Revdi Politics: Does National Interest Come Second For Opposition-Ruled States?

The world has been passing through extreme turbulence for the last two years.

Leave alone zooming inflation and recessionary trends in the USA and Europe — even the iron rule of the Chinese Communist Party is threatened by the impact. That’s unprecedented. 

In comparison, Indians didn’t feel much heat. From vaccine to energy security, Gross Domestic Product (GDP) growth to credit and investment uptick — figures do speak for themselves that India managed the situation exceedingly well.

The task ahead is to convert this into a long-term growth opportunity. 

That’s easier said than done. External Affairs Minister S Jaishankar predicts that the global turbulence would continue for five more years. During this period, India has to safeguard its economy by optimizing growth and should improve its competitiveness through reforms. 

Jaishankar’s remarks are mere official confirmation of a well-known reality. India’s opposition parties, particularly those ruling in the states, are fully aware of such possibilities.

But their action doesn’t prove that. 

Political competition is key to a multi-party democracy. It is, however, abnormal, if not anti-nation, to take the competition to the level that would make the nation weak and vulnerable in this crucial hour of history. 

Unhealthy Competition 

The monkey business started in early 2021, when India was trying to ensure vaccine security amidst global scrambling and intense politics over the antidote to Covid. Some Opposition-ruled states started making a hue and cry for freedom to import. 

No doubt, there was a shortage at home and infections were rising. But that was a global scenario and many developed nations went through worse phases.

Under pressure, the Narendra Modi government flip-flopped and briefly relaxed the national vaccine distribution policy. 

States failed miserably in their vaccine procurement drama. But the fun fact is those who made maximum noise like West Bengal and Tamil Nadu were laggards in using the vaccine made available by the centre. 

In the end, the federal government lived up to its promises to ensure vaccines for all within a set time frame. However, the national image suffered.

One must not question if the Opposition wanted that but some political parties and leaders even cast aspersions on India-made vaccines. 

Covid didn’t come alone. It brought widespread economic turmoil and geopolitical tension.

There was an incursion at India’s northern border, at the peak of the pandemic. Global auto production, which is a key employment generator, was disrupted for nearly two years due to the short supply of semiconductor chips. 

All these boil down to money. Opposition (backed by noted economists) screamed for a US-styled cash handout. Luckily the government didn’t agree, so we were saved from US-styled inflation. But, money flew like water for welfare schemes. Some of which, like the free supply of grains, are still continuing. 

Trapeze Act By The Centre

Add to that increased spending on defence and infrastructure; constitutional commitment to compensate states for Goods and Services tax (GST) for five years beginning July 2017; and, the recent roller coaster in crude oil prices — the federal government was doing a trapeze act.

A slight misstep and, everything would go haywire. 

Nothing of that sort happened. The economy recovered faster than anticipated. Tax collections jumped. Foreign Direct Investment (FDI) zoomed. Exports soared. Rupee performed way better than most currencies, against the dollar.

The fiscal deficit of the centre remained within the projected limit. The total central capital expenditure witnessed a 50 per cent jump in the first half of the Fiscal Year (FY) 2022-23 — ignoring the global topsy-turvy — compared to the same period in FY22. The benefits will go to the states in terms of more employment and tax collection. 

What is happening around us is nothing short of the rebuilding of a nation. Maintaining fiscal balance and investing in productive assets will be our key to success. Missing the bus would cost us, dear. Sadly, the opposition largely remained aloof to this national emergency. 

For more reasons than one, state politics suffer the temptation of giving freebies. Even the BJP-ruled states are not out of this trap. It was expected that they would play a responsible role in this crucial hour. 

Strong control of the central leadership didn’t allow BJP-ruled states to go out of line. Many in the Opposition took it as an opportunity. They are upping the stake on cash handouts.

Mamata Banerjee’s Trinamool Congress promised Rs 5,000 a woman per month in Goa election. 

Fiscal Catastrophe 

Congress-ruled Rajasthan and Chhattisgarh, Aam Aadmi Party (AAP) ruled Delhi and Punjab, Hemant Soren’s Jharkhand, Mamata’s West Bengal, Left-ruled Kerala etc have taken this competition to a catastrophic high. 

Delhi’s per-capita income is three times the national average but two-thirds of electricity consumers enjoy subsidies. In Punjab, 85 per cent of electricity subscribers receive zero bills. The state gives 600 units of free electricity which is enough to run water pumps and/or multiple ACs. 

That’s not all. Punjab, Rajasthan, Chhattisgarh, and Jharkhand recently returned to the defined-benefit, Old Pension Scheme (OPS) — linked to pay commission awards and dearness allowances — for government employees, replacing the defined-contribution-based, market-linked National Pension System (NPS), introduced in 2004. 

Including family members of government employees, barely six per cent of the state population will benefit from this retrograde step. But the state finances will take a heavy toll, as staff expenditure will be manifold. And, most of the states which have OPS are already weak. 

According to a June 2022 Reserve Bank of India (RBI) study, Punjab and Rajasthan are the most “stressed” states in terms of the debt-GSDP (gross state domestic product) ratio.

The five most stressed include Bihar, Kerala and West Bengal. The last two never implemented pension reforms due to Leftist influence. 

Poor state finances impact the efficiency of the government and its ability to fuel growth and generate tax revenues. West Bengal is a fine example of this vicious cycle. The state is lagging behind the national economy in terms of per capita net state domestic product (constant prices) since 2005 and the gap is widening. 

Moreover, though the federal government is maintaining a tight leash on the fiscal deficit — runway state finances impact the gross fiscal deficit of the country, which is already high. This in turn makes the country susceptible to shocks. 

Spoilt Brats

The buck doesn’t stop there. With the centre keeping the ship steady, some Opposition states are behaving like spoilt brats. 

The Goods and Services Tax was introduced in 2017, with a five-year guarantee on mitigating any notional revenue loss. It was expected that states would work on their competitiveness and make them more business-friendly during the period. 

The compensation window has come to an end this June. Some dues (tax share) became pending to the states during the global catastrophe for the last two years. They are being returned too. 

Most states failed to work on their finances and are expecting easy money from the centre for some more time.

Some Opposition states have gone beyond that. At a recent GST meeting, Left-ruled Kerala wanted the revenue-sharing formula to be changed from 50:50 to 60:40 in favour of states. 

Greed has no limits.