They acknowledged a certain amount of populism is inevitable as well as desirable in a democracy for redistribution, but that should not undermine fiscal prudence and compromise efficiency in government spending.
C Rangarajan, former RBI governor, told ET that fiscal deficit limits, especially those relating to states, need to be strictly enforced to curb the “freebie” culture. “It would be very difficult to tell politicians what to do and what not to. They will say it’s their privilege. But at the same time, if the fiscal deficit rules are enforced strictly, we can find a way by which these measures (freebies) can be kept under control,” he said.
States are allowed a fiscal deficit of 3.5% of their GDP, of which 0.5% is tied to certain reforms.
‘EC intervention needed’
The Congress party has promised every female head of the family Rs 2,000 a month, every unemployed diploma holder Rs 1,500 per month, and graduates Rs 3,000 a month.
According to the party’s pre-poll promises, women would also get to travel for free in the buses run by the state government. Also, every family would be provided 200 units of power for free. Some calculations suggest the cash payments and power subsidy alone would cost Rs 62,000 crore a year.
Pronab Sen, former chairman of the National Statistical Commission, said while electoral promises are rising, much will also depend on whether people believe such pledges will translate into reality. Sen called for action by the Election Commission (EC) to control freebie announcements ahead of polls. “The EC has to stipulate that certain things can be done (by political parties) and certain things can’t be done. These will have to be built into the election rules,” Sen said. M Govinda Rao, a member of the 14th Finance Commission, sees the freebie culture continuing as political parties remain more focused on short-term rather than long-term benefits.
“The governments haven’t adequately empowered the people and created enough jobs for them, because then people wouldn’t need these freebies,” he said, adding that this has created some justification for electoral giveaways.
The “redistribution (of resources) is an obvious function of the government because markets don’t do redistribution, but it’s better to do it through direct cash transfers rather than through other means,” Rao said.
Prime Minister Narendra Modi has warned against what he calls “revdi (freebie)” culture for seeking votes, terming it “very dangerous” for the country’s development. NR Bhanumurthy, vice chancellor at Bengaluru’s BASE University, said states are getting a larger share of the divisible pool of taxes than earlier (after the 14th Finance Commission grants).
Moreover, when they find it difficult to identify clear projects for investments, “they look for a space where they can benefit more in terms of political economy, and that too, easily. What needs to be kept in mind is how efficiently these schemes are going to be implemented and how far they are sustainable,” Bhanumurthy said.
Old pension scheme
Experts called the decision of some states to go back to the old pension scheme (OPS), an attempt to woo government servants, a bad move. Rangarajan said if states want to go back to the OPS, “we have to rethink how the pension amount is determined”.
“Even though we have moved to the New Pension System, which is the right thing to do, one can guarantee a certain minimum pension there, but the guaranteed pension shouldn’t be fixed at a high level as it was under the OPS,” Rangarajan said.Sen said the argument for adopting the OPS now has become “much weaker”.