Not in Favour of Directly Stimulating Consumption, Says Finance Secretary T.V. Somanathan

There are considerable benefits for the middle class in this budget, particularly in terms of tax reliefs on salaries and changes in the slabs for income tax. These measures offer substantial benefits. Additionally, several other schemes have been announced, including education loans for those who do not otherwise receive benefits under existing government schemes. This will cover the entire residual middle class, ensuring they too benefit from government support.

Skilling loans and the new internship program are among the initiatives that will benefit the middle class. Overall, the middle class has received significant support from this budget. Of course, people may always want more, but that is a different matter. We have to also balance the budget.

I would not question the figures. I think the answer to your question lies in the way you have formulated it. You mention that labour-intensive sectors need more support. The fact that our three new schemes are entirely targeted at the amount of labour employed means that these sectors have a comparative advantage.

The more labour-intensive you are, the more benefit you will get from these schemes. They are not based on investment or production subsidies. If you are an MSME (micro, small, and medium enterprises), in footwear, or in textiles, you will automatically benefit more from them due to their design. The idea is to support sectors that employ more labour.

All of these initiatives are geared towards those more likely to create jobs. Firstly, there is a benefit to them. Secondly, at the margin, this makes labour more attractive than machinery. I am not saying that everyone will shift to labour, but if you are making a marginal choice between further automating and using labour, this lowers the cost of labour for you. It is a way of saying, ‘Okay, do not automate. Take these people.

This is a very different approach. It is fundamentally private sector and industry-centred, driven through CSR (corporate social responsibility). We are not expecting the private sector to contribute from its profits or operational revenues at all. If you see the skilling program detailed in the annexure to the budget speech, the government will provide the lion’s share of resources for the intern.

The company is expected to pay 10 per cent of the intern’s stipend, which is modest, and also incur the incidental expenses of skilling. This approach involves putting the person on a job or sending them to a classroom, with no more than half of the time spent in the classroom. This is the intention.

All of this is to be done by redeploying their existing CSR budgets. We have calculated that the CSR expenditure of the top 100 companies alone is Rs 12, 000 crore out of the total Rs 26, 000 crore. It would not require a massive reorientation of CSR towards this. If they spend, let us say, 40 per cent of their CSR on skilling initiatives, it will be sufficient.

It is a doable thing. It is challenging, I admit – highly challenging. It is a new initiative. In a way, it is an administrative and managerial innovation. That is why we are focusing on the top 500 companies. It is easier to monitor when you only have to oversee 500 employers. They have CSR money, and we have a manageable sample which we can watch, monitor, and interact with. This initiative will require interaction and collaboration. We cannot collaborate with 5, 00,000 employers, but we can collaborate with 500 employers. These are the big employers, and their presence on the CV of an intern can make a difference to that intern.

When we say top 500 companies, many of them will be in the financial sector. This presents an opportunity for them to build skills within their sector. SBI (State Bank of India) will be part of this group. CSR is very broad-based and not limited to manufacturing; it covers all sectors. We hope that large financial sector companies will also participate in this initiative.

Personally, I am not in favour of directly stimulating consumption by stimulating consumption itself. I believe we should focus on stimulating incomes through growth. When incomes rise, consumption will follow. Short-term or accidental increases in consumption through government interventions are not sustainable. Simply dropping cash into someone’s hands often results in savings rather than consumption, as economic literature suggests.

Even during Covid-19 in the U.S., many people received checks in the hope of reviving consumption, but most of them treated it as a one-time windfall and saved it instead. Therefore, I believe consumption should not be directly stimulated. Instead, it should be encouraged through the stimulation of incomes via growth. This approach is more sustainable.

I think they are extremely important, though I will not be able to give a quantitative answer. We need to reach a point where it is easier for industry to build factories. This year, we are implementing reform-linked investment loans to states, where one of the reform elements is to simplify the process of building factories by changing industrial land planning laws.

Today, in many states, too much land has to be left unoccupied around factories due to setbacks and restrictions on land usage. Land is a very scarce resource in India, which makes manufacturing less competitive. We are going to incentivise states to change their planning laws to allow more of the land to be used for construction. This will help reduce the cost of building a factory. Land, particularly, is extremely important for these reforms.

Some of the suggestions from the Economic Survey have already been addressed in the budget. For example, it highlighted the disproportion between the taxation of capital and labor, and some corrective measures have been implemented. The Economic Survey is a serious document and will be taken seriously.

However, I am not in a position to specify which recommendations will be implemented and when. Not everything in the Economic Survey necessarily translates into government policy. It is an independent document, a collection of ideas from people with access to government information and resources. It represents a professional opinion from the economic division.