Populist schemes: Citizens await dole, governments face stiff fiscal challenge

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Elections over, it is time for new governments to take charge. Mamata Banerjee has just been sworn in. On May 7, both MK Stalin in Tamil Nadu and N Rangaswamy in Puducherry might take charge.

This is also the time to turn the pages of the manifestos of the different parties and have a look at the welfare schemes the parties had promised in the run up to the elections. While all parties had vowed to bring a world of goodies to the doorsteps of the vulnerable, the fiscal stress the governments are going through might be a challenge to their implementation.

Fiscal prism

Let’s begin with some numbers.

According to the state budget presented by chief minister Mamata Banerjee on February 5, West Bengal’s total debt would touch Rs 5,25,867.80 crore by the end of FY22.

The number of Rs 2,000 notes – the highest denomination currency – one would need to pay this amount = 2629,339,000.

Each Rs 2,000 note is 166 mm long.

Therefore, 2629,339,000 notes put end-on-end would take up a length of 436,470.2 km.

Around the equator many times

The Rs 2,000 notes, put end-on-end would wrap the earth’s equator nearly 11 times!!! It is also bigger than the distance between the earth and the moon – 384,400 km – by a long shot.

If that raises eyebrows, the comparable figures for Tamil Nadu with an outstanding debt of Rs 5.70 lakh crore and in this case the Rs 2,000 notes would wrap the equator almost 12 times.

When Trinamool Congress (TMC) supremo Mamata Banerjee, fresh from her third thumping victory in the assembly elections, will rise to take oath for the third time as Bengal’s chief minister, this would be perhaps the single biggest thorn in her crown.

Debt imperatives

This year, her government is expected to spend Rs 63,700 crore alone on debt repayment, that will consume 84.46% of the state’s own tax revenue.

In 2020-21, the outstanding debt was almost 33% of the GSDP, much higher then the 20% of the GSDP recommended by the FRBM review committee in 2017.

The expenditure under the three heads of debt servicing, salary and pension amounts to Rs 144,128 crore, which consumes 74.27% of the state’s entire revenue receipts of Rs 194,034 crore, leaving very little money for development work.

Over and above this expenditure, the government has to bear the burden of a plethora of populist welfare schemes mentioned in the TMC manifesto.

Additional burden

These schemes include a universal basic income for all families which does not have any Income Tax-paying member. It will need an outlay of about Rs 13,000 crore.

Another expenditure is an unspecified amount arising out of interest subvention for education loans to students up to Rs 10 lakh at 4%. However, 1.5 crore students are supposed to be benefitting from this scheme and, therefore, the bill to be picked up by the state government is not ging to be a small one.

A third expense is Rs 25,000 crore for funding self-help groups of women. While the amount will be “available from banks on easy terms”, the state government will obviously need to shoulder a large part of the amount if the SHGs don’t service the debt.

Assam

The new government in Assam has promised unmarried women from poor families a one-time financial assistance of Rs 40,000 for their wedding.

Widows belonging to BPL category get a lump sum pension of Rs 300 per month.

Under Arunodoi Scheme launched in 2020, assistance of Rs 830 per month is given to around 17 lakh families where women. According to the manifesto, the government will hike the monthly dole to Rs 3,000 and the number of beneficiaries will go up to 30 lakh. This scheme alone will entail an additional expenditure of Rs 3385.20 crore.

The government’s own taxes are low and the salary bill of Rs 29,450 crore of the government alone is 1.27 times the tax revenue of Rs 23,210 crore.

If one takes into account the expenditure on the three heads of salary (Rs 29,450 crore), pension (Rs 9,293 crore) and interest (Rs 5,802 crore), these three committed expenditures is almost double of that of the state’s tax revenue.

The committed expenditure of the state also consumes 48.45% of the state’s total revenue receipts of the state.

In 2020-21, Assam’s tax to GSDP ratio was 5.7%. It was 6% in 2019-20.

Though the outstanding debt as a percentage of GSDP is within the prescribed 20%, the interest outgo of the government in 2020-21 (BE) was 21.1% higher than the BE (Rs 4,793 crore) of 2019-20.

Tamil Nadu

When MK Stalin takes charge as chief minister, he would have a plethora of poll promises to fund.

Some of the doles that the DMK promised before the elections include Rs 1,000 a month to housewives. It would impose a burden of Rs 24,000 crore a year on the state exchequer.

To defray a part of the rising kitchen expenses, the party has also promised six LPG cylinders a year that adds another Rs 10,000 crore, considering the cost of each cylinder at Rs 835.

There are several doles such as up to Rs 10,000 subsidy for farmers for purchase of electric motors who own less than 3 acre of land and 25% subsidy for cooperative societies formed by educated (up to class XII) women in villages that will be engaged in flower gardening, fish farming, ornamental fish culture, mat weaving, basket weaving, pottery, broiler chicken farming, etc.

Two lakh new houses for fishermen will be constructed in the coastal districts. Relief aid of Rs 5,000 given to fishermen for fishing ban days will be increased to Rs 8,000, said the manifesto.

It is interesting to note that the welfare promise in the DMK manifesto is mentioned side by side the party highlighting the mountain of debt of Rs 9 lakh crore of the government, a figure that works out to a burden of Rs 1.25 lakh on the head of each child born in Tamil Nadu.

The expenditure of the state on salary (Rs 64,211 crore), pension (Rs 35,575 crore) and debt servicing (Rs 52,616 crore) stood at Rs 152,402 crore which was 1.14 times the state’s own tax revenue of Rs 133,530 crore and almost 70% of the state’s total revenue receipt of Rs 219,375 crore.

The outstanding liabilities in each year between 2018-19 and 2021-22 has been more than 20% of GSDP.

Kerala

In the run-up to the elections, the LDF said if elected it would raise monthly welfare pension from Rs 1,600 to Rs 2,500, estimating 60 lakh individuals.

The ruling front also vowed to deliver welfare schemes for taxi and autorickshaw drivers, coir industry workers, agriculture labourers, fishermen who go out in the sea, cashew workers and toddy tapers.

Farm wages would also be raised by 50%.

In addition, they promised to rehabilitate those Kerala residents who returned from the Gulf due to the pandemic.

The total debt servicing obligation that includes interest and principal repayment on past loans is estimated to stand at Rs 74,386 crore. It completely erodes the state’s own tax revenue estimates of Rs 73,121 in FY22.

The combined expenditure of Rs 137,223 core under the three heads of salary (Rs 39,731 crore), pension (Rs 23,106 crore) and debt servicing (Rs 74,386 crore) is more than the revenue total receipts of Rs 128,376 crore that is estimated to come to the state in FY22.

In other words, it means that the state has to depend on borrowings to meet committed expenditure, leave alone marshalling funds for development from revenues.