Two annual economic documents, namely, the Economic Survey and the Budget, are out, and they have looked into the future on assumptions that disruptions due to the pandemic will not be debilitating, monsoons will be normal, oil prices will not fluctuate too much, global liquidity will not be disorderly and global supply chains will ease out. The optimism is pragmatic and even praiseworthy, but that’s way too many factors outside the control of the government. Hence, focusing on economic resilience is paramount.
One way to calibrate that focus is to monitor the quality of investments that government policies can unleash. This is because 'investment', by definition, is about the future, while 'consumption' is in the immediate. This typically presents a tough task for policymakers because in a structurally dysfunctional economy, which has led to greater 'inequality', the temptation is to seek even quicker returns.
In other words, money gets multiplied more where it is already concentrated rather than finding a way to places where it can bolster productive capacities for the majority.
This reinforces inequality and may drain the exchequer of resources even more, as expectations are squarely upon the state to provide for the majority.
Focusing on Creating 'Opportunities'
Therefore, a key parameter to judge the quality of investments will be the quantity and quality of livelihoods that investments create. From a policy design perspective, oftentimes it's an either-or situation, especially for a country that has more than a billion mouths to feed. The challenge is, no more can that be an option for India. Every year, more mouths are being added while income ‘opportunities’ for the majority are shrinking.
Notice the emphasis on the word ‘opportunities’ – that’s what the investments must focus on to be sustainable and rewarding. In other words, ‘opportunities’ guarantee incomes and space to acquire and hone capabilities, both of which are central to the concept of ‘growth’. To put it differently, an economy that creates income opportunities for many grows more sustainably than an economy that creates good incomes for few. India has been witnessing the latter.
Therefore, it’s an apt moment to reflect upon how we can move in the desired direction and orient investments towards it.
Why Asset Creation is Necessary
The first is the good news from Budget 2022-23, which must be taken with a pinch of salt. As expected, the budget has focused on spending on infrastructure in a big way. Capex for infrastructure projects for 2022-23 has increased by 35% over the last year. The idea is to have this money catalyse private investment in the real economy to spur economic growth through jobs and consumption.
The reason it needs to be taken with a pinch of salt is because in a liberalised economy, jobs must be guaranteed by businesses, which has not happened. On the contrary, in 2021-22, the top 20 profitable companies in India amassed 65 percent of all corporate profits, while small and public sector firms continued to struggle.
This trend has been unabated over successive years in the past. Higher profits also signal lesser investment by the private sector. No wonder, therefore, that the government had to jump in to sustain the economy.
Be that as it may, public spending on infrastructure indicates three things – asset creation, labour deployment and income generation. These three things, particularly asset creation, must galvanise investments in relevant sectors to employ more people on a sustainable basis. Policymakers and public policy observers will do well to keep an eye on such investments.
This brings us to the second point. Investments in sectors must be seen through the heterogeneity that sectors entail. In other words, sectors must be understood through their value chains. For instance, the economic survey highlights that Phased Manufacturing Plan (PMP) takes a value chain view to calibrate Basic Custom Duty for significant electronic products like mobile phones and solar panels, so that gradual deepening of domestic value addition can be encouraged. Such calibrations must entail the employment lens as well.
Rethinking Domestic Manufacturing & PLI Schemes
Third, to promote domestic manufacturing across sectors, the previous budget introduced Production-Linked Incentive (PLI) schemes for 13 sectors with an outlay of 1.97 lakh crore for a period of five years. This is expected to generate employment and boost output in the medium to long term through multiplier-effects.
To ensure adequate monitoring of employment generation under the PLI scheme, it should be renamed as Employment and Production Linked Scheme (EPLI) and necessary processes must be incorporated to monitor progress on both parameters across the value chain. This will help in tracking employment generation through targeted schemes such as EPLI.
Fourth, emerging areas like Renewable Energy need to be tracked from an employment and investment perspective, too. The latest Economic Survey highlights that the International Solar Alliance (ISA) is mandated to facilitate mobilisation of $1 trillion in solar investments by 2030 for a massive scale-up of solar energy deployment. These investments will be directed towards three strategic areas, namely, energy access, energy security, and energy transition. Therefore, it will be interesting to see how investments in this space or other areas of renewable energy are linked to good jobs.
Fifth, an important area to watch out for will be agriculture, simply because this is where most people are. Effective utilisation of the Agriculture Infrastructure Fund for investment in viable post-harvest projects can help improve agriculture infrastructure in the country and livelihood opportunities, while also improving local value chains. From the pre-harvest point of view, recent thrust on natural farming signals that it can also be a potential area to engage with from the perspective of improving farm income as well as nutritional security.
Five Key Sectors
Sixth, the services sector, especially those that are propelled by tech, will be extremely crucial, particularly from the perspective of the ecosystems that they engender. While their direct impact on employment and compliance with labour laws is a subject of ongoing research, little is done to evaluate the relationship between those ecosystems and potential investments that can be catalysed by such ecosystems.
Seventh, focus on five sectors, as suggested by economist Rathin Roy, cannot be overlooked. This will include affordable housing, health, education, food and clothing. The key here (as must be the case with other strategies) is to ‘make for India what most Indians consume at a price that they can pay’. Some of these sectors are subsumed under the PLI and other targeted initiatives.
Eighth, in order to get there, one does not have to reinvent the wheel.
The first task should be to map out the plans, strategies and instruments that already exist and then identify the new ones that need to be initiated.
Few things come to mind: re-visit the strategies in the 12th Plan, which focused on sustainable and inclusive growth for India, remove the dust from the National Voluntary Guidelines framework that focuses on social, economic and environmental responsibilities of businesses, draw from the taxonomy of sustainable activities being prepared by the Ministry of Finance and fuse them with initiatives on infrastructure, agriculture, services and manufacturing that have been announced by the Central and state governments.
Govt Is Betting on Private Sector, But Stakes are High
Ninth, on one hand, there is a need to develop a vertical compact of Union-States on strengthening the discourse on good jobs, while on the other, there also should be a horizontal compact between job seekers and job creators.
Tenth and final point: Budget 2022 is being hailed as one that bets big on infrastructure through public spending to crowd in private investment. Invoking economist Rathin Roy again – a part of this money has come from the reduction in income support programmes like MGNREGA. This means that the government is effectively betting on the private sector once again. If this fails, the stakes are very high for the voiceless and the poor. Therefore, the role of private investments in the future will be critical to watch.
(The writer is the Founding Partner of Indicc Associates, a non-partisan public interest firm abhishek@indicc.in. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)
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