The Congress manifesto for the 2019 general elections should not surprise anyone as the party is treading the same old path of profligate populism that it practised in its two consecutive tenures during 2004-09 and 2009-14. The much-debated NYAY, which guarantees Rs 72,000 a year to the poorest 20 per cent of households is based on the assumption that families in the bottom 20 per cent of the income pyramid earn only Rs 72,000 per year and NYAY would top up the families with another Rs 72,000, thereby pulling them out of poverty with a monthly income of Rs 12,000.
The inherent principle of this scheme is that if a family does not earn a single rupee, it is entitled to Rs 12,000 per month as every family should either earn at least Rs 12,000 or the government should provide the same to them. In India, people who are involved in unskilled and even some semi-skilled jobs earn at the most Rs 12,000 per month (The salary of a helper in the construction industry is about Rs 550 per day, and if she works for 22 days a month, she earns about Rs12,000 per month).
If NYAY is implemented, these people have two options, either to continue with their job and earn, or choose to remain unemployed and live on an NYAY subsidy of Rs 12,000 per month. One need not be a Nobel laureate economist to understand the labour market distortion NYAY would create. Then come the 20 per cent above the poverty line, who earn more than Rs 12,000 and who may slip to BPL if there is a crisis of any sort. There is no disincentive for this group to fall below the Rs 12,000 income level, as they would then become eligible to avail of NYAY.
It is estimated that the Union government would have to spend Rs 3,60,000 crore to give a monthly household income of Rs 6,000 to the bottom 20 per cent of the population. If the next level is also considered for NYAY, the outlay would double to Rs 7,20,000 crore—26 per cent of the Union budget outlay.
The freeloading schemes would create dead weight for the economy as huge sums of money are given with no commensurate growth in domestic products and services. The fiscal deficit as prescribed by the Fiscal Responsibility and Budget Management (FRBM) Act 2003 would go out of the window, resulting in no confidence among investors to invest in India on new projects, and inflation would hit the roof, making both, the beneficiaries of NYAY, and others to suffer from price rise.
When UPA 1 implemented populist schemes such as farm loan waiver and MNREGA riding on the 8 per cent economic growth rate of the 2004-09 period, UPA 2, in 2009-14, witnessed a reduced growth rate and double-digit inflation that virtually killed the poor and the middle class, resulting in the disgraceful defeat of the Congress in the 2014 elections.
With the implementation of the Seventh Pay Commission’s recommendations, the outlay for salaries and pensions has reached the zenith. The Congress manifesto promises 4 lakh government jobs in Central government departments and institutions. With an average Cost To Government (CTG) per new employee of about Rs 6 lakh per annum, this would result in additional expenditure of Rs 24,000 crore every year for the Union government, with no commensurate increase in productivity. Not only that, if the Congress manages to form the government, it would insist on state governments filling 20 lakh vacancies, leading to virtual bleeding of state government finances.
Then comes the GST. All the essential goods and food items attract no GST. But the Congress manifesto promises a single, moderate, standard rate of tax on all goods and services. Where is the scope for slashing GST rates further?
Regarding jobs and industrial development, the Congress manifesto promises to create a new ministry of industry, services and employment to underline the link between the growth of a new industry, the service sector and rapid creation of jobs. The UPA 2 government created a major hurdle in the form of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LAA 2013 in short), whereby rural and urban land could be acquired only after paying compensation of four times and twice the registered value of the land, respectively.
Unable to rectify this, the Modi government struggled to create industrial growth. The same LAA 2013 would become a Frankenstein for the Congress by stopping industrial growth if it manages to form the government in 2019. The Congress manifesto promises to increase allocation for education to 6 per cent from 3 per cent. The real problem is not fund allocation but the lack of faith among common citizens in the delivery of education by government schools.
The enrolment rate of government schools is on the decline even when education is offered free or for small fees. This is despite the fact that the average salary of a government teacher has been about four times that of a private schoolteacher.
With no framework for an increase in revenues, the promises in the Congress manifesto are next to impossible to fulfil. If the Congress forms the government and implements these schemes, it would push the fiscal deficit above 5 per cent and increase inflation to double digits. If economists like Raghuram Rajan have been consulted and gave their approval to these profligate schemes, India should keep them away in future to safeguard its interests.