In the just-concluded Assembly election in Uttar Pradesh, Prime Minister Narendra Modi promised to waive loans for all small and marginal farmers and to extend fresh credit at zero interest rate. He also vowed to clear all outstanding arrears of sugarcane farmers and ensure that they get paid on the 14th day from the date of delivering cane. His party was also not averse to offering other freebies viz reducing electricity tariff, smart phone/lap top etc, to match the offer by its opponents.
Modi is known for his unique philosophy of shunning doles and instead, empowering the poor. Towards this end, the Prime Minister has taken several measures for the financial inclusion of the farmers (eg the opening of 270 million ‘no frills’ Jan Dhan accounts), participation in development activities (Start-up India, Stand Up India) and generating jobs (Skill India). Indeed, he was catapulted to the seat of power on this very plank, besides eliminating corruption.
Yet, doing a volte face, he has joined the bandwagon of opposition parties, primarily the Congress-Samajwadi Party combine which apart from committing farm loan waiver (Congress vice president Rahul Gandhi had even issued a certificate — calling it a promissory note — to tens and thousands of farmers, promising waiver of their farm loan if voted to power in the State). The Congress scion had also promised reduction in tariff on electricity supply by 50 per cent and increase in minimum support price (MSP) for their produce. One shudders to fathom its consequences.
In Uttar Pradesh, it is a foregone conclusion that the State’s balance sheet will bleed by tens and thousands of crores due to waiver of farm loans alone (Rs85,000 crore, according to some estimates). The offer of loans at zero interest rate (as against seven per cent applicable and four per cent for farmers paying back in time), will dent it if the differential is picked up by the State; if not then, State-run banks (SEB) will bleed.
As regards power, already, its supply to farmers at subsidised rate is contributing to losses of State electricity boards. These have to be necessarily absorbed by the State Government. Under the Ujwal DISCOM Assurance Yojna (UDAY), 2015, it has taken 75 per cent of accumulated losses on its balance sheet. Any further cut in tariff will add to SEB loss, which will eventually be borne by the State.
With regards to guarantee of payments to sugarcane farmers, sugar mills are prone to delaying and making short payments. The factors contributing to this viz, macro-economic situation, supply-demand scenario, market conditions, price realisation from sale etc, will persist. In this backdrop, any assurance for timely payment in full will result in burden of unmet liability falling on State exchequer.
The buck won’t stop at Uttar Pradesh. Loan waiver for farmers and zero interest policy will have nation-wide ramifications. Already, there is a demand from Maharashtra. The Shiv Sena, which is in alliance with the BJP in the State, has challenged the Devendra Fadnavis Government to grant same concessions to farmers as promised by Modi for Uttar Pradesh farmers. Loan waiver to farmers in this State is estimated to cost over Rs100,000 crore. There will be chorus of demand from other States too. Already, the matter resonated in Parliament wherein all opposition parties, cutting across political affiliations, pestered the Government for extending loan waiver to farmers all over India.
Will the 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 to a 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.
This was also confirmed by Union Home Minister Rajnath Singh. At the central level, team Modi continues with populist schemes of the erstwhile UPA dispensation. Under the Food Security Act, food is supplied to two-third of the population (much higher than 25-30 per cent persons below the poverty line) at heavily subsidised rate. The subsidy outgo is a mammoth Rs145,000 crore (2017-18).
Fertiliser subsidy, which includes payments for subsidising sale of urea, complex fertilisers, including di-ammonium phosphate and muriate of potash dents the budget by another Rs70,000 crore (2017-18). With an upsurge in oil price and eight per cent increase in the price of domestic gas from April, the burden will increase. On LPG, direct benefit transfer did help save subsidy. Modi also deserves credit for better targeting by including 20 million poor families and making 10 million better-offs give up. Yet, subsidy is significant at Rs16,000 crore (2017-18) and most of it continues to be enjoyed by better-off/rich.
Needless to say, the malaise of ‘competitive populism’, deeply embedded in States, has gripped the centre too. While this may have been prompted by electoral compulsions, it does not bode well for taking India’s development agenda forward. If resources are frittered away in giving freebies, inevitably there will be shortfall in availability of funds for supporting growth. True, steps taken by the present Government viz demonetisation, digitisation of economy and introduction of the Goods and Services Tax etc, are expected to increase revenue by leaps and bounds. But these gains should be used for building infrastructure viz roads, highways, port, rails, power plants and setting up industries to accelerate growth and create jobs.
Modi is known for taking bold decisions (demonetisation, neem coating of urea etc) even when these are politically unpalatable. In the same spirit, he should shun populist measures and goad States to follow the suit. He can make a beginning with the BJP-ruled States.
(The writer is a public policy analyst)
http://www.dailypioneer.com/columnists/guest-column/populist-measures-can-derail-growth.html