India’s Modi cuts social spending even with local polls nearing

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Prime Minister Narendra Modi’s government plans to spend more on infrastructure projects while holding back on social safety nets. It’s betting a world-beating economic rebound will create jobs and plug some of India’s inequalities as the latest virus wave recedes.

It’s an unusual move for the ruling Bharatiya Janata Party ahead of a slew of state elections starting next week, amid simmering anger over unemployment and rising living costs. There’s also the farmers agitating for higher crop support prices.

Finance Minister Nirmala Sitharaman lifted capital expenditure to the tune of 7.5 trillion rupees ($100 billion) for the budget in the fiscal year starting April. That’s an almost 25% rise from last year’s revised estimate and coincides with a cut in allocations for a rural employment program, food and fertilizer subsidies. The allocation for health remained largely the same.

“What use is infrastructure in the form of highways, railways, ports and such if people are struggling over the basics,” said Nikita Sud, a professor of the Politics of Development at the University of Oxford. She said the ruling party is counting on its voter base to stay within the fold thanks to its Hindu nationalist rhetoric.

The government has defended making little change or cuts to the allocations, especially for the rural jobs guarantee program. Increasing such allocations is “not a good sign” and it should decline as employment is expected to increase in the economy, said Rajiv Kumar, vice chairman of India’s planning body Niti Aayog.

India’s food subsidy bill has also seen a massive 27% cut this year to 2.06 trillion rupees from 2.86 trillion rupees at time when prices of essential items are rising. The government usually revises these subsidies upwards through the year, although Modi has a long-term goal to cut this aid by plugging leakages.

More than 800 million of India’s nearly 1.4 billion people are covered by the subsidy scheme, making it the world’s biggest food-aid program. Maintaining the food subsidies, along with other social spending could help boost consumption demand, said Amit Basole, head of the Centre for Sustainable Employment at the Azim Premji University.

A rural jobs guarantee program named after India’s independence hero Mahatma Gandhi has seen funding cut by 25% to 730 billion rupees. The program provided employment to migrant workers who lost their jobs in cities when Modi announced a nationwide lockdown in March 2020.

The government banking on infrastructure to expand employment is a fallacy as these projects could be capital-intensive instead of focusing on labor and the multiplier effects could be small and not immediate, said Ashwini Deshpande, professor of economics at Ashoka University. “India has witnessed jobless growth in the past,” she added.

While the unemployment rate in January has come down, it remains elevated. Last week, young job seekers burned down train coaches in protest of irregularities in recruitment by the railways department, which is one of the biggest employers in the country.

India has so far reported 42 million coronavirus cases and close to 500,000 Covid-related deaths and even that is considered a massive undercount by experts — making it one of the worst-hit nations in the world.

Sitharaman’s speech, however, skipped any mention of the annual spending on public health. The budget documents laid out less than a 1% increase in health spending to 866 billion rupees from a year ago.

Government support for farmers, who make up 60% of India’s population, hasn’t increased significantly despite the yearlong protest against farm laws that Modi later had to revoke. That’s because farmers’ protesting is not a new issue for government.

Demonetization in 2016 and a weaker economy before the 2017 state elections and 2019 national polls also saw protests from the farming community who sought pledges for support. They remain a key vote bank for the BJP.

This time around, farmers income support rose less than 1% to 680 billion rupees. The government capitalized on lower global fertilizer prices to cut the local subsidies by 25% to 1.05 trillion rupees from the previous year’s estimate.

The government spending on agriculture will increase by just 2.5% to 1.51 trillion rupees. While Sitharaman didn’t mention the government’s target of doubling farmers’ income by 2022, she did offer drones for assessing crops and digitizing of land records.