Budget’s MGNREGA spend cut perplexing, capex focused on less employment intensive sectors: India Ratings

Amid widespread welcoming of Finance Minister Nirmala Sitharaman's Budget for its 35 per cent increase in capital expenditure, India Ratings said the focus is on less employment intensive sectors like roads and long gestation projects.

Cutting rural employment guarantee commitments in the Budget despite a build-up of distress was termed as “perplexing” by India Ratings on Friday.

On the over 20 per cent cut in the fund allocations proposed to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) works for the second consecutive year amid the pandemic, the domestic ratings agency said “the reduction…is perplexing, particularly when distress is building-up in the rural India.” Amid widespread welcoming of Finance Minister Nirmala Sitharaman’s Budget for its 35 per cent increase in capital expenditure, India Ratings said the focus is on less employment intensive sectors like roads and long gestation projects.

“A more judicious mix whereby a significant proportion of the capex would have been spent on projects having a short gestation period and the projects are employment intensive would have been better for the economy which is struggling with depressed consumption demand,” it said.

Apart from that, it said the revenue expenditure growth budgeted for FY23 is just 0.9 per cent higher than the revised estimates for FY22, while the non-interest revenue expenditure, which supports demand in an economy, is budgeted to contract by 4.2 per cent in FY23.

“This means higher revenue expenditure is just funding the higher interest pay out of the government,” it noted.
The capex focus also found mention as among the “positives” of the Budget by the agency.

Higher allocations for agriculture and food processing, which will help natural farming, Kisan drones, blended capital to finance agriculture start-ups, Ken-Betwa link project implementation were among the other factors appreciated by the agency, along with higher spends on education, which will focus on universalisation of quality education and skill development.

Similarly, commitments on health like the tele mental health programme, welfare schemes such as tap water to rural households and supporting small businesses through extension of the Emergency Credit Line Guarantee Scheme and revamping Credit Guarantee Fund Trust for micro and small enterprises were also welcomed by the agency.

There were legacy issues or compulsions as well, like the tax to GDP ratio has remained range bound at 7-7.5 per cent, despite tax reforms and changes in tax rates over the past one decade, it said, adding the last time the tax to GDP ratio was higher than this was in FY07 and FY08.

From a transparency perspective, the agency mentioned the decision to include National Highways Authority of India (NHAI) borrowing under the broader government borrowing programme, but pointed out that there are many public sector entities which will be raising resources through bonds or debentures in FY23.