The Price of Populism

EVEN AS THE DEBATE on the role of Congress’ five social guaran­tees in ensuring the party’s victory in Karnataka rages, Rahul Gandhi has promised to fulfil them “on the first day and in the first cabinet meeting”. Let’s look at the guarantees: Gruha Jyothi, under which all households will receive 200 units of free electricity; Gruha Lakshmi, which will give women heads of households a monthly allowance of ₹2,000 to com­pensate for inflation, Goods and Services Tax (GST) and the rise in the price of cooking gas; the Uchita Prayana scheme to make bus travel free for all women across the state; Yuva Nidhi to pay ₹3,000 to unemployed graduates and ₹1,500 to unemployed diploma holders every month; and Anna Bhagya, to provide 10kg rice, free of cost, per person per month to families living below the poverty line (BPL). Sanguine estimates by Open indicate the five together could account for an added debt burden of about ₹64,000 crore, with the proposed cash transfer and power subsidy accounting for 88 per cent of the bill. The package, in fact, exceeds the state’s fiscal deficit of ₹60,531 crore for 2023-24.

Although the caveats are yet to be worked out, this is the first time that the idea of a Universal Basic Income (UBI) has been mooted in Karnataka. If all 1.28 crore BPL households in the state are to unconditionally receive the payout, this scheme alone will cost the exchequer ₹30,720 crore. The neighbouring state of Tamil Nadu recently introduced a scheme with a ₹1,000 monthly payout for about one crore women who work in construction, minor commercial establishments, or as domestic help, or hawk fish or small goods. Madhya Pradesh and Punjab have similar schemes in place. While the Congress had, in 2019, proposed a scheme named Nyay to give minimum income support to five crore of the poorest families in India, the idea did not find any traction in the Lok Sabha polls. The case for UBI in India has been getting stronger in recent years, with evidence from Madhya Pradesh and three Union territories indicating that in many cases the poor prefer cash to in-kind trans­fers. The Narendra Modi government’s income support scheme for farmers is a step in this direction.

In a survey of 5,500 people across Karnataka by India Intentions and Psybe Labs, 36.3 per cent acknowledged that the five guaran­tees would fulfil the needs of the people, 16.2 per cent said they solved essential problems, 12.7 per cent thought they were impos­sible to implement, 20.1 per cent said they would make people “greedy”, 10.7 per cent thought they would raise living standards, and 3.9 per cent said they would raise “respect”. Psephologists say the poll promises played an important role in Congress’ victory in the state, swaying up to 30 per cent of the votes the party received.

Officials in the Karnataka state finance department Open spoke to said that since the Congress manifesto is vague on the eligibility criteria for the schemes, it will be left to bureaucrats to target it at deserving sections of society. An official who billed Gruha Lakshmi as an “aggressive” scheme said the finance department is likely to propose means testing—a process of determining how much income a person has in order to decide if they should be eligible for a social good or service—to whittle down the pool of beneficiaries. “Income taxpayers, land owners, households with government employees may be excluded to bring the numbers down by as much as 50 per cent,” he said, adding that the incoming cabinet will ultimately decide on the eligibility criteria. “The five schemes together should not cost us more than ₹40,000 crore,” he added.

This is a highly optimistic figure. Gruha Jyothi, obviously in­spired by the Aam Aadmi Party’s (AAP) scheme in Delhi to pro­vide free power to all who consume under 200 units of power a month, is set to cost upwards of ₹20,000 crore. Scheduled Caste (SC) and Scheduled Tribe (ST) families under the poverty line have already been availing 75 units of power for free since May 2022— up from the 40 units they were earlier eligible for under the Kuteera scheme. The new scheme, introduced by outgoing Chief Minister Basavaraj S Bommai, costs the government ₹979 crore a year.

Estimates indicate the five social guarantees together could account for an added debt burden of about ₹64,000 crore, with the proposed cash transfer and power subsidy accounting for 88 per cent of the bill. The package exceeds the state’s fiscal deficit of ₹60,531 crore for 2023-24

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Retired IAS officer G Gurucharan, who headed a one-man committee on the revival of electricity supply companies in Kar­nataka—its report was submitted in June 2022—told Open that 200 units was a “very high threshold”. “Most families do not con­sume more than 200 units. Subsidising nearly all households in the state will put a significant burden on the exchequer,” he said. Can the government recover the money from other high-paying customers? “This will be difficult at a time when all the high-pay­ing customers are increasingly leaving the grid to buy power from the open market,” Gurucharan said. “They are paying very little by way of fixed charges for grid connectivity and buying power through open auction, so the cross-subsidy from them is coming down. While the availability of power is not a problem, the gov­ernment will have to raise and restructure tariffs, fix structural issues and improve the efficiency of grid management.” The state’s annual power subsidy bill runs into ₹14,000 crore now. Accord­ing to the Union power ministry, at least ₹1.32 trillion was spent nationwide in power subsidies in fiscal 2020-21, with Madhya Pradesh, Rajasthan and Karnataka together footing the highest power subsidy bill, accounting for ₹48,248 crore, or 36.4 per cent. There are an estimated 15 lakh pumpsets in Karnataka, which also has among the largest areas under drip irrigation. “What is happening is that the state is covering up all inefficiencies in the name of agricultural consumption and showing it as a subsidy. Unless we meter all agricultural installations, we will continue to be blindsided by data,” Gurucharan said.

UNFORTUNATELY, THE ISSUE of farm power subsidy is so sensitive that “if you charge for power, your government will fall,” says MG Chandrakanth, agricultural economist and former director of the Institute for Social and Economic Change, Bengaluru. “Promising free power to all 1.79 crore households in the state is something that will be very hard to undo later. If Congress implements the Gruha Jyothi scheme, the state will be saddled with this burden for the foreseeable future,” he says. As per Chandrakanth’s estimation, the Bharatiya Janata Party’s (BJP) poll promises, including the Namma Poshan programme—under which each BPL family would receive a food kit with a half-litre of Nandini milk per day, 5kg of rice and 5kg of millets per month— three free gas cylinders per year, and ₹21,000 for pregnant women under the Suraksha Janani Yojana, would have come at a cost of ₹19,626 crore. These are in addition to the sops offered by Bommai in the interim budget for 2023-24, in which he had announced new schemes for farmers, women and children, including an in­crease in the limit of interest-free short-term loans to farmers from ₹3 lakh to ₹5 lakh, a subsidy of₹10,000 in the current fiscal year for over 50 lakh Kisan Credit Card holders, and an increase in the allocation for a revolving fund for Minimum Support Price (MSP) to farmers from ₹2,000 crore to ₹3,500 crore. The Bommai govern­ment’s flagship welfare scheme, Raitha Vidya Nidhi, which pro­vides scholarships for 10.19 lakh children of farmers, was recently extended to children of agricultural labourers. The BJP govern­ment also announced free bus passes for 30 lakh women work­ing in the organised sector and allocated ₹1,000 crore towards the scheme. The Congress manifesto has expanded on this idea, promising free bus travel for all women across the state. A similar scheme, introduced in Tamil Nadu, has been lauded for the social impact it has had. While it is not clear from the manifesto if the Karnataka government will cover local as well as intercity travel, a Karnataka finance department official told Open that implement­ing the scheme only in cities will have limited impact. “To reach the rural constituency, the government will have to execute it across the state and cover intercity fares,” he said.

The Janata Dal (Secular)’s, or JD(S), poll promises would have cost the exchequer ₹1,09,000 crore, according to Chandrakanth.

“The ₹10,000 subsidy per acre for farmers alone would cost ₹26,340 crore,” he points out. Other freebies offered by JD(S) include five free cooking gas cylinders a year, a hike in widows’ pensions, waiving the loans of self-help groups, ₹2,000 in monthly allow­ance for farm labourers, and ₹2 lakh incentive for women who marry agriculturists. “There is not much scope for paring down existing schemes. Unless tax revenues increase, the promises made by Congress will exert inflationary pressure on the state,” Chandrakanth says.

The BJP government had announced free bus passes for 30 lakh women working in the organised sector and allocated `1,000 crore towards the scheme. The Congress manifesto has expanded on this idea, promising free bus travel for all women across the state. A Karnataka finance department official said implementing the scheme only in cities will have limited impact

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Congress has also revived its flagship Anna Bhagya scheme, a throwback to Sidda­ramaiah’s 2013-18 tenure as chief minister, and increased the allocation per BPL house­holder to 10kg. It was in fact HD Kumaras­wamy who, in the maiden budget of the Congress-JDS coalition government in 2018, cut the quantity of rice distributed under the scheme from 7kg to 5kg. BS Yediyurappa, during his term as chief minister, sought to identify the beneficiaries under the scheme and plug leaks. His government eventually merged the scheme with the Pradhan Mant­ri Garib Kalyan Anna Yojana (PMGKAY), un­der which every BPL cardholder is entitled to 5kg of foodgrain. Ahead of the Assembly polls, the outgoing BJP government had en­hanced the allocation by 1kg per head, with a grant of ₹4,000 crore for fiscal 2023-24. There are an estimated 3.97 crore BPL cardholders in Karnataka, and by further increasing the monthly foodgrain allocation by 4kg, Con­gress has brought upon the state an addi­tional expenditure of ₹14,321 crore per year.

Karnataka’s finances are in reasonable shape, with the state growing at 7.9 per cent, as against the national average of 7 per cent, in 2022-23, to reach a projected GSDP (state GDP) of ₹23.33 lakh crore by the end of 2023- 24. As per the Reserve Bank of India’s (RBI) ‘State Finances: A Study of Budgets of 2022-23’ report, Karnataka is in fourth place among all the states, contributing 5.8 per cent of the total capital outlay. Sarthak Pradhan, asso­ciate fellow at Takshashila Institution, says that with a relatively low debt-to-GSDP ra­tio, and increasing revenue receipts, coming mainly from the state’s own taxes, Karnataka may be able to generate the funds needed to implement Congress’ welfare package. “The incoming government must have clarity about how it plans to generate this extra rev­enue, either by raising taxes or by leveraging non-tax revenue,” he says. It is also not clear from the manifesto if schemes like the un­employment dole come with a sunset clause, Pradhan points out.

“Populist schemes are usually a mask for failure of governance and often come at the cost of capital expenditure,” says Anupam Manur, assistant professor at Takshashila Institution. “While the Congress manifesto is deliberately vague on the intended benefi­ciaries of some of the schemes, it does reflect the economic frustra­tion in the state. The lack of jobs is a real concern across India. India needs to create 20 million jobs a year, but governments have been hard pressed to come up with policies to enable this,” he says.

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