At the outset, let me state that I am proud of our democracy, no matter how imperfect it is. Election time is the time to celebrate democracy. As we go through the electioneering process in five states, a prelude to the 2024 Parliamentary elections, the pitch has been set skewed, especially with rival parties blaming each other — at times, coarse language has been used. Simultaneously, tall promises are being made. How far these promises amount to providing doles or fostering development is difficult to distinguish — there is always a thin line that separates the two.
It is difficult to list here all the promises that political parties have made in their manifestos. But it would be pertinent to discuss some significant promises made to the farming community. In Rajasthan, for instance, the ruling Congress party has promised to make a law to implement minimum support prices (MSPs) in line with the Swaminathan formula. The BJP maintains that they have already implemented the Swaminathan formula when, at the Centre, they made the MSP to be at least equal to Cost A2+FL plus a 50 per cent margin on that. So what is new in the Congress’s promise? Do they want to replace Cost A2+FL with Cost C2, where C2 is the comprehensive cost, including imputed land rent on self-owned land and imputed interest on owned capital? (Cost A2+FL refers to paid-out costs plus the imputed cost of family labour.) If that is so, the MSP for various crops could go up by 25 to 33 per cent over the existing levels.
The simple question is why did the Congress not implement this formula when it held office at the Centre from May 2004 to May 2014? The Swaminathan Committee report was submitted between 2004 and 2006. The obvious answer is that this formula was not considered economically prudent at that time. Why now, then?
Similarly in Chhattisgarh, the Congress is promising to raise the MSP for paddy to Rs 3,000/quintal. The BJP has gone a step further and promised to raise the MSP to Rs 3,100/quintal — the current MSP is Rs 2,183/quintal. This means that whichever party comes to power in the state, it will have to summon the resources to pay the highest MSP for paddy in the country.
If the BJP is promising an MSP of Rs 3,100/quintal of paddy in Chhattisgarh, why does it not do so in other states? There is very likely to be pressure on this count from other states during the parliamentary elections. Raising the MSP for paddy to such a level, an increase of 42 per cent, will have severe repercussions on the economy. Has anyone in the BJP thought this through before promising the moon?
Where will food inflation go, and what will happen to interest rates, and the overall growth of the economy? If the BJP feels that the current MSP for paddy — 50 per cent over the Cost A2+FL — is too low, why did it ban exports of non-basmati white rice, and put export restrictions on other varieties of rice, including basmati rice? And why is it that the Food Corporation of India (FCI) is unloading its rice stocks at a price even lower than Rs 3,000/quintal (equivalent to paddy MSP of almost Rs 4,500/quintal) against its own economic cost of Rs 3,900/quintal? It seems that the right-hand does not talk to the left hand in policymaking circles.
While campaigning for the Madhya Pradesh elections, Prime Minister Narendra Modi announced that free ration (5kg/person/month) will continue for the next five years under the PM Garib Kalyan Yojana. I presume this promise was not just for Madhya Pradesh but for the entire country.
Already, the food subsidy bill is more than Rs 2 lakh crore per annum. As MSPs will be raised for paddy and wheat in the next five years, this bill is surely going to inflate. And if the MSP for paddy is raised to Rs 3,100/quintal, where will the food subsidy bill go? Has anyone in the finance ministry given serious thought to all this?
Doles have been promised without much thought to their consequences on the economy. The only silver lining I see is that it will lead to a temporary increase in the incomes of those who have been left behind in this process of economic liberalisation. This may raise expenditures, especially in rural areas, and create a business opportunity for some to serve the rural demand better. But the flip side is that it will lead to major distortions in agri-markets, and create a big pressure on the fiscal position of states or the Centre. This will have multiplier effects on the economy, which may not be very palatable to the party in power.
There is a need to exercise caution in promising the moon to the electorate in the heat of elections. It can cause long-term damage to India’s development. If the hearts of political parties bleed for the poor, let them give income or investment support within budgetary constraints. Such support is much better than higher MSPs for some crops because it is crop neutral — something along the lines of PM-KISAN at the Centre or Rythu Bandhu in Telangana or KALIA in Odisha. Investments are always better than income support, but investments take time to fructify while political parties need quick quid pro quo for the doles in terms of votes. Can the Election Commission or Supreme Court form taxpayers’ committees in poll-bound states to evaluate how many of the promises made by major political parties are rational welfare measures, and how many are simply “bribes for votes” to educate the electorate? Ultimately, it is taxpayers’ money, and they are being relegated to the background in this race to distribute revdis.
Gulati is Distinguished Professor at ICRIER. Views are personal
Doles have been promised without much thought to their consequences on the economy
18
1
27.11.2023
At the outset, let me state that I am proud of our democracy, no matter how imperfect it is. Election time is the time to celebrate democracy. As we go through the electioneering process in five states, a prelude to the 2024 Parliamentary elections, the pitch has been set skewed, especially with rival parties blaming each other — at times, coarse language has been used. Simultaneously, tall promises are being made. How far these promises amount to providing doles or fostering development is difficult to distinguish — there is always a thin line that separates the two.
It is difficult to list here all the promises that political parties have made in their manifestos. But it would be pertinent to discuss some significant promises made to the farming community. In Rajasthan, for instance, the ruling Congress party has promised to make a law to implement minimum support prices (MSPs) in line with the Swaminathan formula. The BJP maintains that they have already implemented the Swaminathan formula when, at the Centre, they made the MSP to be at least equal to Cost A2 FL plus a 50 per cent margin on that. So what is new in the Congress’s promise? Do they want to replace Cost A2 FL with Cost C2, where C2 is the comprehensive cost, including imputed land rent on self-owned land and imputed interest on owned capital? (Cost A2 FL refers to paid-out costs plus the imputed cost of family........
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