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Congress banks on populism to ward off BJP, inflation impact

Congress banks on populism to ward off BJP, inflation impact
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First Published: Wed, Apr 16 2008. 12 11 AM IST

Tried and tested: A 2006 photo of Tamil Nadu chief minister M. Karunanidhi and DMK leader Dayanidhi Maran giving away a colour television set near Chennai to meet the party’s poll promise. The Congres
Tried and tested: A 2006 photo of Tamil Nadu chief minister M. Karunanidhi and DMK leader Dayanidhi Maran giving away a colour television set near Chennai to meet the party’s poll promise. The Congres
Updated: Wed, Apr 16 2008. 12 11 AM IST
Bangalore: Faced with an adversary that seeks to fight the Karnataka state assembly elections on the issue of rising prices, the Congress party is banking on populism to soften its impact.
Tried and tested: A 2006 photo of Tamil Nadu chief minister M. Karunanidhi and DMK leader Dayanidhi Maran giving away a colour television set near Chennai to meet the party’s poll promise. The Congress party is now extending a similar assurance in Karnataka.
The Bharatiya Janata Party, or BJP, which believes that inflation at a three-year high of 7.41% will be the undoing of the Congress in the state’s polls, aims to highlight the failure of the United Progressive Alliance, or UPA, government at the Centre to check the price increases.
The Congress party, which kicked off its election campaign on Sunday, has promised to provide subsidized rice at Rs2 a kg and free colour television sets to families living below the poverty line — both tried-and-tested formulae that have in the past won power for the Telugu Desam and the Dravida Munnetra Kazhagam, or DMK, two regional parties in Andhra Pradesh and Tamil Nadu, respectively.
While the TV scheme helped the DMK win the Tamil Nadu assembly elections in 2006, Telugu Desam’s N.T. Rama Rao rode to power in 1983 on a promise of rice at Rs2 a kg. The rice subsidy was relaunched by the Congress government in Andhra Pradesh last week.
“It (the rice scheme) has nothing to do with inflation,” said Siddaramaiah, chairman of the election campaign committee of the Congress in Karnataka and a former deputy chief minister of the state.
But analysts say spending on populist schemes such as colour TVs will be at the cost of human development programmes in Karnataka, the first state to bring in reforms to curb mounting fiscal deficit.
Meanwhile, the BJP has promised to give free power to Karnataka’s farmers if it wins the polls, which will be held in three phases on 10, 16 and 22 May. The Janata Dal (Secular), the state’s third biggest party which entered into coalitions, first with the Congress and then with the BJP, because of a hung assembly in the 2004 elections, is yet to come out with its poll promises.
Karnataka enacted the Fiscal Responsibility and Budgetary Management Act in 2002. The legislation mandated that the government should limit fiscal deficit to 3% of gross state ­domestic product, or GSDP, and ensure that the state has a revenue surplus, which essentially means a restriction on borrowing.
This fiscal year, the state’s increased wage bill, which will result in an outgo of about Rs1,500 crore towards paying arrears, has already constrained budgetary allocations though the state had a revenue surplus of Rs2,972.65 crore.
“(If the populist schemes were to be implemented) expenditure on other needs would have to be reworked,” said a government official, who did not want to be named.
There has been improved tax administration in the state that has led to improved revenues, said Vinod Vyasulu, a Bangalore-based consulting economist who runs the Centre for Budget and Policy Studies, a research-oriented entity. “But expenditure has increased on power and irrigation, which are sort of bottomless pits, and it has been reduced on drinking water and health, although all policies say that high-priority development expenditure is to be increased.”
According to Vyasulu, the Karnataka government’s allocations for health and education are declining as a percentage of GSDP. “You have a surplus and these expenditures coming down. In the light of this, what are they saying? That we will reduce expenditure on health so that we can give everybody colour televisions.”
There are about 7.2 million families below the poverty line in Karnataka, which has a voting population of 40 million, and an additional 400,000 families are asking to be included in the bracket.
“The poor have no access to things such as TVs, which are no longer considered as a luxury,” said M. Veerappa Moily, chairman of the media and policy planning departments of the Congress party and a former Karnataka chief minister. “These measures are all part of local empowerment,” he said, not wanting to comment on the expenditure that the TV scheme may involve.
In Tamil Nadu, about 2.5 million colour TVs procured at Rs2,740 a set were distributed to families below the poverty line between September 2006 and December 2007, and the government there has set a target to give out 3.4 million more TV sets, bought at Rs2,197 a set, by October 2008. That would take the total expenditure to about Rs1,437 crore.
“Targeting (the real beneficiaries) is one main issue whether it is rice subsidy or colour TVs, and no government has been successful so far, leave alone Karnataka,” said H.K. Amarnath, a senior economist with the Delhi-based National Institute of Public Finance and Policy.
Karnataka’s medium-term fiscal policy for 2001, an annual updated document on expenditure, had noted that the actual number of families below the poverty line was about half the 6.5 million families holding green cards at the time. The cards entitle the families to buy foodgrains at subsidized rates. Currently, Karnataka subsidizes rice at Rs3 a kg, which runs up an annual bill of Rs650 crore.
Amarnath feels it would not be advisable to pursue such schemes when governments are advocating an increase in expenditure on health and education. “If the state goes in for some social welfare schemes (such as free TVs) without ensuring necessary expenditures, it is going to be very harmful for the state’s economy.”
But populist schemes worked before in several states. “A colour TV is a plus compared to total minuses everywhere else and in that sense they (politicians) may say that is a tangible benefit,” said Vyasulu.
While the government official said that “these schemes may be feasible if they are done over a period of time,” Amarnath asks if they are necessary at all.
“Colour TVs will not help people in earning income or creation of jobs,” said Devendra Babu, a faculty member at the Institute of Social and Economic Change in Bangalore. “If they have sufficient income earning capability or employment, they don’t need the subsidy.”
Vidhya Sivaramakrishnan in Chennai contributed to this story.
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First Published: Wed, Apr 16 2008. 12 11 AM IST