Populist promises in the time of global slowdown
Possibly in a bout of competitive populism, India’s two major political parties have promised huge spending sprees to please their constituencies. While one party has promised interest free loans to farmers and pensions to farmers and small traders, another has promised a guaranteed income of `72,000 per year to crores of poor families.
Political manifestos the world over often turn populist when elections are closely contested. However, at a time when the global economic outlook remains gloomy, these plans seem to promise only inflationary pressures, not solutions to India’s structural economic problems. To fulfil the promises, the government will have to borrow more as tax revenues do not look likely to turn robust in the face of domestic industrial doldrums and global headwinds.
The IMF has already lowered its forecast for global growth to 3.3 per cent in 2019, down from the 3.7 per cent it predicted last October, which makes this the lowest global growth forecast in about a decade. Every institution—from RBI to IMF to global rating agency Fitch—all agree that India will also grow at a slower pace than forecast before. Their forecasts vary from 6.8 per cent to 7.3 per cent. The government is slated to borrow a record `7.3 lakh crore and its debt that has already ballooned to record numbers, can only go up even if a few of these schemes are implemented.
At the same time, there seems to be no clarity over growth-oriented programs. For instance, the BJP has promised to invest `100 lakh crore in infrastructure and another `25 lakh crore in agriculture and rural sectors over five years. The idea is laudable but there is no answer on where the resources will come from. More debt to fund grandiose building programs would have been good Keynesian economics only if the country’s balance sheet was in a better position. The only saving grace could be that many political promises remain just that—promises.