The Union Budget for the financial year 2022-23 latches onto increased capex as a cure-all solution that will help rid the economy of its sluggard consumption, embarrassingly high unemployment numbers and help the economy recover its stride post the pandemic. Elevated capex by any government, in economic theory, given its capacity to generate jobs and boost long-term development is welcome. However, its efficacy depends largely on the nature and quality of capex, the macro-economic scenario in which it is deployed and the assets it seeks to creates.

Unfortunately, the amped-up Rs 7.5 lakh crore capex – 35% higher than FY22 – comes bearing no immediate resolution to the unemployment crisis. What the average Indian citizen receives, on the other hand, is an assurance that swelling capex will yield rich dividends in the future, while his present situation continues to be marred by low income compounded only by high inflation.

Consider, for instance, that the capex in the previous two budgets have seen large spikes as well. In FY21 and FY22, capex rose by 29% and 34.5%, respectively, to Rs 4.39 lakh crore and Rs 5.54 lakh crore. In the same period, unemployment has also gone through the statistical roof. During the same period, the central government’s allocation to the MGNREGA has also surpassed the figures estimated in the budget. For FY21, an allocation of Rs 61,500 crore to the employment guarantee scheme was revised and the government – considering the overwhelming demand under the scheme – was forced to disburse over Rs 1.11 lakh crore.

In FY22, the amount allocated in the budget to MGNREGA of Rs 78,000 crore was then scaled up to Rs 98,000 crore. To understand the dissonance between capital expenditure and the simultaneous rise in unemployment and NREGA job demand, one must understand that capital expenditure, by its very nature, comes with a time lag. The multiplier effect of capital expenditure on the economy (2.45 by RBI estimates) is also undone when people hold back on discretionary spending and consumption out of fear of emergency situations and unforeseen circumstances, say expensive hospitalisation or the recurrence of another wave leading to lockdowns.

Reading the runes incorrectly

Besides, the government’s hyped-up push towards infra while going over-board with supply-side dynamics completely neglects the demand-side equation. Without a revival of consumption and demand from those at the very bottom of the pyramid, very few MNCs and large companies will be willing to step up and undertake capacity expansion. A combination of inflation and higher costs of raw materials has – for about the last six months – been eating into the margins as well as volumes of a number of FMCG, consumer durables and auto companies.

With plummeting sales, private sector will kick the capacity expansion can down the road. Till the time, animal spirts don’t truly spring back into the economy and consumption makes an emphatic comeback, India Inc will continue to hold cash on their books and stay away from ratcheting up their capacity. But beyond the big players, it is millions of MSMEs that are witnessing their bottom lines stagnating or eroding.

These MSMEs, over the years, have been bludgeoned by demonetisation, a botchy implementation of the goods and services tax (GST), followed by the slowdown and recently, the COVID-19 lockdowns. Small and medium retailing and manufacturing units can only take these many shocks before their entrepreneurial resolve breaks.

In the larger picture, fewer jobs and employment opportunities are created as people are less enthused to take risks. Consequently, bank credit growth remains tepid and the well-off stay away from incurring expenditure while the have-nots have no option but to dip into their savings, or worse, take loans to meet their everyday expenses.

Giving MGNREGA the boot

In a press conference on Saturday, finance minister Nirmala Sitharaman urged the private sector to open up their purse strings and join the capex bandwagon. Well-intentioned, yes but a little too optimistic given that the US Federal Reserve is set to hike up its interest rate in the coming months. The tapering of the bond-buying programme by the Federal Reserve will force the hand of central banks across the world to push up interest rates, and the RBI, in all likelihood, will follow the global cues and raise its interest rates. In such a strapped-for-liquidity scenario, the incentive for private sector to raise funds for investments in capacity expansion is further dampened leaving the government alone in its capex mission.

This is where extra allocation towards MGNREGA would have aided the government’s goal of stoking consumption and economic growth. During the peak of the pandemic, when economic activity stood completely destroyed and widespread job losses became the norm, it was MGNREGA which came to the rescue of millions of Indian labourers by providing them work and a safety net. Between the months of April and September 2020, 58.5 million households and 83.5 million workers were employed under the scheme.

Given its primordial importance to the Indian economy, it is incumbent upon the government to keep it running in top shape, but the ground reality is far from it. MGNREGA’s internal dynamics is riddled with bureaucratese, delays and complications stemming from the use of Aadhaar.

As of February 2, the total unpaid dues under the demand-based workfare scheme, as per the  Minister of State for Rural Development Sadhvi Niranjan Jyoti, chalks up to Rs 3,360 crore. Another non-profit, NREGA Sangharsh Morcha, states that the there are pending liabilities accumulating from previous years clocking in at a whopping Rs 18,350 crore, which effectively reduces FY23 allocation to Rs 54,650 crore (Rs 73,000-Rs 18,350).

Just as it is in the GST mainframe, this government has botched up modalities within the NREGA architecture as well. A study conducted by LibTech India and the People’s Action for Employment Guarantee (PAEG) effectively rubbished government’s claims of timely wage payments of MNREGA workers. In the study, 10% of the wage transfer orders from the central government to one block per district per state for ten states were sampled. It found that 71% of the wage payments were delayed beyond the mandated seven days,  44% of the payments took more than 15 days while 14% went beyond 30 days. For labourers with slim to none employment avenues, such delays are unpardonable. As wages are delayed, labourers find themselves knocking at the local moneylender’s doors and slipping deeper into the debt spiral.

In her address to the parliament, Sitharaman threw another sop, that of India entering a new golden era, an Amrit Kaal leading up to 100 years of India’s independence. As far as sops go, this one distinctly lacked the the lure or appeal as the ones proffered before – Make in India, smart city plan, doubling of farmer’s income.

For now, daily wage labourers and migrant workers are too busy trying to keep the wolf from their doors for them to look 25 years down the line.