The defining feature of the Union Budget for 2022-23 is the government’s emphasis on public investment and within that its Gati Shakti master plan which seeks to transform multimodal connectivity and logistics efficiency by giving a boost to roads, railways, airports, ports, waterways and more.
Infrastructure is the backbone of an economy and without adequate infrastructure in place, it cannot grow beyond a point. A key part of this infrastructure is all the stuff on the ground to facilitate smooth logistics. For example, there is no point in doing great with industrial production if there is not enough capacity on the roads and railways to ship out that production.
Constructing that infrastructure and running it both require mostly trained hands and thus jobs are created. But the key reality is that most of these jobs take some time to come. There is a gap between the spending and the jobs getting created. And just as the economy cannot grow without infrastructure, in order to run at some kind of capacity, that infrastructure needs the rest of the economy to meet its own demand. To use our earlier example, the roads and railways need goods to carry, thus utilising their capacity, in order to lead a meaningful existence.
The overwhelming current Indian reality is an economy severely mauled by two years of rampaging Covid-19 and only recently appearing to overcome that disruption and resume growth. Initially, small and medium businesses were severely damaged and many closed down, thus throwing out of work a large number of unskilled and semi-skilled workers. Without incomes, they could not spend, thus depriving the economy of a major share of its spending.
As this was happening, the large companies making up the corporate sector were less affected. Then as recovery began to gain momentum, the corporate sector was among the first to get back to full or near full capacity utilisation. Their owners and senior executives who barely suffered from any loss of income, which included income from financial investments, in fact managed to emerge from Covid-19 unscathed.
According to two experts with the consultancy Bain & Company, the slowdown in personal consumption expenditure by the low and low middle income households is the single biggest problem facing the economy. The situation has been worsened by income growth being concentrated among the topmost income earners. The poor, for their part, being without jobs and income have dipped into their savings, saying goodbye to any kind of discretionary spending.
All eyes were on the budget looking for measures to revive consumption among the low and low middle income households. But unfortunately, the budget does not appear to have done much in this regard. Getting into specifics, the analysis noted the absence of increase in the rural jobs scheme MGNREGS spending despite an increase in rural unemployment.
The rise in MSP will help agricultural household incomes, but there is no fix for rural unemployment. No rise in subsidies and cash transfers was announced. Equally absent were any cuts in personal income tax. All this, along with persistence in inflation will continue to dampen consumption growth, denying the economy an impetus for overall growth.
It is not as if the budget did absolutely nothing. A sharp increase in production linked investment will create jobs for semi-skilled and skilled workers but it won’t impact medium term consumption spending. Several measures to support and rejuvenate small enterprises have been announced. This will increase consumption by their workers and owners in sectors like travel and retail. Among the positives is a boost to low income housing.
But the overall picture is that there is little in the budget to address the immediate distress that is playing havoc with consumption among the low and low middle income sections which account for 66 per cent of all consumption. The authors conclude that the budget, it was hoped, would revive consumption through employment, income generation or straightforward cash transfers. But it fell short of addressing this critical need.
Taking all the measures in the budget into account, Pronab Sen, former chief statistician of India, feels it will accentuate the K-shaped recovery that is on. In particular, he focused on the Rs 2 lakh crore government capital expenditure announced in the budget. As some of it may be used to bring under the budget the earlier off budget expenditure, actual expenditure increase may not be of the same magnitude.
Along with the rise in capital expenditure, the budget indicated a fall in revenue expenditure. This will likely lead to a fall in Central contribution to state-run schemes. As for the credit guarantee schemes and new loans for small and medium enterprises, these can be availed only by units which still have their heads above the water. A move to help revive moribund units is missing. The credit guarantee for employment intensive travel, trade, hotels and communication sectors similarly will remain in limbo. Credit will be taken by units only when they see demand reviving and people will not go out to restaurants or travel during holidays until they have some disposable income in their hands again.
An idea of the flavour of the budget can be had from the way the allocations for important ministries have changed in the estimates for the coming year compared to the revived estimates for the current year. The communications ministry sees a massive 93 per cent jump but that is on account of capital infusion into the BSNL. Road transport gets a substantial 51 per cent hike on account of Gati Shakti. Jal Shakti comes next with a 25 per cent hike.
As for specific schemes, the gainers are Gram Sadak Yojana (37 per cent), rural drinking water mission (33 per cent), the national education mission 28 per cent), and the national livelihoods mission (14 per cent). As against these, the chief loser is the employment guarantee programme MGNREGS, down 26 per cent. Perhaps the most dramatic is the allocation of a mere Rs 5,000 crore for vaccines, compared to a revised estimate of Rs 39,000 crore.
The ministries which have seen their allocation cut is led by consumer affairs, food and public distribution at minus 25 per cent, on account of a cut in food and fertiliser subsidies. In fact, the total subsidy bill is set to go down by 27 per cent. And last but not the least, rural development is seeing an 11 per cent cut in allocation.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
