Fiscal Foolishness: A New (Ab)Normal In Indian Politics

For a week now, since the results of the state assembly elections for Karnataka were declared, the focus has been on the political fallout for the Bharatiya Janata Party (BJP).

The declarations made in the Congress party’s manifesto are being hailed as a game-changer, even when their spokespersons have been justifying the distribution of helicopter money to women and unemployed citizens as a means to combat rural inflation.

The question, however, that must be asked is whether the Karnataka win of the Congress is going to encourage fiscal foolishness as the new normal in Indian politics. 

The critics of the BJP have been claiming that the party should have been more mindful of the needs of the rural population, and hence, should have gone on a Congress-like spree, promising freebies and cash transfers.

While it does make for a lucrative political gimmick, it does nothing to solve the larger problem on the ground. 

An unemployment allowance, even if one wildly assumes is targeted towards the intended beneficiaries, cannot be a substitute for incentivising job creation.

Cash transfers to the women of the household do nothing to uplift them socially in the long run, and instead, make them more dependent on the state. 

Eventually, it all boils down to the fish analogy, taught to children since kindergarten. Is it profitable to give a man a fish each day, or to teach him how to fish, even if the latter comes with a few short-term consequences?

Quite like on the national level, the previous government in Karnataka, under the BJP, was focused on enabling the population through better infrastructure, improved law and order, or zero-interest agriculture loans. 

Under Congress, the focus has gone back to freebies.

Together, freebies could cost the exchequer, in the first year, in excess of Rs 65,000 crore, double the fiscal deficit of the state to more than Rs 125,000 crore, to 5.38 per cent, sending the Karnataka Fiscal Responsibility Act of 2002 for a toss which limits the fiscal deficit to 3 per cent. Put simply, it is not sustainable. 

However, the new Congress government and the greater leadership in 10 Janpath will not be focussed on the deficit-in-the-making, but on the timing.

Ahead of the national elections in 2024, Congress would presumably make a case for the NYAY programme, one that was pitched by Rahul Gandhi in 2019, and claimed that it was the ideal diesel to kickstart the economy. 

Playing safe, Raghuram Rajan stated that it would spur growth on the ground level, but questioned the fiscal sustainability of the scheme. Rs 72,000 per year for at least 50 million households or 280 million people (bottom 20 per cent of the population) is what Rahul Gandhi was promising.

This was the Congress’ version of Universal Basic Income, proposed to arrest the party’s declining political fortunes.

Even without Congress, is NYAY or any programme around universal basic income a good idea for any party, regional or national, regardless of their prospects in the elections, to propose? 

The idea of universal basic income (UBI) was first proposed in the Economic Survey of 2016-17.

However, the other Gandhi in his speech oversimplified the idea and made UBI sound like some sort of cash reward that the government can hand out to citizens based on their social status.

What is lacking in the articulation of the policy measure is a discussion on the underlying philosophy, the financial and the social implication and more importantly, the feasibility of implementing the idea. 

Seen as a tool to eradicate poverty and inequality, and as a facilitator for efficiency in government transfers, UBI hinges on the idea of reducing the governmental relations between the state and its citizens, but with many terms and conditions.

When this idea was first proposed, between 2016 and 2019, the schemes under the Government of India (GOI) were just starting to address the barriers of monetary leakages, redundant beneficiary lists, and corrupt intermediaries. 

Today, after nine years of the Narendra Modi government, DBTs are second nature to the citizens in the hinterland, and banking penetration is a success, thus allowing people to access financial products.

Put simply, there are already elements in place to enable millions of people in the next ten years, thus rendering the need for UBI futile. 

Or, the alternative is for the government to withdraw itself completely from all the programmes and reduce itself to a caretaker of the population, for the government can’t be handing free cash and running welfare schemes simultaneously.

However, the implications of such a move, politically, would be suicidal for any government.

While there is no way to quantify, at this point, what any UBI programme replacing all the welfare schemes would do for rural inflation, the odds are stacked against the long-term interests of both the state and its citizens. 

State governments are also unwilling to draw lessons from the fiscal failures of their counterparts.

Punjab’s liabilities, as a percentage of its GSDP, stand at 48-odd per cent, one of the highest in India.

The situation is so grim that three professors from Punjabi University, Patiala, have written to the state government to set up a debt-relief fund in order to crowdfund the money.

The professors asked the government to request citizens to deposit money, voluntarily, in the debt relief fund. While absurd, the suggestion does highlight the desperation of the state government.

The electorate, without being directed by the Supreme Court, must differentiate between welfare and freebies.

The government’s moral duty is to liberate the poor from the tyranny of poverty, to aid them with public infrastructure, both digital and otherwise, that enables them to create or look for opportunities without worrying about roti, kapda, makaan, and this is being achieved with toilets, houses, bank accounts, healthcare, tap water connections, gas subsidies, and many other policies.

The idea must be to enable the population with the bare minimum to equip them to achieve the maximum. Everything else is fiscal foolishness, disguised as political theatric, to lure the gullible.