Budget 2022: Can India's budget address its uneven recovery?

Prime Minister Narendra Modi’s government is set to present its annual budget amid rising unemployment, sluggish demand and inflation.

With elections in five states just days away, experts anticipate a slew of populist welfare measures targeting farmers and low-income families.

But that alone will not stimulate demand and revive businesses, they say.

Given India’s steep deficit, they add, finance minister Nirmala Sitharaman must pull off a “balancing act”.

“The budget will see the government walking the tight rope in terms of boosting growth and reducing the gap between its income and spending,” Madan Sabnavis, chief economist at Bank of Baroda, told the BBC.

Ms Sitharaman tabled the annual economic survey in parliament on Monday – the report projected growth ranging between 8-8.5% for the 2022-23 financial year.

There is some growth driven by pent-up demand and increased government spending. But experts doubt that is enough to kickstart growth without major policy interventions.

“India’s overall macroeconomic situation is in recovery mode… The worry stems from the fact that this growth is concentrated at the top end,” India’s former chief economic adviser Kaushik Basu said in a recent interview.

“The big task is to create jobs and help small business,” he added.

The country’s small and often informal businesses, which employ the majority of India’s workforce, have been the worst-hit by the pandemic.

Although the Omicron variant appears to be on the wane, intermittent restrictions continue to disrupt supply chains and along with rising prices, are hurting consumer demand.

A brutal second wave last year shrank India’s middle class, gutted savings and widened inequality. Job losses and persistent unemployment have also worsened the situation.

Experts say that small industries can be critical in building jobs again in cities and towns.

But the government has not focused on them, Jayati Ghosh, professor of economics at the University of Massachusetts, told the BBC.

“You cannot look to revive small scale industries with only a supply side package – the real problem is they don’t have demand. People are bleeding,” she said. “The government will have to put money in the hands of the people.”

India’s tax revenues for the first eight months of the current financial year are up by 67% from the previous year, the Economic Survey, noted This gives the government more room to spend.

But experts are wary that much of the money may go towards freebies for voters ahead of crucial polls.

This year’s budget comes on the back of repealed farm laws – contentious reforms were rolled back after farmers protested for more than a year. They posed one of the biggest challenges to Mr Modi’s government since he came to power in 2014, and have caused anger and resentment among farmers, a big vote bloc.

Just 10 days after the budget, two large rural states – Uttar Pradesh and Punjab – the latter was the centre of the farm protests – go to the polls.

This year also marks the promised deadline by Mr Modi to double farmers income but that hasn’t happened and farm incomes have, in fact, shrunk.

Mr Modi has also come under increasing criticism for taking a protectionist turn in recent years that has hurt manufacturing and done little to spur exports.

Economists have also called for greater reforms.

Raghuram Rajan, former governor of India’s central bank, said growing unemployment, low buying power, the financial stress faced by small businesses and the state of India’s schools, were all “dark stains” on the country’s economy – despite “bright spots” such as the “roaring” IT business and the emergence of so many new billion-dollar start-up firms.

“We need to do more to prevent a… possible lowering of our medium-term growth potential,” he said.

Additional reporting by Archana Shukla.