Congress, BJP poll sops could hurt economy

At a time when the government’s finances are under strain because of an economic downturn and sluggish revenues, the poll sops from the two leading parties — which range from cheap food to subsidised farm and study loans — pose serious fiscal risks. Chetan Chauhan examines...Sop Opera| See Election Special

Updated on: Apr 7, 2009, 08:25:56 IST

Hindustan Times | By Chetan Chauhan, New Delhi

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A tough job in balancing the budget awaits the next finance minister if either the Congress or the BJP comes to power. In their attempt to lure voters, both parties have made very expensive poll promises. Sop Opera

At a time when the government’s finances are under strain because of an economic downturn and sluggish revenues, the poll sops from the two leading parties — which range from cheap food to subsidised farm and study loans — pose serious fiscal risks.

A back-of-the envelope calculation shows that three of the most popular sops on Congress manifesto, if implemented, would cost at least Rs 23,000 crore annually. In the case of Bharatiya Janata Party (BJP), the additional fiscal cost on account of poll sops could be as high as Rs 58,000 crore a year.

The poll sops alone could push up the fiscal deficit by 1 to 2 percentage points of GDP from an alarming 6 per cent in 2008-09. That, in turn, has implications for financial stability and the growth of the broader economy.

“Unviable competitive populism creates expectations, which are not good for responsible democratic growth,” said Rajiv Kumar, executive director of ICRIER, a New Delhi-based think tank. “Its impact on the budget will depend on GDP growth, which is slowing, and tax revenue for the government.”

The BJP’s promise to raise the personal income tax exemption limit to Rs 3 lakh would alone cost Rs 25,000 crore annually in revenue foregone, said a senior income tax official, who didn’t want to be named.

While many experts debate feasibility of the tax relief promised by BJP, what is becoming imminent is that a big spike in spending would come from higher food subsidy, irrespective of who comes to power after this election.

The Congress has promised to provide 25 kilos of either rice or wheat every month to all families living below poverty line (BPL) at Rs 3 a kilo. BJP has gone a step further and said it would give 35 kilos of the same to each BPL family at Rs 2 a kilo.

“To meet such an expense, the Central government may have to prune expenditure on other welfare schemes or allow the fiscal deficit to rise further,” Planning Commissioner member Abhijit Sen said.

Currently, there are 8.1 crore BPL families, but only 6.5 crore are covered by the public distribution system, costing the government Rs 43,000 crore in food subsidy through last fiscal year. The subsidy is the difference between the economic cost of procuring grain – which is now about Rs 17 a kilo for Rice and Rs 15 a kilo for wheat – and the price at which the central government provides them for the PDS.

Of the families already covered by the PDS, about 2.4 crore families are covered by Antodaya Anna Yojana – meaning they get to buy 35 kilos of rice and wheat every month at Rs 3 and Rs 2 a kilo respectively. For the remaining 4.1 crore families, the central government provides 25 kilos of either rice or wheat at Rs 5.65 per kg and Rs 4.15 per kg respectively.

ABOUT THE AUTHOR
Chetan Chauhan
Chetan Chauhan is the National Affairs Editor looking into all aspects of news and features from across India. A Chevening scholar with over three decades of experience in reporting and news management, Chetan has extensively covered all important aspects of the social sector, political economy, environment and climate change nationally and internationally. He did a journalism course at the Reuters Institute of Journalism in Oxford and Digital Media training at Nanyang Technological University in Singapore. He started as a reporter with The Statesman in 1996 and joined the Hindustan Times in 2000 in the metro bureau covering environment, crime and Delhi politics. He covered hot local news, from the Jessica Lal murder case to the rebellion of Delhi Congress MLAs against then Chief Minister Sheila Dikshit, to the replacement of toxic vehicle fuel with cleaner compressed natural gas (CNG) in the national capital. Some of his stories on air pollution became part of the Supreme Court’s landmark MC Mehta versus Government of India case in the National Capital Region (NCR), forcing the government to take corrective measures. As part of the national political bureau since 2004, he covered important central sectors such as environment, education, social justice, labour, rural development, water resources, renewable energy, agriculture, broadcasting and the Planning Commission for more than a decade producing several exclusive and investigative breaking stories. His specialisation is the environment, having covered at least a dozen United Nations global conferences on climate change, biodiversity and wildlife including climate summits in Paris, Copenhagen and Bali. He also covered India’s two five-year plans ---11th and 12th and reported on drafting and execution of right based laws such as Right to Education, Right to Information and rural job guarantee law, MG-NREGA, now being introduced in new format as VG-RAM-G Act. He has in-depth knowledge of social sector issues. He was one of the first to report on tigers vanishing from Sariska and Panna wildlife reserves in 2004 and 2008, respectively, leading to the setting up of the National Tiger Conservation Authority (NTCA) and the introduction of stringent penal provisions for poaching. He has written extensively on the rising human-animal conflict in India and the degradation of India’s biodiversity hotspots because of mining and other activities. Since 2004, Chetan has covered Parliament comprehensively and participated in training on the nuanced coverage of Parliament proceedings. He has travelled extensively across India to cover national and provincial elections since 1998, especially in the Hindi heartland states, considered India’s road to power. He writes a regular column for Hindustan Times, Ecostani, on important national politics, economy, Himalayan ecology and environmental issues. His other responsibilities include providing inputs for edits and edit page articles for the publication, apart from managing news flow from across India.Read More

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