Promises matter in elections because voters lack rationality. As election history shows, freebies do get votes. Hitherto, it was a time tested method of electoral success for a desperate opposition. It seems now even the BJP has appropriated the strategy and joined the freebies bandwagon, finally casting away its earlier pretence of facing the electorate only using the development mantra. The newly-installed BJP government in Odisha has announced a grandiose scheme called Subhadra to provide one crore women from economically weaker sections and aged between 21 to 60 years direct financial assistance in their Aadhaar-linked bank accounts.

The amount is Rs 50,000 payable equally over a five-year period in half yearly instalments, starting with the current fiscal. The populist scheme, which is essentially not different from similar schemes in other states like Lakshmir Bhander in West Bengal, would cost the taxpayers a humongous sum of Rs 55,825 crore. It has been projected to generate a multiplier effect, potentially contributing Rs 2.5 lakh crore to Odisha’s economy over the next five years. The assumptions behind this calculation are unknown and mysterious in the dynamically changing socio-economic environment, but it is certain to create a big hole in Odisha’s future budgets after it had recorded a fiscal deficit of Rs 15,201 crore in FY23. Likely, it will push the poor state deep into the red and push its nominal growth rate way down below 16 per cent recorded in FY23.

Advertisement

Odisha will not be the first state to suffer from the jitters of populism; it will follow the illustrious examples set by many other states ~ West Bengal, Punjab, Karnataka, Himachal Pradesh, Telangana, Chhattisgarh etc. But in this article we shall examine Karnataka, where Congress President Mallikarjun Kharge has recently rebuked Chief Minister Siddaramaiah for making electoral promises it cannot fulfil. UPA had secured a landslide victory in Karnataka by winning 135 out of 224 seats in the 2023 election after promising five freebies: Gruha Lakshmi (Rs 2,000 every month to each woman head of a household), Gruha Jyothi (200 units of free electricity to every household), Shakthi (free public bus travel for women), Anna Bhagya (10 kg rice to every BPL family) and Yuvanidhi (Rs 1,500/ 3,000 per month to unemployed educated youth), and implemented these from the last budget setting apart Rs 39,825 for these schemes.

The result was a huge revenue deficit of 13,951 crore, reversing the decent revenue surplus of Rs 13,496 crore in FY 2023. In the budget for FY 2025, Rs 39,565 crore has been allocated to these schemes, as against the requirement of Rs 52000 crore, which almost doubled the revenue deficit to Rs 27,353 crore. Consequently, the fiscal deficit is projected to swell from Rs 46,622 crore, or 2 per cent of GSDP in FY2023, i.e. before the election, to Rs 82,980 crore, or 3 per cent of GSDP, in FY2025. Fiscal deficit indicates the level of borrowing by government, and high fiscal deficit means that the private borrowers will be crowded out of the market by government borrowings. This obviously means flight of capital to capital-friendlier destinations, and that is exactly what has happened in Karnataka. Its total FDIs fell from $22 billion in 2021- 22 to a pittance of $6.57 billion in 2023-24, mostly bene fiting Gujarat.

High borrowing also imposes additional burden in the form of higher interest which eats into developmental revenue expenditure, additionally causing higher inflation. All these impact growth, and for the first time in many years, in FY2024, Karnataka’s real growth rate of 6.6 per cent fell below the national rate of 7.3 per cent. The additional liability incurred from borrowing causes the overall debt stock to swell and consequently a higher debt ratio (ratio of outstanding debt to GSDP) which will rise to almost 24 per cent by FY2028, from 22.6 percent in FY2024. Even as the government was “celebrating” the fulfilment of its promises and party leaders were congratulating the CM, 1.26 crore women registered for the ‘Gruha Lakshmi’ scheme.

Alarmed by the possible budgetary impact, the Finance Department wrote a note to the Department of Women and Child Welfare, the scheme’s nodal agency, saying “The Rs 31,423 crore required for the implementation of the scheme would push the state towards considerable revenue deficit, potentially violating the Karnataka Fiscal Responsibility Act”. It added that “the scheme would result in substantial recurring liability and would necessitate significant reductions in budgetary provisions across all departments and accounts.” The conclusion: “It is not possible to provide such an enormous amount of funds in every financial year.” In recognition of these constraints, on October 30, Deputy CM DK Shivakumar indicated that the Shakthi scheme for free rides for women would be reviewed, which prompted the party President to chide him while cautioning the party against promising unsustainable freebies during the upcoming Maharashtra elections.

“Making promises without considering the budget could lead to bankruptcy; there wouldn’t even be money to put sand on the roads. If this government fails, it will impact future generations. It could lead to disrepute, and the government might face res trictions for the next ten years.” The guarantees are exacting their prices on the development of the state. In August 2023, the government demanded over Rs 11,000 crore from the Centre on what it called dues from the 15th Finance Commission (FFC) recommendations. In an unusual move on account of Covid which had battered the finances of the Union and the states alike, the FFC had submitted two reports, an interim report for 2020-21, and the final report for 2021-26.

In the first report, FFC did recommend a special grant of Rs 5,495 crore for Karnataka and two other states ~ Mizoram and Telangana ~ which was not accepted by the Centre. Karnataka had also sought Rs 3,000 crore each for two projects in Bengaluru ~ for rejuvenation of tanks and the Peripheral Ring Road Project, which was also not accepted by the Union citing its own fiscal constraints. Mr Siddaramaiah then raised the bogey of neglect of Karnataka by the FFC, but as that didn’t get him the funds, other measures were resorted to. In October 2023, the guidance value of all properties was revised upwards by around 30 per cent to generate Rs 2,000 crore. In June 2024, petrol and diesel prices were hiked by Rs 3 and 3.02 respectively, by raising the sales tax on these to raise Rs 2,500 crore.

Other measures included revision of liquor prices, hiking stamp duty charges along with proposals to levy fees for collection of solid waste from households in Bengaluru and proposed revision of fees for mining licences. In July 2024, 37 per cent of the funds earmarked for the welfare of SC/STs in the SC/ST Sub-Plans were used up for these guarantees, amounting to Rs 14,743 crore. Party legislators were asked not to seek funds for development works in their constituencies to secure funds for the guarantees. A large number of irrigation-works and other developmental works have already come to a halt in the state for want of funds. Raising resources for one sixth of the budget is not easy ~ a desperate government appointed a private firm, Boston Consulting Group (BCG) at a cost of Rs 9.5 crore for six months to suggest measures to augment its revenue streams. BCG recommended, among others, monetisation of around 25,000 acres of land assets near Bengaluru which came under severe opposition fire in the assembly, forcing the government to retreat.

When everything fails, the last resort is to blame the Centre, so Siddaramaiah started the ‘My Tax, My Right’ campaign saying that while Karnataka contributed Rs 4.3 lakh crore to the central exchequer, it got back only around Rs 50,000 crore. If that logic is to be accepted, the Indian federation will cease to exist. In short, while the government is struggling hard to implement the guarantees for which fresh burdens are being imposed on citizens by way of steeper fees and user charges, development projects and capital creation are taking big hits, making the future of the state uncertain. Quality of public services will likely go down as a result, and the state’s capacity to deliver will gradually disappear. Karnataka has every chance of becoming another state that was hitherto well-managed turning to irreversible decay, falling prey to unrestrained and irresponsible populism promoted by self-serving politicians.

Governments are short term and take short-term decisions, because the long term is always perplexing and bewildering. Inclusive growth now only means transfer of money to the bank accounts of whoever politicians think will vote for them. But the risk remains that at some point of time, even voters who are now behaving equally irresponsibly will become fed up with weak economic growth and poor services, forcing politicians to make difficult choices. Politicians will find the territory extremely difficult to negotiate, because their populist policies will have created entrenched interest groups who will certainly revolt, throwing society into chaos. When fiscal disaster combines with chaos, Sri Lankas happen. For now, Karnataka’s populism is coming home to roost.

(The writer is a commentator, author and academic. Opinions expressed are personal)