Buoyed by the success of the party’s strategy in the recent Karnataka elections, the Congress Party has promised a similar set of six guarantees for the upcoming Telangana elections which includes a monthly cash support of ₹2,500 to women, ₹15,000 annually to farmers and tenant farmers, ₹12,000 annually to agricultural workers, 200 units of free electricity to eligible households, allotment of housing sites and ₹5 lakh for people without dwellings, etc. As regards funding their humongous costs, the party has provided no clue.

Even the BJP, despite its lofty claims to promote an empowerment model of development rather than doles, may soon adopt the same strategy in the upcoming Assembly and Lok Sabha elections.

That Indian voters are swayed more by promises of freebies rather than rational economic management has been proved repeatedly in Punjab, Rajasthan, Chhattisgarh, Jharkhand — not to mention Delhi where the AAP has successfully institutionalised the freebies model.

NPS vs OPS

To entice voters, Opposition-ruled States have also adopted a strategy of reverting to the Old Pension Scheme (OPS) by jettisoning the New Pension Scheme (NPS) that limits the State’s pension liability only till the employee’s retirement, unlike the OPS which imposes an indefinite pension liability upon the States.

Five States — Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal — have already reverted to the OPS, and West Bengal did not even implement the NPS. As a just-released RBI study shows, the burden of the OPS upon the exchequer is 4.5 times higher than that of the NPS.

Telangana’s per capita income of ₹3.12 lakh in 2022-23, among the highest in India, has overtaken Andhra’s ₹2.2 lakh. Of course, Andhra was disadvantaged from the outset, having lost its two most prosperous districts, Hyderabad and Ranga Reddy, to Telangana. Most of the promises made by the then UPA government to compensate for this loss including granting of the “special category status” have not materialised.

But Telangana today stands on a sound financial footing even among the prosperous southern States, and has a manageable ratio of outstanding liabilities to GSDP of 29 per cent. If the Congress’s election guarantees are implemented, it will not remain so for very long.

Freebies worth ₹55,000 crore is driving Punjab, already the highest indebted State, towards bankruptcy, and election guarantees in Karnataka worth ₹62,000 crore (3 per cent of GSDP) will similarly turn a prosperous State into an insolvent one. The 15th Finance Commission (FC) was asked to look into the populist expenditure made by the States, and the issue of freebies is likely to be referred again to the 16th FC which is about to be constituted. But FC is only a Constitutional body for devolution of federal resources to States — it hardly has the authority, legitimacy or competence to deal with such contentious political issues which can be effectively addressed only by the legislatures through consensus between political parties — almost an impossibility.

Supreme Court’s role

That leaves only the Supreme Court which has also been hesitant to step into areas that fall within the legislative domain. Two PILs have been filed before it, one in 2011 after the Tamil Nadu elections which contended that freebies amounted to “bribery” under the Representation of People’s Act (RPA).

In its 2013 verdict, the SC, while observing that the distribution of freebies shakes the root of free and fair elections and vitiates the electoral process, still disagreed that it was a “corrupt practice” under the RPA, and directed the Election Commission (EC) to frame appropriate guidelines, but the EC only provided a vague guideline requiring the parties to state the plans for financing of the freebies promised.

In response to another PIL filed in 2021, the SC called for an Expert Panel to be constituted comprising all stakeholders to consider the question, of which nothing has come out so far, and nothing possibly will.

In a mature democracy, a political party only owes good, corruption-free governance and nothing else to the voters. While delivering good governance is difficult, fulfilling promises on freebies is simple.

While no one can perhaps restrain the parties from promising freebies in the guise of social welfare, they can perhaps be prodded to agree to a set of principles, maybe through an amendment in the RPA, making it mandatory for them to disclose: (a) the estimated the cost of the promised freebies; (b) Mode of financing them either by raising taxes or by curtailing revenue expenditure (not capital expenditure), but never through additional borrowing; and (c) that the revenue deficit finalised by the FC cannot be exceeded on account of the freebies.

Punjab is being driven to bankruptcy due to the ₹55,000-crore promised schemes and Karnataka’s finances will also be stressed because of the ₹62,000-crore worth schemes guaranteed

The writer is Professor, Arun Jaitley National Institute of Financial Management, and.former Director-General at Office of the CAG of India

Related Topics