AICC President Mallikarjun Kharge
AICC President Mallikarjun Kharge addresses a public meeting in Channapatna.(Photo | PTI)

Fiscal fragility & faustian fracas on freebies

On Thursday, Congress President Mallikarjun Kharge sermonised the party on being fiscally responsible.
Published on

The quintessential Indian adage ‘Jab jago tab savera’, it is dawn whenever you wake up, eloquently describes the whimsical wobble of piety which surfaces and echoes periodically in India’s political arena. The freebie debate is back.

On Thursday, Congress President Mallikarjun Kharge sermonised the party on being fiscally responsible. Speaking in Bengaluru, amid a controversy over withdrawal of one of the five guarantees, Kharge said, ”Don’t go for saying five, six, 10 or 20 guarantees. Give guarantees according to your state budget. If you give guarantees beyond your budget, you will become bankrupt.”

The Kharge cautionary note arrives in the run-up to the polls in Maharashtra—where the Maha Vikas Aghadi alliance of the Congress, NCP Sharad Pawar and Uddhav Bal Thackeray Shiv Sena is set to unroll its promises. The Congress is pitching the Maha version of five guarantees—cash transfers to women heads of households, free bus travel, 10 kg of foodgrains for families, 200 units of free power and unemployment allowance.

Predictably, the BJP latched on to the Kharge advisory and targeted the Congress. Prime Minister Narendra Modi led the blitzkrieg, stating that the Congress is realising “that making unreal promises is easy but implementing them properly is tough or impossible”. The PM added that the Congress stands “badly exposed in front of the people” and went on to hash-tag the tweet #FakePromisesOfCongress.

Fact is, the BJP-led Maha Yuti—that includes the Eknath Shinde Sena and NCP Ajit Pawar—can hardly claim to be different. In the run-up to the polls, the Maha Yuti regime led by Shinde unveiled a raft of sops. Topping the list is the Mukhyamantri Majhi Ladki Bahin Yojana, which promises Rs 1,500 a month for 22 million women and costs the state exchequer Rs 46,000 crore. Add the top-up of Rs 6,000 on the PM Kisan programme, cash allowance of Rs 50 per cow for desi cows  and raising the salaries of madrasa teachers.

Now, the MVA alliance will obviously aim to outdo the Maha Yuti in its promises, adding to the fiscal burden. For the record, Maharashtra, as per its own economic survey, has outstanding liabilities of Rs 7.11 lakh crore costing the state Rs 48,578 crore, or Rs 133 crore per day, in interest payments. Karnataka, which spends Rs 65,000 crore on the five guarantees, has outstanding liabilities of Rs 5.35 lakh crore and interest payments of over Rs 36,000 crore.

The rise of fiscal fragility is not limited to Karnataka and Maharashtra. A study by Madhavi Arora, chief economist at Emkay Global Financial Services, shows “election-led populist spending by states is unprecedented” and may lead to a higher borrowing. Arora adds that states have consistently missed revenue targets, forcing them to cut capital expenditure. The aggravating fiscal fragility is most visible in the states that have recently polled or are heading for polls.

The freebies epidemic has made cameo appearances in the Supreme Court, too. Last month, the to court issued notices to the Centre and Election Commission following a public interest litigation on the fiscal impact of freebies. Indeed, RBI’s data shows that the outstanding liability of states has shot up to Rs 83.32 lakh crore, up from Rs 74.96 lakh crore last year—and from Rs 25.10 lakh crore 10 years ago.

A back-of-the-envelope calculation shows the cost of cash transfer to women heads of households across 10 states alone adds up to over Rs 1.3 lakh crore. Unsurprisingly, the revenue expenditure of states, which pays for the sops, has gone up from Rs 26.38 lakh crore to Rs 43.44 lakh crore and interest payments from Rs 3.19 lakh crore to Rs 5.19 lakh crore in the past five years. This column has earlier pointed out that the consequences are visible in the outlays for essential services such as education and health.

Elections are increasingly less about the competing visions for the state and more a competition of schemes. Essentially, the schemes and the segments of society targeted reside at the bottom of the income pyramid. The rampant use of electoral sops reveals that the Band-Aid schemes are effectively an admission of flailing policy.

Agrarian distress is manifest—the average monthly income of agricultural households is Rs 10,218—and the latest labour force survey reveals that more people are working on farms than earlier. Farmers need linkages to inputs and markets for better yields and higher income. This needs expansion of farmer-producer organisations to scale up holdings and a national grid for perishables to sustain better yields and higher incomes.

Every year, state governments host investor summits with fanfare. It’s not clear how many of the announcements are translating into investment and jobs. The paucity of jobs and incomes, visible in polls, spurred outrage and electoral incentives for income transfers. The cash transfer to women represents the failure to improve incomes and employment through expansion of investments.

No political party is innocent in the race to assemble a coalition of beneficiaries to win elections. The bitter irony is that it is state governments that can address the issue of unemployment and incomes most effectively, as the bulk of next-generation reforms is vested in the states.

The ‘democratisation’ of costs to be footed by taxpayers forking out GST is manifest across state budgets. The bipartisan piety about fiscal fragility is rich given the track record of all parties and carries little credibility. The approach of India’s political parties is fundamentally Faustian. 

Shankkar aiyAr

Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India

(shankkar.aiyar@gmail.com)

X
The New Indian Express
www.newindianexpress.com