Union Budget reflects quest for inclusive growth; slow private investment, food inflation remain concerns: Dharmakirti Joshi

Kochi: A quest for inclusive growth could be seen as a major theme of the Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman recently, and it has tried to address the concerns over a dip in consumption and employment by increasing allocations on housing schemes, Dharmakirti Joshi, the chief economist at CRISIL, the country’s leading analytics agency, said in Kochi on Thursday.

Joshi, a seasoned researcher and consultant in economics, was delivering the 25th Malayala Manorama Budget lecture.

Joshi termed the budget’s focus on the rural segment a twist from the government’s general approach to the economy which sticks to fiscal consolidation.

Even as maintaining the allocations for two major schemes for the rural population – the Mahatma Gandhi National Rural Employment Guarantee Scheme and the PM Kisan Samman Nidhi which provides Rs 6,000 to farmers, the government has looked to trigger employment generation by increasing the allocation for housing schemes, he explained.

“The government has raised rural housing allocation by 70 per cent for 2024-25. If housing increases construction demand for cement and steel increases, and more people get jobs. Another thing they have recognised is that urban consumption is also not strong. Hence they have increased allocation for urban housing,” Joshi said.

He said there is a quest for inclusive growth in the budget. “If we look at 2019-20 the period just before the pandemic struck and if we look at 2023-24, the real GDP is about 20 per cent higher than what it was in 2019-20. Investments are 27 per cent higher which means the focus has been on investments. Private consumption expenditure which is what we spend on goods and services is only 17.5 per cent higher which means the focus was on increasing the supply side. Consumption did not pick up to that extent. One of the reasons is that the consumption expenditure of the government only increased by 10.8 per cent. There is a need to correct this balance,” he said.

Joshi pointed out that the budget makes it clear that the government is not compromising on the fixed investment part. “The allocations for roads and highways, railways and defence are only rising year on year. Capital spending or investment is still growing at around 19.5 per cent for 2024-25,” he said.

Even as acknowledging the government’s measure to nudge the private sector for job creation through incentives, he said real job creation will only happen when manufacturing and some service activities pick up.

He said the slowness in private investment growth has been an area of concern despite everything going well in the sector.

“Pvt sector creates employment for which they also have to invest. Despite everything going well private investment growth is very slow. Economic Survey has made it very clear. How do you trigger private investment is a major challenge,” he said.

He stressed on the need to improve infrastructure eventually to compete with others, especially the East Asian economies. “Our logistics are not comparable to East Asia despite improving. Our power costs are still higher. If you want the private sector to lift durably you have to catch up with logistics. Till the time you achieve it you have to support the private sector with some incentives,” he said.

He said even though India is not comparable with the world with respect to physical infrastructure when it comes to digital infrastructure, the country is far ahead of many.

Joshi also flagged food inflation as a major problem which needs to be addressed. He said food inflation affects the poor the most. He identified the wastage of food produce as a major reason for this and called for more storage facilities as a measure to address the concern. He also highlighted the need for climate-resilient agriculture.

Joshi was all praise for Kerala’s infrastructure development. He said the recently inaugurated Vizhinjam International Port has huge prospects.