It's politics over economy in Congress manifestoes for MP & Chhattisgarh

With the party no longer a major player in UP and Bihar, it must win or improve vote share in MP and Chhattisgarh in order to challenge BJP in the 2019 Lok Sabha polls

Unlike Uttar Pradesh and Bihar, which slipped out of the Congress party’s grasp after 1989, undivided Madhya Pradesh continued to be its stronghold at least until 2003. But the party has failed to win a single assembly election ever since Madhya Pradesh was bifurcated and Chhattisgarh was created. 

A perusal of the Congress party’s manifestoes for the two states would suggest its keenness to make a comeback to power in Bhopal and Raipur. The manifestoes were released last week, and have make some interesting promises to the people of the two states, including farm loan waivers in both states and prohibition in Chhattisgarh.

While the Congress party has argued that the two manifestoes have been culled after discussions with thousands of party workers, non-governmental organisations and other stakeholders in the two states, there is little denying that putative Congress governments in the two states could struggle to raise revenues to fulfill these promises.

But the answer to the conundrum is less economics and more political. With the party having ceased to be a major player in UP and Bihar, the battle for the Congress is that of survival in these two states, and a win or improved vote share is important if it needs to mount a challenge to the Bharatiya Janata Party (BJP) in the 2019 Lok Sabha polls. 

This 15-year hiatus from power in both Madhya Pradesh and Chhattisgarh has hurt the Congress not just in the state, but at the national level as well. While it could form the government in 2004 at the Centre, after having lost Madhya Pradesh and Chhattisgarh in the assembly elections just months before in the two states in 2003, its Lok Sabha performance in the two states was abysmal. 

In the 2004 Lok Sabha polls, Congress could win only four of Madhya Pradesh’s 29 seats, while BJP won 25. In 2009, on the back of UPA-2’s welfare schemes and arguably a weak top leadership in the BJP being a factor, Congress could win 16 seats in Madhya Pradesh with the BJP winning 12 and Bahujan Samaj Party bagging one seat. In 2014, the BJP won 27 of MP’s 29 seats, while Congress could win only Jyotiraditya Scindia's and Kamal Nath’s seats. In Chhattisgarh, the BJP has won 10 of its 11 seats in 2004, 2009 and 2014. The Congress won just one seat. 

It is in this context that the manifestoes have been proposed and make some interesting promises. 

Axe on revenue imperative after liquor ban

The Congress has promised liquor prohibition in Chhattisgarh, but has not done so in Madhya Pradesh. The reason, as party insiders think, could be that the former has a bigger rural and tribal population, making it more prone to the ills of alcohol consumption, most importantly gender-based violence. Most policy actions resulting in prohibition have been initiated by activist groups led by women. 

However, the impact of prohibition on the state’s revenue earnings cannot be overlooked. Chhattisgarh has budgeted a collection of Rs 44 billion from state’s excise tax, which is a fourth of the state’s own-tax revenue (OTR). OTR is that revenue that a state earns by itself, before the transfers from centre, and excludes the non-tax revenue such as dividends from state companies. 

If prohibition is indeed implemented, it would slice away a fourth of the state’s own revenue. This is evident from the Bihar example. Nitish Kumar, who rode to power with the same promise, banned liquor in the state from 2016-17. From roughly Rs 35 billion, or about 15 per cent of its OTR, its revenue from excise dropped to zero, making it more dependent on goods and services tax and central transfers. 

Power is key to power 

When it comes to assembly elections, free electricity to farmers has been a perennially effective instrument to buy votes. But populism comes with its costs: state power utilities did not raise electricity charges commensurately and worsened their revenues and financial health over time. 

The Congress has promised discounts in power bills in both the central Indian states. In Chhattisgarh, its manifesto proposes free electricity connection to farmers who use a water pump up to 5 hp. In addition, it vows to halve the electricity bills of all households by reducing the tariff up to 400 units of monthly consumption. 

However, the situation of power utilities (discom) in Chhattisgarh has taken a beating this year. The gap between the average cost of supply (ACS) and average revenue realised (ARR) is a key determinant of the discom’s performance. Ideally, the latter should be greater than the former, but in reality, discoms in India earn less than they spend on generating a unit of electricity. 

For Chhattisgarh, the UDAY target was to reduce the ACS-ARR gap to minus 50 paise a unit, meaning an effective revenue of 50 paise per unit. While it had gone down to Re 0.1/unit in September 2017, it has deteriorated to Re 0.5/unit, meaning an effective loss of Rs 0.5 (50 paise) per unit. 

This is evident in its tariff policy. Chhattisgarh is one of those states which has not increased power tariffs despite the unachieved target. 

The story for MP is not very different. It has an ACS-ARR target of Re 0.03 per unit. From Re 0.26 per unit in September 2017, it has worsened to Re 0.37 per unit. This, however, is despite a nine per cent tariff hike in each of the two years, FY17 and FY18. 

With this situation at hand, the Congress has promised a 50 per cent cut in power tariffs for agricultural pumps up to 10 HP. In addition, it includes a 25 per cent discount on electricity bill used for agriculture. 

The contagion of loan waivers

The domino effect of farm loan waivers travelled from Andhra Pradesh, to Maharashtra and UP, and to Punjab and Rajasthan, and most recently to Karnataka. Sensing the instrumentality of farm debt waivers, the Congress has promised to waive farmer loans in both the states. 

While in its promise, it has capped the upper limit at Rs 200,000 in MP, Chhattisgarh’s waiver plan is yet unspecified. 

According to Reserve Bank of India’s research, if loans of indebted farmers are waived up to Rs 100,000, it would cost Madhya Pradesh Rs 158 billion. This includes loans given by scheduled commercial banks only, and leaves out those by cooperative banks and regional rural banks. In Chhattisgarh, such a waiver would cost not more than Rs 27 billion. 

Experts opine that with a cap of Rs 200,000, the cost to the Madhya Pradesh exchequer would double to Rs 300 billion, which is about a fifth of MP’s total revenue from all sources. If this is indeed implemented, it would ensue serious limitation on state spending on necessary provisions such as roads, health and education. 

At Rs 300 billion, the cost of farm debt waiver in MP would be comparable to its annual capital expenditure—spending on physical assets that guarantee returns—of Rs 293 billion budgeted in 2018-19.