Populism cloud on state Budgets

It is election season again. As the states present their Budgets before the new fiscal year begins, the fear is that runaway populism could prove the biggest threat to finances. The national Budget had set the trend ahead of the general elections and the states seem to be competing with each other to offer freebies like gold and grants while also going out of the way to placate farmers who may have suffered the most in recent years from agricultural distress caused by falling prices of food grains, fruits and vegetables. While minimum support price and various other subsidy schemes — from crop loans to crop insurance — are already in place, the difficulty has lain in getting the benefits to the truly deserving like the share croppers and agricultural workers. The optics have become so important in being seen to be doing more for farmers that the states are competing to top up what the national Budget may have promised, like the Rs 6,000 per year to small farmers.

Any support to farmers should be welcome as they provide the country with food security. But states have electorates that go beyond the rural,  urban and semi-urban voter are as big a constituency to political parties. The Karnataka Budget, besides addressing the 40-lakh strong farmer community, addresses the urban voter too. A better planned city infrastructure for Bengaluru — the IT capital which is still the fastest growing city in India as it is a magnet for rural youth in search of jobs — has been allocated a whopping Rs 1.2 lakh crore budgetary allocation for rail and road connectivity in a modern, multi-modal integrated transport system. The fluid political situation in the state with the JD(S)-Congress coalition having just sufficient numbers over the BJP to rule may have spurred certain adventurousness with the Budget for the rural-urban push.

The more expensive handouts like free gold worth Rs 38,000 crore to brides in Assam, besides free rice to about 20 lakh tea estate workers and grants to temples and mosques, mean finances will be stretched like never before. But ballooning deficits do not seem to have dissuaded most states from placing fiscal prudence above populist measures. Tamil Nadu might have been an exception but then, despite its desire to keep the deficit to within three per cent of Gross State Domestic Product, the state faces a debt burden in servicing debt close to Rs 3.79 lakh crore (including PF). The Uttar Pradesh  Budget seems as concerned by the cow as voters to the extent that it has allocated Rs 600 crore for cow welfare. The huge economic cost of populism does not seem to deter governments from funding sops and freebies in poll year Budgets even though the voter is an unpredictable animal when it comes to which buttons he will press on the EVM. The point is all governments seem to wake up only after four years and promise the moon only in poll season.