article/india/govt-job-rush-in-8-years-22-crore-applied-only-7-lakh-selected-8055808/  

4.   https://indiabudget.gov.in