Arun Kumar Senior Economist
https://youtu.be/wRaJQaRqxCE?feature=shared of Budget 2025: What’s at Stake?, a series co-produced by The Wire and Centre for Financial Accountability,
renowned economist and former professor at Jawaharlal Nehru University Arun Kumar delves into the pressing economic challenges India faces ahead of the 2025-26 Union Budget. With GDP figures slipping, slow bank credit growth, low consumption demand, stagnant private investment and declining production, what does this budget mean for the broader economy? Watch now for a critical and informed analysis of the economic crossroads India faces.
the government says that the rate of growth has declined from 8% to 5.4% over the last one year but this is the rate of growth of the organized sector only it doesn't capture the unorganized sector's decline
if you take into account the decline in the unorganized sector then actually the uh rate of growth is not 5.4% but be closer to 1 or
2% uh and so on so . in other words uh the problem before the economy is that the
unorganized sector is declining and that's why the unemployment is high . if
the unorganized sector was rising at
5.4% or 6% as the earlier claim was then
the employment generation would be quite
robust uh because of the split between
the organized and the unorganized sector
because 94% are in the unorganized
sector and their you know uh incomes are
not Rising because of inflation because
of Unemployment uh therefore you know
the demand slowdown is taking place in
the economy which is then affecting the
rate of growth of the organized sector
so the 5.4% refers to the rate of growth
of the organized sector so organized
sector's rate of growth is declining So
within the economy basically what we
need to do is we need to boost the
unorganized sector but government's
Focus has been on the organized sector
it is trying to boost the organized
sector by various things like the pl
scheme and capital investments in the
budget which are going mostly to the
organized sector and so on so that's why
the economy is facing this problem and
this problem was there even before the
pandemic when for eight quarters the
rate of growth had declined from 8% down
to 3.1% in the quarter just before the
pandemic and then we know that during
the pandemic the rate of growth had
slumped very sharply so in other words
you know this inequality that has been
growing and the crisis that the people
working in the unorganized sector face
uh because of the decline their incomes
these two need to be addressed very
important
now if uh that is the internal problem
that problem will get aggravated by the
external problem coming from the fact
that you have the Ukraine war continuing
you have the Palestine situation where a
genocide is taking place which is
disturbing the entire situation in the
West Asia from where much of our oil
comes so there's a problem that Supply
constraints coming from outside could
aggravate at some point and especially
with Mr Trump coming and Mr Trump's char
izing India as a tariff King and
therefore there's a danger that he might
Levy tariffs on our export to the USA
and we have a good healthy Surplus with
the USA that could come down because of
the pressure that Mr Trump would
exercise on India he'd already done that
in the first phase when he was the
president before uh Mr Biden's term that
time he had removed the GSP from Indian
Goods he had levied tariff and he did
not allow tariffs to be leved by India
but this tariff war that he's talking
about where he's saying we'll impose
tariffs on China on Mexico on Canada on
India uh this could lead to a tariff War
which could actually mean that the world
economy would slow down and would face
inflation and was uh would also face
Supply bottlenecks so all these together
could disturb our exports and imports
and that would further slow down the
economy because the economy has been
depending uh on investment and on uh
export import uh but investment by the
private sector has been down because if
the demand is less capacity utilization
is less and then the investment becomes
less so all these things put together
the external environment would aggravate
the problem that the internal economy
faces as a result of the fact that we
are not taking care of the unorganized
sector and the unorganized sector
consisting of Agriculture of the micro
sector of the small sector of the
economy these have been facing headwinds
that's why farmers are protesting the
workers are protesting youth is
protesting the women are facing problems
of uh unemployment and underemployment
so all these things put together the
budget becomes very
important as far as uh one can tell uh
the employment situation remains grave
uh where educated youth are not finding
employment uh women are underemployed or
working free so they don't get counted
in the definition of employment as far
as the io definition is concerned uh the
Indian definition counts even these
people and that's why there's a
difference in the employment figure
between what the ILO definition which
CMI uses and the government's own
definition so the problem really is that
we showed in our report in
2022 that 320 million Indians have some
kind of proper work but 280 million
Indians don't have proper work either
because they've stopped looking for work
and they're doing some free uh work or
they are underemployed or they are
unemployed or they are disguised
unemployed so there are four kinds of uh
unemployment that the uh people face
whether it be the youth or whether it be
the women now it means that 320 million
Indians who have some kind of proper
work they have to support 1.4 billion so
each working person has to support 4 4.4
people whereas if these 280 million also
had proper work then 600 million would
have to support 1.4 billion and
therefore each one person working would
support 2.2 so therefore family welfare
would improve because more work would be
available more incomes would be
available plus the GDP would grow faster
now one of the reasons why the GDP uh
slows down is that because of inequality
because the unorganized sector the 94%
working in the unorganized sector when
they have in quate incomes then their
demand in the economy goes down and that
demand affects the organized sector as
well not just the unorganized sector so
in other words the uh unemployment
situation is very acute the Government
tried to come out with these schemes but
these schemes are targeted at the
organized sector they were not going to
be able to give jobs in the unorganized
sector and when unemployment takes place
the conflict over jobs become very acute
everybody wants reservation so even The
Well of communi like the maratas in
Maharashtra they've been demanding
reservations for themselves similarly
jarts in the north India they've been
demanding reservation for themselves and
so on so the the the conflict in society
becomes acute when there's poverty and
there's unemployment so the unemployment
is because of the unorganized sector the
more you uh fund the organized sector
the less will be the employment
generation because demand would shift
from the unorganized to the organized
sector so unorganized sector will come
down further so I have been arguing that
since the time of
demonetization when the unorganized
sector started declining uh instead of
rising at 6% or 5% they actually been
declining and evidence for that is
coming from the textile sector from the
leather good sector from the trade
sector and so on that the decline in the
unorganized sector is because the
organized sectors growing faster given
the the digitization moves given the uh
you know concessions that the government
is giving to the organized sector like
cutting corporate tax rate in 2019 and
things like that so in other words the
government is doing the opposite of what
it needs to do to be able to generate
more employment and the scheme that they
came up with actually does not really
provide unorganized sector jobs which is
where actually the jobs need to be
created so for the unorganized sector
what are the steps that need to be taken
that is something that the government
needs to focus on
you know what is required to be done in
terms of correctives is to boost
agriculture where 46% of the workforce
is working so that's the largest
component and that's where the incomes
are wanting there also there's a lot of
mechanization that's taking place and
that's why there's a lot of surplus
labor which needs to move out to the
non-agriculture sector so the
non-agriculture sector also needs to be
boosted apart from the agriculture
sector to be boosted agriculture incomes
have to be boosted and that requires
minimum support price which is what the
farmers are demanding now that need not
come in the budget that can come outside
the budget also where the government uh
does but what can come within the budget
is greater expenditure on agriculture
and on Rural Development and more of a
scientific development in agriculture
more of uh you know the the services for
transferring what is in the research to
the field so extension services so those
can come in the budget then regarding
the micro sector there are six CR micro
units and they employ 97.5% of the msme
employment they have been set back
because all the policies for msme go to
the medium sector rather than the small
and the micro sector so micro sector
needs to be separated from the msme and
specific policies Divine designed for
the micro sector second thing that needs
to be done is that we need to actually
uh uh you know uh support the uh small
and the medium sector by reforming the
GST now when GST is applied at the
moment the input credit problem comes
for the small sector and the micro
sector and therefore they become
uncompetitive so GST has to be reformed
and it is a last Point tax but the tax
is collected at every stage it should be
collected only at the last stage rather
at every state that'll simplify it and
make it better for the micro and the
small units then to generate employment
we need to increase our expenditure on
education and health and other such
Social Services because they are
employment intensive unfortunately what
we see in the budget is that they are
actually being curtailing these
expenditures on education and health we
are far from our Target of 6% on public
education and 3% on public health those
need to be moved and for that what we
need to do is we need to move
expenditures of budget both at the
center and the states towards these
social sectors finally the capital
expenditures that are targeted in the
central budget of 11.11 lakh crores last
time they were targeted at Capital
intensive you know road construction and
fret Corridor Etc earlier these used to
be labor intensive but now these are
also highly Capital intensive with big
machines being used to construct roads
and railway lines Etc so this Focus has
to shift towards labor intensive rather
than the capital intensive sector so the
budget can do a lot to generate more
employment provided the government gives
up its idea that we have to formalize
the economy the average employment say
on a small farm is just one or two
people average employment in the micro
sector is 1.7 so you can't formalize
these you can only kill them so
government's policy is killing these uh
small farms is killing the uh you know
unorganized micro sector units rather
than actually converting them into
formal sector and anyway in given the
technology the formal sector the
organized sector is not going to
generate much employment because even in
agriculture with lot of harvester
combines and tractors and Threshers and
potato digging machines now employment
generation is very weak even in
agriculture in micro sector also if you
uh uh you know don't boost it then your
unemployment will rise and uh if you put
money into the organized sector or
encourage it and at the expense of the
unorganized sector then also what you'll
find is that the unemployment will rise