The budget dedicated a major portion to measures to enable job creation. So is there finally an admission in the government that unemployment remains India’s biggest challenge?
Of course employment finds a very prominent place in this budget. EPFO data for the past three years has shown that a crore of new entry-level jobs have been created. If you look at the number of additions, that is much larger, at about 1.4-1.5 crore. But these are not necessarily better paying jobs. We have to move the economy to a position where better paying jobs are created. Those better paying jobs will be created if manufacturing has a much larger role to play in hiring than what it has so far. One can see that enough high-skill services sector jobs are being created. But service sector jobs for the masses are not being created that much.
With skilling, manufacturing can provide good opportunities. Through our schemes, we are creating an enabling environment for those manufacturing jobs to be created. And even the skilling scheme is unlike any we have had before. Earlier, it used to be like, just provide some funds for institutions like ITI. Now, it is specific to the government, state governments and private sector pooling resources and ensuring that the machines to train are in place, the teachers and other resources are in place.
You must have read reports of companies saying they are unable to get people for construction or factory floor roles. On the other hand, there are so many job seekers. So we also attempt to act as a bridge between those seeking employment and those looking to hire. So the attempt has to be to sit down with industry associations and other stakeholders.
But how would you ensure that the private sector has the resources to absorb the number of workers for whom you aim to enable employment? How will you provide them easier access to investment?
So the big companies can fend for themselves. However for MSMEs, credit can be a problem. So three specific schemes have been introduced to help on that front. One is a self-financing credit guarantee scheme. Second is facilitating credit during the stress period. The idea is to find a way to continue providing credit when it becomes a ‘special mention’ account, so that it does not become an NPA. The third is helping MSMEs get credit without a very onerous assessment. So banks can develop their own assessment models.
You kept your capital expenditure target unchanged from the interim budget? Is there a message to the private sector to do some more heavy lifting on infrastructure?
See, the private sector is always in dialogue with the government. So it is not a question of giving them a message. The expectation in the 90s, that private sector will play a dominant role in infrastructure, has not fructified. The government’s capital expenditure is at 3 per cent of GDP. Given the fiscal consolidation targets, how much can that be increased? We do have a limit of how much of heavy lifting the government can do on the infrastructure side. Moving forward, if we can keep capex at around 3 per cent of GDP, that will be a good thing. But we expect that states should also provide support at a similar scale. At the moment, the states’ average capex is around 2.5 per cent of GDP. And quality of capex is also an issue.
The third player is the private sector, the third engine of the economy. Just on infrastructure, excluding plants and machinery, combined (centre, states and private sector), we are spending around 5-6 per cent of GDP. We have to take it to 8-9 per cent. It has to be 3 per cent by central government, 3 per cent by states, and 3 per cent by the private sector. Private sector is at around 1 per cent. This budget attempts to nudge both states and the private sector to increase that portion.
What is the bigger challenge in boosting private investments – credit or low demands?
Both are important. No businessman will invest unless he sees a robust demand. Credit is also important. So it’s not an either or situation. But here the question is, should the government be in the business of inducing demand. There are different ways of distributing money to the people to support demand. During the Covid pandemic a lot of advanced economies gave money to the people to boost demand. But the supply didn’t increase. So it resulted in an increase in inflation. Another way of doing this is increasing government investment, which has more multiplier effects. So we have to use the limited public resources in a more productive manner with a clearer picture.
Do you think that the high interest rates are impacting private investments?
What is important is to ensure easier credit at an appropriate price. Interest rate is a function of inflation, plus the demand. Our savings rate is around 30 per cent. Some people are saying that demand is not getting generated. Just by looking at 2-3 quarter data, people are saying that consumption has grown only by 4 per cent while the economy has grown by 8 per cent. There is a problem. You have to see the longer time data. You have to see where the money is available. Where are the savings to be invested.
The Economic Survey has advised retail investors to exercise caution in their investments in the stock markets. What is the feeling in the government about the surge in retail investments in the equity markets?
Investment into the stock market and then talking about a cash market is different from investing into derivatives. If somebody is holding financial assets, nothing wrong about it. One can either assume risk or offload that. So there is a genuine place for speculators, and there's nothing wrong. But the point is that if I have an underlying risk, that you are holding the stock of company X, and you have promised to sell it to somebody else, and you want to protect yourself, you want to protect your future income, then you go to derivatives market, and then by risk protection, that is a different thing. But what happens if you're playing on the indices itself? It is purely speculation. There are some serious players, but there are players who may not be well informed. They are getting into speculation understanding that the market will keep on going in a particular direction.
Survey has put it 6.5 to 7 per cent while RBI’s estimate is 7.2 per cent. Why is the government more conservative on the GDP growth projection?
The GDP growth projection in the Economic Survey is not materially different from the RBI. We have said 6.5 to 7 per cent the RBI is 7.2 per cent. The projection of the IMF and ADB is also 7 per cent. Till pre-pandemic, the discourse used to be that the potential growth rate of India is 6.5 per cent. I tend to believe that it should be 7 per cnet. Post pandemic we had three good years. 2021-22 was not a normal year, but 2022-23 and 2023-24 we had very good years. Now the challenge is to sustain it at that high level. The main difference between last year and this year will be because of deflators. You know last year the WPI was mostly in the negative, but this year it is higher partly because of base.