Freebie race can only lead to debt trap
Each state, of course, has different revenue potential. While some, like Karnataka and Telangana, can afford it, others, like Andhra Pradesh, may not be able to.
There have been hairsplitting arguments in favour of and against freebies promised by political parties to woo the electorate. The Supreme Court, too, had weighed in, as did the RBI, cautioning against fiscal profligacy of this kind. But, given the separation of powers, and the stand of the parties, we are back to square one. And, it is normal to see parties vie with one another to come up with doles to entice the voters, as we saw in Karnataka.
Each state, of course, has different revenue potential. While some, like Karnataka and Telangana, can afford it, others, like Andhra Pradesh, may not be able to. Following Telangana’s creation in 2014, Andhra became a revenue-deficit state. The Jagan government has spent nearly Rs 2 lakh crore on direct benefit transfer schemes since 2019 to empower sections of society, particularly the marginalised. He has described the schemes as an investment in human resources. By some estimates, the expenditure on welfare programmes accounts for 2% of the GSDP, and the debt to GSDP ratio is around 32%. If we measure the outcomes, it is a fact that thousands of government schools have received a new lease of life, enrollments have increased, and farmers aren’t as hard-pressed as in some other states. The moot question, though, is: How far is this sustainable?
Elections are still a year away, but the opposition TDP has already announced a part of its manifesto, and clearly, it seems to believe that going one up on YSRC is the way forward. It promises investment support of Rs 20,000 per annum for farmers, Rs 1,500 per month to every woman aged 18 and above, and Rs 3,000 unemployment dole per month, which will cost a bomb. The irony is that TDP chief N Chandrababu Naidu, who had vehemently criticised Jagan for the freebies, has ended up justifying him. As it is, the state’s debt stands at around Rs 5 lakh crore. If one adds borrowings via corporations, it may shoot up to `8 lakh crore. If populist policies go on indefinitely, the state will run into a debt trap. It isn’t smart to expect political consensus, but a law could be enacted to bring borrowings via corporations under the FRBM Act. Besides, as the Election Commission suggested, parties should explain how they intend to implement promises. Without such red lines, it is impossible to rein in competitive populism.