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Job quotas, loan waivers and now UBI promise: Populism is blinding economic prudence in Asia's third largest economy

Dinesh Unnikrishnan
In an exclusive interview, Narendra Modi said Rahul Gandhi repeats the same 'Rafale lies', and these lies were rejected everywhere, 'be it in the Supreme Court or by the Comptroller and Auditor General.

Ahead of the 2019 Union Budget, speculations are rife in the media on what's likely to be the trump card of the Narendra Modi government in its final Budget, which is also a pre-election Budget. An unprecedented package for the farm sector, some serious rethinking on the Income Tax structure or even stronger hints on a universal basic income (UBI) plan?

What added to the rumors of a full Budget presented under the tag of interim budget is a certain hint from Union Minister Arun Jaitley that what goes into the Budget will take care of the larger interests of the economy.

If Jaitley's statement offers any clue, some major surprises could be in the making in the interim Budget. Not necessarily that the government needs to allocate money for everything it promises in the Budget.

This could be very well in the form of a vision statement (the government may not be able to allocate funds for any populist scheme given the interim nature of the Budget) to appease the vote bank. Such a plan could also serve as a tool for the government to set its tone for the 2019 polls.

The problem for Team Modi is that Bharatiya Janata Party's (BJP) principal rival Congress president Rahul Gandhi has already fired the first salvo by promising minimum income to all adult Indians (another version of the UBI) to hedge any big ticket populist disbursements by the Modi government in the last Budget ahead of the general elections this year.

Gandhi's promise of a UBI-like scheme has immediately put the Modi government on the back foot in the competition of populism. The only way out for the government is to better this strategy with a bigger surprise, something that could take a toll on the exchequer in a big way.

Farm loan waivers have lost their initial charm. Some announcements on this can't work wonders any longer. Most states (both Congress and BJP-ruled ones) have already rolled out loan waiver packages. Second, loan waivers such as the ones in Uttar Pradesh and Maharashtra have not pleased the farmers, the evidence of which is present in the continuing farmer protests across the country.

Historically, these farm loan waivers have already put the state finances under stress and caused a spike in banks' non-performing assets (NPAs), too. The Reserve Bank of India (RBI) has warned time and again against farm loan waivers but there have been no takers for its caution.

It's not just waivers and free, assured income. Early this month, the Narendra Modi government approved 10 percent reservation in government jobs and education for economically backward upper castes. The proposed quota, which will apply to households with annual income of less than Rs 8 lakh, will cover a major chunk of the Indian households going by initial estimates.

The announcement surprised many as this government was initially perceived to be a reformist government that is keen to walk away from the UPA-era populist raj. But, it is doing exactly what it promised not to.

Populism is taking over even as the government is walking a thin line on the fiscal road map. There are signs of the government missing the 3.3 percent fiscal deficit target set for 2018-19. If that happens, this will be the third consecutive year the government is stuck at almost the same deficit level of 3.5 percent. Any economist would tell you that higher deficit is no good thing. In fact, you don't need to be an economist to say that. When income falls below expense, things can turn awry.

Remember, even the 3.3 percent is a delayed target and a clear deviation from the earlier commitment stipulated under the Fiscal Responsibility Budget Management (FRBM) Act. In Budget 2018, the target was 3.2 percent but the government ended up with 3.5 percent target.

This year, given the unimpressive revenue collection (mainly Goods and Services Tax (GST) revenues missing expectations by a big margin) and higher expenditure, the government is sure to miss even the 3.3 percent target that it has set. But, the government doesn't seem to be bothered about such a situation and neither does the Opposition. All are busy finding new ways to bring out their own populist cards.

Of course, the desperation on the part of both the ruling party and the Congress-led Opposition is understandable. The Modi-led BJP wants to retain power while the Gandhis are facing a major test in 2019 on their leadership abilities. Failure isn't an option for either parties. A series of populist policies may help the politicians to win elections but they are certainly doing a disservice to the nation in the long-term. Such policies can even derail the economic progress and fiscal prudence India has been striving to achieve all these years. That shouldn't be the case.

 

 

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