Sigh of relief for economy as risk of competitive populism eases post state poll results | Mint

Sigh of relief for economy; risk of competitive populism eases post poll results

It is now expected that it will avoid the temptation of populism in the interim budget it is scheduled to present in February 2024, just ahead of the Lok Sabha elections.. (Photo by Sanchit Khanna/ Hindustan Times)
It is now expected that it will avoid the temptation of populism in the interim budget it is scheduled to present in February 2024, just ahead of the Lok Sabha elections.. (Photo by Sanchit Khanna/ Hindustan Times)

Summary

The competition among political parties to woo voters could have spiralled in case of setbacks in the three states, which would have made it tempting for the BJP to try to influence the electoral sentiment across the country in the run-up to the Lok Sabha elections

The incoming assembly election results are a relief for the economy. Concerns that losses for the Bhartiya Janta Party (BJP) would set off a spiral of competitive populism in the country have eased considerably with the party looking set to bag at least three of the five states that went to polls. The three states– Rajasthan, Madhya Pradesh, and Chhattisgarh – belong to what’s called the ‘Hindi cow belt’ region and are crucial to the party’s national strategy.

The results for them and Telangana, are likely to be declared by the Election Commission of India (ECI) by Sunday evening. Mizoram, which also went to polls in this election cycle, will have its results tomorrow.

Some of the announcements during the election campaigns, run ahead of the polls in these states, had set alarm bells ringing among economy watchers for their potentially adverse long-term fiscal consequences and overall drift away from reforms and sound economics.

The populist tone was set by the two parties, the BJP and the Congress, as they tried to outbid the other in Chhattisgarh for votes with promises to buy paddy from farmers at higher prices than the other: The BJP promised to buy paddy from farmers at 3,100 per quintal in its manifesto. The Congress announced that it would buy paddy from farmers at 3,200 per quintal.

It also promised a farm loan waiver, free electricity up to 200 units, a 50% discount on power bills for up to 400 units, and a 50% loan subsidy for self-employment.

In Rajasthan, the Ashok Gehlot-led Congress government announced top-up on the subsidy on cooking gas cylinders over and above the subsidised price of 500 each. Gehlot launched a scheme for the free distribution of pulses, sugar, salt and oil to more than a crore people in the state through ration shops. His government also started giving free smartphones and three years of free internet to women. The state provides free electricity up to 200 units for every household and up to 2,000 units for farmers.

The Congress repeated its promise to reinstate the Old Pension Scheme, the perils of which were earlier pointed out by Mint Snapview.

In Madhya Pradesh, the Shivraj Singh Chouhan-led BJP government sweetened its ‘Ladli Behna Yojana’ in August, increasing cash payments to women in low-income families from 1,000 to 1,250 a month. The minimum eligibility age was also reduced from 63 to 60 years. He promised to increase the monthly payment to 3,000 eventually. His government reduced the price of subsidised cooking gas cylinders to 450 each.

The Congress promised a farm loan waiver initiated earlier by the short-lived Kamal Nath government, free electricity to farmers and subsidies for farm inputs in the state.

The big-bang announcement, however, came from Prime Minister Narendra Modi about the extension of the union government’s free food grains scheme for the next five years at an election rally. The scheme that covers over 800 million eligible Indians across the country will cost taxpayers over 2 trillion a year.

The competition among political parties to woo voters could have spiralled in case of setbacks in the three states, which would have made it tempting for the BJP to try to influence the electoral sentiment across the country in the run-up to the Lok Sabha elections next year by announcing even more populist schemes at the Centre, with the ensuing increase in committed expenditure delaying fiscal consolidation, and heightening macroeconomic risks.

Good performance by the Congress in the three states – as had happened in 2018 – could have triggered a repeat of something similar to what had happened in the 2019 interim budget. The BJP had not fared well in the state polls in 2018, losing all three Hindi-belt states. The impact was seen in the interim budget that followed. Ahead of the 2019 Lok Sabha elections, presenting the interim budget on 1 February 2019, the stand-in finance minister filling in for ailing Arun Jaitley, Piyush Goyal, had announced a new cash payments scheme for farmers: The ‘Pradhan Mantri Kisan Samman Nidhi’ (PM-Kisan) scheme.

It promised Rs-6000 a year to farmers with up to 2 hectares land and was made applicable with retrospective effect from 1 December, 2018. The dates on which the 2019 elections to the lower house of Parliament, the Lok Sabha, would take place were about to be announced. The model code of conduct, under which the new scheme could not have been announced, was about to kick in. Just before it did, the prime minister launched the PM-Kisan from Gorakhpur in Uttar Pradesh on 24 February, 2019. He transferred the first instalment of 2,000 each (out of Rs. 6,000 per annum) into the bank accounts of 1.01 crore farm families. The target was to cover about 12.6 crore beneficiary farm families by the end of March 2019.

After winning the parliamentary elections in May 2019, the scheme was extended to non-small and marginal landholders also. In 2022-23, 10.71 crore eligible landholders received 6,000 each in their bank accounts. The total amount disbursed from the Union budget was 58,201.85 crore -- without the phasing out of the de-merit subsidies on fertilisers given by the Centre or those in power by states, which remain unreformed.

The Modi government has said that it will contain the fiscal deficit at 5.9% of gross domestic product in 2023-24 and aim to reduce it to less than 4.5% by 2025-26. It is now expected that it will avoid the temptation of populism in the interim budget it is scheduled to present in February 2024, just ahead of the Lok Sabha elections.

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