Weakness behind support

Welfare spending is likely to increase

The broad focus of the national discourse over the past few weeks has been the alignment of political forces, with an eye on the 2024 Lok Sabha elections. Even as views on the feasibility and winnability of alliances are evolving, it is worth discussing what a perceived close contest can mean for economic management. It may still be early days to draw definitive conclusions, but some of the recently concluded Assembly elections and preparations for the upcoming ones offer hints. The focus is increasing on what is broadly termed welfare programmes. In Karnataka, for example, the Congress made a slew of promises, including free bus rides for women, which seem to have worked for it. The Congress government in Rajasthan, which will go to the polls in December, has broken new ground in this context. After having announced several measures, including cheaper gas cylinders, the Ashok Gehlot government last week got the Minimum Guaranteed Income Bill passed.

Accordingly, the state government will provide a minimum guaranteed income, either through the provision of work or transfers, to the eligible population. In terms of employment, the government will provide an additional 25 days’ work in a fiscal year after the completion of the maximum number of days permitted under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in rural areas. Similarly, in urban areas, every adult will be entitled to at least 125 days’ employment in a fiscal year with minimum wage. If state officials fail to provide work within 15 days of application, the applicant will be eligible for unemployment allowance. The section of the population falling under categories such as old age, specially abled, and widows will be eligible for a pension, which will be increased by 15 per cent per annum.

It’s hard to argue against cash transfers to the sections of the population not in a position to work, such as the old and specially abled. Even the employment part is targeted to provide subsistence jobs. The MGNREGA, for instance, helped a large number of households during the pandemic. But providing work in urban areas may be comparatively difficult, and it can also be argued that 125 days’ work will not be enough. However, in terms of economic management, the issue is that governments do not stop at providing support to the vulnerable sections. Many states, for example, provide free or heavily subsidised power to a select group of consumers. A number of states have gone back to the old pension scheme, which essentially means that the government will support a privileged few at the cost of the entire state. The Union government provides income support to all farmers with land holdings. It is also giving free foodgrain to about 810 million eligible beneficiaries.
 

It’s the sum of all such expenses at the general government level, not all of which is desirable, that complicates fiscal management. Given the trend in states, expectations from those competing to form the next government at the Centre will only increase. It is, therefore, likely that some of the ideas and concepts from states would be taken up at the national level. The consequences for fiscal management are unlikely to be favourable. The fundamental reason for the rush to provide support to larger sections of the population is the Indian state’s inability to create decent jobs. At some point in the near future, hopefully, such basic issues will be addressed.