Modi's new budget faces jobs crisis test in India

India is preparing to unveil a new budget that aims to tackle the pressing issue of job creation and support for the agricultural sector. Prime Minister Narendra Modi's government is set to present this budget for the first time after a closely contested election victory. This time around, Mr. Modi must collaborate with coalition partners, which may lead to a shift in his spending strategies. Analysts believe that the new budget should place a greater emphasis on assisting the rural population, who have not reaped the same benefits from the country's economic growth as the wealthier segments of society. As Mr. Modi embarks on his third term, he is likely to be motivated by the desire to leave a lasting legacy, particularly in the realm of economic prosperity for the masses. Over the past decade, Mr. Modi has invested substantial amounts of money in infrastructure projects, such as building bridges and highways, while also implementing tax cuts for large corporations. Although the economy has shown signs of stabilization, with rising stock markets, the gap between the rich and the poor has widened, and rural communities continue to face significant challenges. More than 60% of the Indian population is engaged in agriculture and related activities, and many farmers are struggling to make a living. For instance, Sushil Pal, a farmer from Behra Asa village, expressed his disappointment with the government's promises to double farm incomes, stating, 'My income has gone down. The costs for inputs and labour have gone up but not for my crop. ' This sentiment reflects the struggles faced by many farmers across the country. The stark contrast between urban and rural areas is evident as one travels through northern India's agricultural heartland. In Muzaffarnagar, located just a few hours from the capital city of Delhi, the region appears to have been largely overlooked by the country's economic boom. The owner of an export-focused furniture workshop, Rajneesh Tyagi, reported an 80% decline in turnover over the past five years due to a decrease in global orders. He noted that local demand is also low, as many farmers are burdened by debt and unemployment, leaving them with little purchasing power. This situation highlights the challenges faced by micro-enterprises, which are vital to India's economy. A report from India Ratings indicates that approximately 6. 3 million small businesses have shut down between 2015 and 2023, resulting in the loss of 16 million informal jobs. In contrast, profits for India's 5,000 listed companies surged by 187% between 2018 and 2023, partly due to tax cuts. As Mr. Modi begins his third term, bridging the gap between the formal and informal sectors of the economy and fostering prosperity in rural areas will be significant challenges. Economists predict that the upcoming budget may lean towards welfare initiatives while still prioritizing capital spending on infrastructure projects. A larger-than-expected dividend transfer from the central bank could provide the government with the means to increase welfare spending while maintaining capital expenditure, particularly in rural development and job creation. Wealth managers also agree that poverty reduction will likely be a key focus of the budget, which can be achieved without disrupting fiscal stability, given the strong revenue and tax collections. However, experts caution that cash handouts alone are insufficient for sustainable development. With around 800 million Indians already receiving free grain, some states allocate nearly 10% of their revenues to welfare programs. The budget must outline a clear vision for how the government intends to integrate millions of people into the workforce and create sustainable earning opportunities. The decline of the unorganized sector has implications for job generation, necessitating a balanced policy approach that accommodates both formal and informal sectors. Additionally, India should incentivize labor-intensive manufacturing in sectors such as textiles and agri-food processing to meet domestic demand. Economists from the State Bank of India have suggested extending production-linked incentives to small enterprises, similar to those offered to export-oriented sectors. Mr. Roy emphasized the need to focus on producing goods that cater to the needs of the majority of the population, stating, 'We should produce in India what 70% of India's population wants to consume. ' By prioritizing the production of affordable goods, such as low-cost clothing, India can boost its manufacturing sector and reduce reliance on imports from countries like Bangladesh and Vietnam.