The Lok Sabha elections will loom large as Piyush Goyal rises Friday to present his debut Budget speech in the last year of the current term of the Narendra Modi government. The NDA won in 2014 on Modi’s slogan ‘Sabka saath sabka vikas’ or ‘development for all’, suggesting growth with equity and efficiency.
This time, Congress president Rahul Gandhi has taken a leap into welfare politics, in what is a throwback to Indira Gandhi’s ‘Garibi hatao, desh bachao’ slogan ahead of the 1971 elections. So far, he hasn’t really talked about reforms to get back to the high growth orbit. Besides a national farm loan waiver, what he has now offered is minimum income guarantee for the country’s poor. In doing so, he has stolen a march on the government, which is still toying with such a scheme for farmers. Rahul’s radical proposal draws from the romantic idea of Universal Basic Income that has engaged economists for over two centuries now. That reforms will help growth, which in turn will reduce poverty levels, may be too abstract a concept for many voters to understand.
Do freebies/promises work?
To understand this, let us revisit the Chhattisgarh elections. In July 2018, less than four months before Assembly elections in Chhattisgarh, Raman Singh, the three-time BJP Chief Minister, decided to set aside Rs 1,467.90 crore to offer free mobile phones to 45 lakh women (40 lakh rural, 5 lakh urban) and five lakh students. This, he believed, would empower households in the long run. Raman Singh’s team believed the scheme was a “game-changer” and would earn him a fourth term.
The Congress, for its part, promised to waive loans taken by farmers in its manifesto, and fought the elections without announcing a CM candidate. It swept the polls. People in the state voted in favour of “loan waiver”, even if it was just a promissory note. The Congress’s loan waiver is estimated to cost the Chhattisgarh government Rs 6,100 crore, four times the cost of the BJP’s free smartphone scheme called Sanchar Kranti Yojana.
Couldn’t a politician as season as Raman Singh — who revolutionised the public distribution system (PDS) in Chhattigarh in 2008, and probably inspired the UPA government at the Centre to enact the National Food Security Act — sense that a “loan waiver” and not a “smartphone” was the need of the day? Further, aren’t voters intelligent enough to know that election times are about sops and freebies, and politicians can renege on promises made? In the Chhattisgarh case, the going explanation is: They know it all. They got a smartphone free. It didn’t mean much to them. So they elected a party which promised to waive their loans. They valued this more.
This explanation, however, is too simplistic to explain the complexity of a voter’s behaviour, and his allegiances with the party in power. We chose Chhattisgarh because the Congress won three-fourths of the Assembly seats. In the other two Hindi heartland states, Rajasthan and Madhya Pradesh, the Congress just about managed to come close to the halfway mark.
Welfare economics & reforms
The number of poor in India is staggering. At around 300 million, it almost equals the size of the population of the United States (327 million). A Congress leader and former Chief Minister of a big state, who did not want to be named, said people do not have faith in governments given this abysmal record in poverty alleviation. “For them, reforms, high growth, and trickle-down benefits are abstract concepts. They would prefer what they get today. They seek instant gratification,” he said.
Moreover, the poor appreciate direct benefits, and not indirect subsidies. And politicians understand this. A report released in September 2018 by the UNDP and the Oxford Poverty and Human Development Initiative stated that India’s poverty rate halved to 28% in the decade up to 2015-16, with 271 million moving out of poverty. This is no mean achievement, and has been possible only because of high growth rates during the decade. But try explaining this to the voter. And it is also a fact that government spending on critical social sectors such as health and education is woefully inadequate. At just about 4% of the GDP in 2017-18, it almost seems the government has abdicated its responsibility in ensuring robust human capital. To top it all, the fruits of reforms and high growth are not evenly distributed.
Welfare in India will continue to mean handouts for some time to come given such numbers of poor. Politicians in India, who are connected to ground realities, do not see such “welfare” as bad. It is true for both the Congress and the BJP. Welfare by any name – freebies, handouts, sops, doles, etc – may make capitalists cringe, but not politicians in India, on either side. Modi knows it, so does Rahul.
Looking for right mix
So, is it all about welfare then? Not really. Astute politicians mix welfare well with economic reforms. P V Narasimha Rao did it, A B Vajpayee did it, and so did Manmohan Singh. It may not have always worked for them at the hustings though. Ahead of the 2014 elections, Modi may have termed the Mahatma Gandhi National Rural Employment Guarantee Act a monument of UPA’s failure. Many capitalists rejoiced, and expected him to nix the scheme, for according to them it was a dole which did not create any enduring assets. But the Budget allocation for the scheme has only increased during the last four years — it stood at Rs 55,000 crore for 2018-19, compared with Rs 32,992 crore in 2013-14 (the last year of UPA-II).
Similarly, economists criticise farm loan waivers for the moral hazard. But the BJP thinks it is required. If Rajasthan, Madhya Pradesh and Chhattisgarh under the new Congress governments have proposed to waive farm loans worth Rs 60,000 crore, they have picked a leaf out of the book of BJP-ruled Maharashtra and Uttar Pradesh governments which took a hit of Rs 70,000 crore. Many political analysts attribute the UPA’s return to power in 2009 to the Rs 60,000-crore farm loan waiver in 2008. The scheme was announced in the last full Budget of UPA-I on February 29, 2008, and took more than two years to fully implement. But then it helped get the UPA its second term.