Union Budget 2024: Why Nirmala Sitharaman Needs to Boost Consumption

Synopsis: The Union Budget 2024 is expected to prioritize consumption-led growth to stimulate the economy. Measures such as tax cuts, increased rural support, and job creation initiatives are crucial. These efforts require significant funding, which can be sourced from tax buoyancy and public sector privatization. The goal is to kickstart a virtuous cycle of consumption, job creation, and economic growth, leading to a developed India.

The Union Budget 2024 is eagerly awaited, as Finance Minister Nirmala Sitharaman is expected to lay out a roadmap for achieving the goal of 'Viksit Bharat' (Developed India). While past budgets have often been subdued in terms of impactful announcements, this year's budget holds the promise of significant changes, particularly aimed at boosting consumption, addressing unemployment, and alleviating rural distress.

Importance of Consumption-Led Growth

Consumption plays a pivotal role in economic growth. Increased consumer spending drives demand for goods and services, which in turn stimulates job creation and vibrant economic activity. This creates a virtuous cycle where higher consumption leads to more jobs, which again boosts consumption.

Past Consumption Trends

Historical data shows that from 2004-05 to 2011-12, rural consumption grew at a compound annual growth rate (CAGR) of 13.8%, while urban consumption grew at 13.2%. However, from 2011-12 to 2022-23, these rates dropped to 8.4% for rural and 7.8% for urban areas (Government of India Household Consumption Expenditure Survey: 2022-23). This decline has been accompanied by rising unemployment, from 5.5% in 2014 to 8% presently (CMIE).

Proposed Measures to Boost Consumption

To reinvigorate consumption, the government needs to consider several measures:

Tax Cuts and Incentives: Reducing taxes can leave more disposable income in the hands of consumers. This can be achieved by increasing the standard deduction, restructuring tax slabs, and providing incentives under the new tax regime.

Direct Transfers and Rural Support: Programs like MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) can be bolstered, and Minimum Support Prices (MSP) for crops can be increased to ensure higher rural income.

Employment Creation: Long-term solutions should focus on creating more jobs. Bridging the demand-supply gap in employment through the revival of Employment Exchanges and setting up institutes modeled after Industrial Training Institutes (ITIs) for labor-intensive industries like textiles and healthcare can provide immediate and large-scale job opportunities.

Funding the Initiatives

Consumption-led growth measures require substantial funding. This can be sourced from tax buoyancy and renewed efforts in public sector privatization. If a shortfall persists, marginal cuts in allocations to other sectors like infrastructure and railways can be considered, given the significant increase in their budget allocations in recent years.

Conclusion

The 2024 Union Budget has the potential to set the stage for a new cycle of consumption-led growth. By putting more money in the hands of consumers and creating more jobs, the government can stimulate economic activity, reduce unemployment, and address rural distress. This approach can pave the way for a more inclusive and sustainable economic future for India.