Political consensus needed to end fiscal disaster
In India, unfortunately, politicians view every expenditure as desirable if they feel that it could bring them votes, regardless of the cost and consequences
image for illustrative purpose
Speaking at the Annual Day Celebration of the Delhi School of Economics, NK Singh, who was chairman of the 15th Finance Commission, has rightly pointed out that "both the economics and politics of freebies are deeply flawed. It is a race to the bottom. Indeed, it is not the road to efficiency or prosperity, but a quick passport to fiscal disaster."
While he has correctly diagnosed the problem, the solution he has suggested is unrealistic. He has recommended constitutional provisions for a problem that is essentially political. And the political arena has become so squalid and the fight so dirty that the players have lost all sense of propriety, reason, and prudence.
A month before the Assembly poll in Uttar Pradesh this year the Yogi Adityanath government pledged to reduce the power tariff on farm use by 50 per cent. Other promises included free electricity for 2.3 crore farm holdings and free scooters for female college-goers. The Aam Aadmi Party in Punjab pledged 300 units free power and Rs 1,000-allowance per month for women.
Before the Assembly election in Uttarakhand, Delhi Chief Minister and AAP boss Arvind Kejriwal promised a 'Tirth Yatra Yojana' to the people if his party won in the state. In Delhi, such a scheme is already there. He said, "We'll facilitate free 'darshan' of Lord Ram in Ayodhya. For Muslims, we'll have the provision of free tour to Ajmer Sharif, and for Sikhs to Kartarpur Sahib."
Distributing free or subsidized food to the poor can be justified but doles for pilgrimage? And that too in a secular country? Then there are, in other parts of the country, color television sets, mixers and grinders that politicians offer to their voters as freebies.
"We need to distinguish between the concept of merit goods and public goods on which expenditure outlays have overall benefits," Singh said. "Examples of this are the strengthening and deepening of the public distribution system, employment guarantee schemes, support to education and enhanced outlays for health, particularly during the pandemic. All over the world, these are considered to be desirable expenditures."
In India, unfortunately, politicians view every expenditure as desirable if they feel that it could bring them votes, regardless of the cost and (medium- or long-term) consequences. The "race to the bottom" continues.
Legislative or constitutional provisions cannot check this race. Remember the fate of the Fiscal Responsibility and Budget Management Act, 2003, which mandated that the fiscal deficit would be decreased to 3 per cent 2008? Not once did it come to 3 per cent.
The political problem must have a political solution. And that is: some kind of consensus among parties across the country about a negative list—that is, the actions and policies they would not announce. For example, the absolutely thoughtless and pernicious promises of free power and subsidized pilgrimages.
