Delivering a lecture at the Foundation for Democratic Reforms, Bharat Institute of Public Policy and Hyderabad University on January 9, 2020,Vice President and Rajya Sabha Chairman Venkaiah Naidu stressed the need for a law to check “reckless and unsustainable populist” promises of political parties – on the lines of the Fiscal Responsibility and Budget Management Act [FRBM].
The FRBM Act was passed by the Parliament in 2003 for institutionalizing financial discipline and reducing the fiscal deficit [FD] to a manageable limit to improve the overall financial health. Under the Act – as amended vide the Finance Bill [2018-19], union government has set for itself fiscal deficit [FD] target of 3% of gross domestic product [GDP] for 2020-21 and debt limit of 40% of GDP by the Centre [60% for Centre and states] to be achieved by 2024-25.
Naidu opined “If a cap is introduced on the proportion of budgetary resources that can be deployed for short term benefits by law, then perhaps all parties will have a level playing field, and reckless and unsustainable populist promises can be kept under check.”
The concern expressed by the VP and his recommendation needs to be viewed against the backdrop of an intense competition among almost all parties across the political spectrum to promise freebies before every election [these are held round the clock, thanks to some disruptive events such as premature dissolution of Lok Sabha (lower house of Parliament), several state assemblies – much against the intent of the founding fathers of our constitution] without even realizing the implications of ‘implementing those promises’ for the respective exchequers of the union government and the states.
Forget an assessment of the financial implications, the politicians promising electricity, water, fertilizers, food, fuel, bus ride, lap tops, bicycles, loan waivers etc either free or at throwaway price/tariff don’t even realize that making these goods, services and utilities such as etc costs money. This lack of realization by itself sows the seeds of a potentially explosive situation. The damage [albeit irreversible] is done on four fronts concurrently. This is how things pan out.
First, from the perspective of those who already stand to benefit from the free/heavily subsidized supplies, they get habituated to their availability on a continuous basis without any sun-set. Additionally, persons who are not covered clamor to get included and may even take recourse to unethical [or dubious] practices to get covered. A boost to nepotism and corruption among the political class and bureaucracy is a collateral damage.
Second, producers/suppliers/providers of these goods and services – fully conscious that all such supplies covered by the free/subsidy dispensation will get full reimbursement from the state – are prone to inflate cost, care little for improving efficiency in operations and even make fictitious claims [for instance, the Comptroller and Auditor General (CAG) has found irregularities galore in payments to power distribution companies (PDCs) in Delhi].
Third, deeply entrenched in the belief that sops alone win election, parties outwit each other in promising more of each freebie besides bringing more items under the freebies regime [e.g. in the elections to Delhi Assembly, President of state BJP, Manoj Tiwari has promised to give five time more subsidies than what is currently being given by Arvind Kejriwal led AAP government].
Fourth, it gives an opportunity to the political class for self-aggrandizement. Here, one only needs to recall a statement of the then, Prime Minister, Rajiv Gandhi nearly three-and-a-half decades ago ‘out of a rupee sent from Delhi for the benefit of the poor, only 15 paise actually reaches them’. In other words, 85 paise are leaked from the distribution pipeline. Modi may have succeeded in stopping this leak by sending the money vide DBT [direct benefit transfer] under central schemes but at the state level, this still continues.
All the four forces feed on one another to produce a cascading effect on the uncovered cost involved in distributing freebies. Needless to say, all of this comes from tax payers’ money. Some states where tax payers’ kitty is inadequate, may even have to borrow or deny funds to development projects [in Maharashtra for instance, the newly elected Maha Vikas Aghadi (MVA) government has put on hold several projects only to pay for farm loan waiver promised by its constituents viz. Congress, Shiv Sena and NCP in elections].
The reckless and indiscriminate freebies offered by political parties thus imposes ‘unplanned’ and ‘unanticipated’ expenditure obligations on the states which is completely out of sync with the FRBM that requires every state to plan its receipts and expenditure in a manner so as to comply with fiscal deficit target. In this backdrop, Naidu’s suggestion for ‘a cap on the proportion of budgetary resources that can be deployed for short term benefits’ on lines similar to the FRBM Act may be a logical a step forward. But, it is not workable.
As it is when, it comes to ceiling on the expenses that a candidate can incur – be it for parliament constituency or state assembly – [as stipulated by the Election Commission (EC)], it is not possible for the authorities to ensure compliance. The parties/candidates merrily spend mammoth sums that render the caps look peanuts. As regards, how much a party can commit from the Consolidated Fund of India [or state exchequer in case of assembly election], unlike ceiling on candidate expenses, any such determination is just not possible.
For determining the ceiling [for drawing from budgetary resources], there has to be some criteria which in turn, is a function of development and welfare priorities. Within each, there are numerous items wherein, priorities of different parties could vary significantly. For instance, party A may prefer to give free electricity whereas party B wants to give free education. A third may be keen to give both free. The crux of the matter is there can’t be a ‘standard criteria’ [unlike expenses by a candidate].
Even if there is one and the EC succeeds in determining the permissible expenses from budgetary resources [a theoretical exercise, to say the least], this won’t help the voter in deciding on his/her preference for one party over the other. This is because all parties in the fray will promise to spend an amount equal to the ceiling. Even so, all parties are all likely to reject the proposal outright as none would want to let the electorate know that the money for fulfilling a promise will come from the exchequer. For instance, if a party promises farm loan waiver, it would want the voter to believe that ‘it [read: the party] has given the relief”
If, ceiling on spending from the budget is not workable, then, what else can be done to rein in poll promises? How can states’ finances be saved from the impending disaster in the wake of poll related freebies? What is the way forward?
The only ‘effective’ and ‘sustainable’ option is to deny political parties the privilege of making poll promises which have the effect of denuding the exchequer. The parties may not like it but the hard truth is that they all fall back on this easiest option to win elections [their mantra is to promise freebies en mass and then draw money from the exchequer blatantly ignoring the need to comply with fiscal discipline]. This should be stopped forth with.
Instead, voters should choose candidates/parties on the basis of their performance and what they can deliver within available resources. Put simply, the latter should be tested on the basis of their ability to efficient delivery of services, effective implementation of welfare schemes, pursuing development agenda, setting best governance standards and above all ensure compliance with FRBM target.
Instead of putting a cap on expenses from budgetary resources for short term benefits [as mooted by Mr Naidu], there is urgent need for enacting a law that bars poll promises. In the current political scenario wherein the entire election process is centered around poll freebies, this may appear to be a tall order [sounds like committing ‘political suicide’] but this is the only way to cleanse the system.
Let this be understood in no ambiguous terms that freebies promised by political parties that cost the exchequer tens of thousands of crore tantamount to a corrupt practice which is much worse than other forms of corruption such as distributing cash or other bribery viz. giving alcohol and consumer goods etc. Hence, it must be stopped.