When it comes to rolling out populist schemes to woo voters at the cost of the exchequer, the Bharatiya Janata Party (BJP) beats the ruling Congress party this election.
An estimate suggests that the poll promises made by the BJP in three major areas — subsidised food, farm loan waiver and income tax exemption limit — will cost around Rs 89,000 crore, nearly three times more than those of the Congress.
A large portion of the BJP sops is aimed at the urban middle class, like doubling of the income tax exemption limit, abolition of the Fringe Benefit Tax and no tax on interest earned on fixed deposits.
In fact, implementing only two of the BJP’s election promises — doubling of the income tax exemption limit and provision of 35 kg rice or wheat to poor families — would cost the government around Rs 65,000 crore every year.
If packages promised to farmers, like capping the interest rate at 4 per cent, are implemented, the cost would go up even further.
While the ruling Congress party is not promising reduction in personal tax liabilities, its promises in other segments are similar to that of the BJP.
The biggest dent to the exchequer will be on account of doubling of the income tax exemption limit to Rs 3 lakh. At present, there are around 32.5 million taxpayers and nearly 30 million non-corporate taxpayers for whom basic exemption applies, according to the latest data available with the income tax authorities.
Depending on the level of income and the applicable tax rate (which ranges between 10 per cent and 30 per cent), the reduction in tax liability will be between Rs 15,000 and Rs 45,000 per annum. Thus direct tax receipts would get impacted by Rs 45,000 crore, assuming all taxpayers get a minimum relief of Rs 15,000.
However, it could have a beneficial effect as cutting tax rates means more money in the hands of the people, thereby boosting demand in the economy. Abolishing the Fringe Benefit Tax (FBT), another of BJP’s election promises, would cost the government around Rs 10,500 crore.
FOOD SECURITY FOR ALL:
Both the national parties are promising subsidised rice or wheat for the poor, though the government is already running Antyodaya Anna Yojana (AAY). The programme aimed at the poorest of the poor provides 35 kg of rice or wheat per family every month at a subsidised price of Rs 2 for wheat and Rs 3 for rice. As on April 2008, the number of families covered was 24.3 million.
However, the number of families that live in poverty is much higher. According to the latest government data, 27.5 per cent of the population is living below the poverty line. Based on this, the number of poor families that is not covered under AAY is 4.05 million, according to an estimate by the Centre for Budget and Governance Accountability (CBGA), a Delhi-based economic research organisation.
CBGA estimates that the average economic cost per tonne of foodgrain (rice and wheat) is at Rs 14,719.5. This is based on the minimum support price plus other costs like distribution.
Based on this, implementing the Congress’ promise of 25 kg subsidised rice or wheat would cost the government Rs 14,239 crore every year. In the case of BJP (35 kg), it would cost Rs 25,037 crore.
Despite the cost, Nilachala Acharya, a researcher with CBGA, said, “Proposing to implement the Right to Food Act is certainly welcome if one looks at the huge proportion of population that spends less than Rs 20 per day as consumption expenditure”. According to a government report published in 2004-05, 77 per cent of India’s population spends less than Rs 20 per day on food.
FARM LOANS: The Congress, whose government waived off farm loans to small farmers, has promised to waive interest on all agricultural loans irrespective of the background of borrowers, provided the loan is serviced regularly. The BJP, on the other hand, says it would cap the interest charged on farm loans at 4 per cent.
However, the data on what percentage of farm loans are being serviced on time are not available. Bad loans as a percentage of advances given by cooperative banks are estimated at 10 per cent. Therefore, assuming 90 per cent of farm loans given by state-owned banks are being serviced properly, the cost of implementing the Congress’ election promise would be around Rs 18,000 crore. In the case of the BJP, it would be Rs 8,685 crore.
The calculation is based on the estimation of total bank credit to the agricultural sector at Rs 2,89,500 crore, as on December 2008, and the average interest rate at 9 per cent. Out of this, already there is a 2 per cent interest subsidy.
