Last year, Congress Vice President, Rahul Gandhi took an extensive tour of Uttar Pradesh [UP] visiting tens of thousands farmers households in the run up to assembly elections in February/March 2017 [currently underway]. During the visits, he issued a certificate [call it ‘promissory note’] to every farmer promising waiver of his/her farm loan if voted to power in the state.
As the election process got kicked off early this month, he reiterated the commitment in all his speeches ad infinitum. Additionally, he has promised cut in electricity tariff by 50% and increase in price offered to farmers for their agricultural produce. In this, he is joined by Akhilesh Yadav, National President, Samajwadi Party [SP] contesting election in alliance with Congress. .
The largesse offered by Rahul is very much in sync with grand old party philosophy and tradition of handing out doles to farmers and other poor [farm loan waiver of over Rs 70,000 crores in run up to parliament elections in 2009 is still fresh in mind]. This is also in the DNA of SP which had got an absolute majority in last assembly elections in 2012 primarily on the strength of freebies.
In contrast, prime minister, Modi is known for his unique philosophy of shunning doles and instead empowering poor and downtrodden. Towards this end, he has taken measures for their financial inclusion [for instance, opening of 250 million ‘no frills’ Jan Dhan accounts], their participation in development activities and creating jobs. He was in fact, catapulted to the seat of power on this very plank.
Yet, in election speeches, he has promised to waive loans of all small and marginal farmers and extending fresh credit at zero interest. He has also vowed to clear all outstanding arrears of sugarcane farmers and ensure that every farmer gets paid on 14th day from delivery of cane. The party is also not averse to offering other freebies viz. smart phone/lap top etc. This complete reversal of stance will lead to catastrophic consequences for the state as well as national economy.
In UP, it is a foregone conclusion that irrespective of who forms the government, the state’s balance sheet will bleed by tens of thousands crores due to waiver of farm loans alone. The offer of loans at zero interest rate [as against 7% applicable and 4% for farmers paying back in time] will further dent it if the differential is picked up by the state; if not then, state run banks will bleed.
As regards power, already its supply to farmers at subsidized rate is contributing to losses of state electricity boards [SEBs]. These have to be necessarily absorbed by the state as amply demonstrated by it having to take on its balance sheet 75% of accumulated loss as per financial restructuring package [FRP] under UDAY [Ujwal DISCOM Assurance Yojna] [2015]. Any further cut in tariff will eventually dent state’s finances.
As regards guarantee of payments to sugarcane farmers, sugar mills are prone to delaying payments. The factors contributing to delay [including macro-economic situation, supply-demand scenario, market conditions, price realization from sale etc] are likely to persist in future as well. In this backdrop, any assurance by government for timely payment in full can result in liability falling on state exchequer.
The buck won’t stop at UP. The loan waiver for farmers and zero interest rate policy will have nation-wide ramifications. Already, there is a demand from Maharashtra. Shiv Sena – BJP’s alliance partner in the state – has challenged Davendra Fadnavis government to grant same concessions to farmers as promised by Modi for UP farmers. There will be chorus of demand from other states as well.
Will Modi – government consider loan waiver on an all-India basis? A cue to this is available from the response of BJP national President, Amit Shah in reply to question raised by a news channel. Shah did not rule out the possibility of granting this in other states as well if the situation prevailing on ground so warrant.
In another interview, union home minister, Rajnath Singh [he was agriculture minister in NDA government under Vajpayee and later chief minister, UP] went a step ahead justifying loan waiver. For a farmer who had his purchasing power completely eroded, loan waiver is the bare minimum needed to salvage the situation, he argued.
Modi – government is also continuing with the populist schemes inherited from erstwhile UPA – dispensation. Thus, it continues with Food Security Act [FSA] under which food is supplied to 2/3rd of population at heavily subsidized price Rs 1/2/3 per kg for coarse cereals, wheat and rice. This is the biggest guzzler of tax payers money with an outlay of Rs 145,000 crores [2017-18].
It continues with new pricing scheme [NPS] for urea [a major source of ‘N’] under which it is supplied at heavily subsidized price. Besides, under nutrient based scheme [NBS] it enables sale of phosphate and potash fertilizers at subsidized prices. Fertilizer subsidy makes a dent of Rs 70,000 crores [2017-18] on the budget. This is despite neem coating of urea which promised substantial saving.
In regard to LPG subsidy, Modi initiated reforms by launching direct benefit transfer [DBT] in January, 2015. This helped in achieving substantial saving by eliminating bogus beneficiaries. The government has also achieved better targeting by inducting about 20 million poor families and making 10 million better-offs give up. Yet, subsidy continues to be enjoyed by majority of rich.
In a nutshell, it turns out that the malaise of ‘competitive populism’ deeply embedded in politics of majority of states is now gripping even Modi – dispensation at the centre.
Modi’s stance may have been prompted by electoral compulsions [in a scenario of all other parties offering freebies and if BJP does not follow suit, it might end up ruining its prospects]. But, it does not bode well for taking India’s development agenda forward. If, resources are frittered away on freebies, inevitably there will be shortfall in their availability for supporting growth.
True, steps taken by present government viz. demonetization, digitization of the economy and introduction of GST [goods and services tax] etc will increase revenue by leaps and bounds. But, this should be used for building roads, highways, port, rails, power plants and setting up industries thereby boosting growth and creating jobs.
Modi is known for taking bold decisions [e.g. demonetization, neem coating of urea] even if these are politically unpalatable. In the same spirit, he should shun populist measures and goad states to follow suit. A beginning can be made with BJP-ruled jurisdictions.