Welfarism yes, but not competitive populism: States should focus on targeted delivery rather than freebies

The incoming governments in the five states and others must ensure that the targeted delivery of wealth continues, or delivers on its promises, without succumbing to dangerous populism.

Speaking after the state election results on Thursday, Prime Minister Narendra Modi attributed his party’s victory in four states to “the strong popular approval of the Bharatiya Janata Party’s pro-poor and proactive governance model”, saying that he “I will not rest until the poor have been given all their rights. Modi is doing well, as well as providing a governance model for a country like India, where a majority of the population needs support from the current government. A record of efficient assistance has indeed worked well for both the BJP and the Aam Aadmi party (in Punjab) and played a crucial role in their stunning electoral victories.

The question is where to draw the line. The incoming governments in the five states and others must ensure that the targeted delivery of wealth continues, or delivers on its promises, without succumbing to dangerous populism. Both Uttar Pradesh and Punjab’s debt-GSDP ratios trended above the NK Singh panel recommended 20%, with Punjab at 53.3%, the worst of all major states. Against a target of Rs 4.2 trillion for FY22, UP had achieved Rs 2.5 trillion by January 2022, while revenues were already at Rs 2.6 trillion, CAG data shows.

Punjab was in a similar position, with Rs 58,000 crore realized in January 2022, against the target revenue of Rs 95,260 crore for current fiscal and expenditure of over Rs 67,000 crore. Indeed, its revenue realization was 3 basis points lower than that realized in the corresponding period of the previous fiscal year. Given how the majority of revenue expenditures in both states are budgeted for overheads such as salaries/wages, pensions, interest payments, the scope for social spending is limited.

Swelling subsidies on agricultural electricity consumption in Punjab and consumer electricity in UP exacerbate the problem. While UP’s grant account accounted for a lower proportion of total revenue expenditure than Punjab’s, by January 2022, 86% of the budget’s grant budget had been exhausted, with a full quarter remaining. More than 50% of UP’s budgeted subsidy expenditure was, of course, for power consumers.

In Punjab, the budgeted subsidy for free power to farmers in the current fiscal year is as much as 80% of the subsidy expenditure made so far. There seems to be insufficient focus on capital expenditures, which makes for robust long-term investment in development. In UP, investment in the social sector was only 32% of budget target until January 2022; Punjab had only achieved 33%.

Against such a backdrop, Yogi Adityanath must not yield to or set populist expectations. Instead, he should focus on targeted social spending and subsidy reforms, especially in power, if the UP’s poor are to receive more state aid. The AAP’s mandate in Punjab is as much about popular discontent with other parties as it is about the much-praised Delhi model. While focus on education and health care is a must, AAP should be careful about expanding coverage of highly subsidized energy, a hallmark of its Delhi model. Rather, it should address the addiction to free farm power that has wreaked havoc with the state’s groundwater table, along with MSP-led, open public procurement of grains. The AAP had also promised a monthly fee of Rs 1,000 to all women over 18 in Punjab if it won – now would be a good time to think about the cost of this to the treasury and adjust it for less wasteful targeting. Competitive populism should not be the way forward.

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