If the state of finances determines the ability to splurge, the Centre clearly isn’t in a position to afford this luxury. With its fiscal deficit during April-November touching 94 per cent of the budget estimate for 2013-14, meeting the year-end target seems, at the very least, a herculean task. Compounding the problem is the economic slowdown, restricting the growth in the Centre’s revenue receipts to just 12.8 per cent as against the targeted 20.2 per cent. Although overall expenditure growth of 17.7 per cent has also been below the budgeted 18.2 per cent, it has not compensated for the much larger lag in revenue collections. The only way to keep the deficit within the budgeted levels — something that global credit rating agencies would want to see — is through further expenditure control. This is what Finance Minister P. Chidambaram did last year, by effecting a Rs 81,503 crore reduction in the Centre’s total spending over the budgeted figure. Either way, it leaves little room for pre-poll fiscal adventurism.
This is in stark contrast to the run-up to the 2009 general elections, which saw the Congress-led United Progressive Alliance (UPA) go on a spending binge on MGNREGA and the farm debt waiver scheme. One reason it could ‘afford’ this was that the Centre’s fiscal deficit had more than halved from 5.5 to 2.5 per cent of GDP between 2000-01 and 2007-08. But as the UPA approaches the fag end of its current term, the Centre’s finances are precarious. Pressured by the fiscal circumstances, there are many measures it has taken over the last one-and-a-half years — from raising diesel prices by 30 per cent to capping the entitlement to subsidised LPG cylinders.
Today, it is the states and not the Centre that are taking the lead in populism. The Aam Aadmi Party (AAP) government in Delhi has decided to give free water to all households consuming up to 20,000 litres and slash electricity tariffs by half for those using less than 400 units a month. The Congress-ruled Haryana has followed suit by announcing a Rs 200 rebate on power bills, while Chhattisgarh under the BJP has commenced distribution of foodgrain at Re. 1/kg to about 50 lakh poor families. Such competitive populism is possibly because state finances have not deteriorated as much as that of the Centre. Delhi, for example, had a revenue surplus of Rs 5,400 crore in 2012-13. Similarly, Rajasthan is earning over Rs 5,000 crore as annual royalty from the Barmer oilfields that is being used to fund various schemes, including provision of free medicine and diagnostic services. But whether revenue surpluses should also be invested in physical and social infrastructure is something they need to think about as well.