Will the Congress’ five guarantees burden Karnataka’s economy?

The guarantees, which include free electricity, financial assistance, and welfare programmes, may not be fiscally sustainable.

Rahul Gandhi announces the Congress’ Yuva Nidhi scheme at the Yuva Kranti rally in Belagavi, ahead of the Assembly election in Karnataka on March 20, 2023. | Photo Credit: Badiger PK

A survey conducted by the Kannada online news portal Eedina.com in July has shown overwhelming support for the “five guarantees” that the Congress proclaimed before the Assembly election in May. The guarantees have begun to be implemented over the past two months.

The proclamation of these welfare schemes contributed, at least partially, to the party’s stupendous victory. These populist welfare schemes include Gruha Jyothi (200 units of free electricity to every household), Gruha Lakshmi (Rs.2,000 to woman household-head in the BPL [below poverty line] category), Anna Bhagya (10 kilograms of rice to each person in the BPL category), Yuvanidhi (a dole of Rs.3,000 and Rs.1,500 for unemployed graduates and diploma holders respectively) and Shakti (free bus travel for women in public transport buses). Gruha Jyothi, Anna Bhagya, and Shakti have already been rolled out; Gruha Lakshmi is slated to be launched by the end of August, while there is no official announcement on the launch date for Yuvanidhi.

Eedina.com, a little-known web portal, has gained a reputation for its rigorous survey methodology; its pre-poll predictions of the Assembly election results were spot on. For its latest survey, 2,455 respondents across the State were identified by random sampling and interviewed. Its prominent findings were as follows: A massive 80 per cent of the respondents felt that the three women-centric schemes would empower the beneficiaries; 73 per cent felt that the schemes are “people’s rights” and that “public money is going back to the people”. There are other interesting indicators, all of which point to the schemes’ wide acceptance among the people.

Women passengers at the launch of the Shakti free bus travel scheme in Bengaluru, on June 11, 2023. | Photo Credit: MURALI KUMAR K

For the Congress leadership in the State, the survey results come as a shot in the arm even as it scrambles to find the financial resources to fund the guarantees. Since the Congress took charge with Siddaramaiah as Chief Minister, the opposition (the BJP and the Janata Dal [Secular]) and segments of the local Kannada media have been questioning the government on the viability of funding the five guarantees and the implications it will have on the exchequer.

According to the State Budget presented by Chief Minister Siddaramaiah (who is also the Finance Minister) on July 7, the total outlay of the Budget was Rs. 3,27,747 crore and the implementation of the guarantees was estimated to cost Rs.52,000 crore annually. (For this year, considering the revised Budget was presented in July by the newly elected government, Rs.39,825 crore has been allocated for the guarantees for the period July 2023-March 2024).

Some recent developments add credence to the concerns about the economy and they could emerge as a major challenge to the goodwill that the Congress enjoys in Karnataka.

An early warning sign came in June itself when a note circulated by the Finance Department made its way into public circulation. In this, the Additional Chief Secretary (Finance) I.S.N. Prasad (since retired) stated that it was “imperative to close many of the ongoing schemes to accommodate the new guarantee schemes”. The note also asked departmental heads to identify ongoing schemes which could be “reduced in scope” and “non-priority ongoing schemes which can be dropped”.

Another distressing sign came after the presentation of the Budget when Congress MLAs reached out to Siddaramaiah and Deputy Chief Minister D.K. Shivakumar for discretionary grants so that they could begin development works such as the building of roads and bridges in their constituencies. According to news reports, both Siddaramaiah and Shivakumar discouraged these requests and Shivakumar asked the MLAs to be “patient” as funds could not be allocated for development works this year. This caused unease among the MLAs and along with the accusation that Cabinet ministers were inaccessible to legislators, led to murmurs that all was not well within the Congress. Siddaramaiah undertook a State-wide trip soon after this, meeting MLAs to allay their concerns.

Highlights

• A recent survey conducted by Eedina.com point to massive public support for the “five guarantees” (Gruha Jyothi, Gruha Lakshmi, Anna Bhagya, Yuvanidhi, and Shakti) announced by the Congress before the Karnataka Assembly election.
• However, the BJP and Dalit organisations have targeted the Siddaramaiah government for diverting funds worth crores from the Scheduled Caste Sub-Plan and Tribal Sub-Plan (SCSP/TSP) in order to fund these “five guarantees”.
• While Siddaramaiah has responded to concerns about their implementation, it remains to be seen how Karnataka’s economy will fare in the near-future under the collective weight of these welfare schemes.

SCSP/TSP funds diverted

A third sign that funding the five guarantees could have more serious political ramifications emerged in early August when it became clear that the State government had diverted funds worth Rs.11,144 crore from the Scheduled Caste Sub-Plan and Tribal Sub-Plan (SCSP/TSP) to fund the five guarantees. The largest portion of this amount, Rs.5,075 crore, is to be used to partially fund the Gruha Lakshmi scheme.

Funds in the SCSP/TSP are granted to be exclusively used for the welfare and development of the Scheduled Caste and Scheduled Tribe communities. The total allocation under this for 2023-24 is Rs.34,294 crore. Both the BJP and Dalit organisations have targeted the government, blaming it for diverting resources for universal schemes rather than restrict spending only on Dalit and tribal communities.

Mavalli Shankar, Karnataka convener of the Dalit Sangharsh Samiti, said: “How is this diversion justified? The Dalits and tribals have voted for the Congress this time but how do we explain this decision to the people? The Congress cannot take our support for granted.” Disagreeing with this, Social Welfare Minister H.C. Mahadevappa stated: “There is false propaganda against our government that SCSP/TSP funds are being misused. The opposition is using the Dalit and tribal communities for their own selfish purpose. The diverted funds of Rs.11,144 crore will be used to implement the guarantees only for members of the SC and ST communities and not even one rupee from this amount will benefit anyone else.”

Shivasundar, a columnist and scholar who closely tracks economic issues, said: “Apart from the promise of the guarantees, basically the Congress budget is a BJP-Basavaraj Bommai budget (the former Chief Minister had presented his government’s budget on March 4, 2023). The fundamental contradiction in the kind of economy that Siddaramaiah envisages is that the development is corporate-led but he wants welfare distributive policies.

So how can funds be generated? There are only two ways: Either take a loan or cease all development projects. Siddaramaiah’s past record as Finance Minister and Chief Minister shows that he is fiscally conservative, which means that he will not be ready to take loans. In the present fiscal scenario, unless you tax the rich, there won’t be any major new tax generated for the State, which means that the government will struggle to find funds for the guarantees.”

This view was echoed by N. Divakar, a Mysuru-based political analyst, who added that the Congress would be averse to increasing taxes and would continue with the five guarantees in their present form “until the 2024 Lok Sabha election”. This political imperative means that the Congress would be able to present a “revenue generating budget only in 2025,” he added. In the SiddaramaiahBudget no major increase in taxation was made except for a hike in the excise duty on alcohol.

T.R. Chandrashekhar, former professor of economics at Kannada University, Hampi, stated that while he was in favour of the guarantees, the “government had not done its homework while proclaiming the guarantees in its manifesto before the election.”

However, he said, the resource gap for funding the guarantees could be easily surmounted if the funds due to Karnataka from the Union government were transferred. He explained: “There are four sources of revenue for the budgeted expenditure of a State government: the State’s own tax resources, the State’s non-tax resources, share of State transferred by the Union government as per the 15th Finance Commission recommendations, and Grants-in-Aid from the Union government for centrally sponsored programmes.

“In 2017-18, the total transfer from the Union government accounted for 32.07 per cent of Karnataka’s financial resources, which has now (2023-24) declined to 22.25 per cent. This is the crux of the problem. If Karnataka is cutting down its expenditure on development projects, it is because of the injustice done by the Union government which is not following the constitutional principles of federalism.”

Speaking to Frontline,Radhakrishna A.E., Vice Chairman of the Manifesto Committee of the Congress, was confident that the economy was robust enough to meet the financial demands of the guarantees. He said: “I was part of the committee that drafted the manifesto and this decision to incorporate the promise of the five guarantees was made after a lot of thought. The eradication of poverty needs to be understood ideologically and these guarantees are empowering measures to reduce poverty. Look at Tamil Nadu, a State which has been providing welfare schemes for many decades and its overall prosperity has only increased.” For him, the reduction of corruption was crucial as this would mean that “rationalisation of development can take place within the allocated budget”.

Siddaramaiah himself has responded to the concerns that the implementation of the guarantees will have a negative impact on the economy. Speaking in Belagavi on August 11, he said: “A beneficiary family availing these guarantees saves Rs.5,000 a month and pushes up its purchasing power. The beneficiary family members will reinvest this money into the economy, speeding up activity and increasing the State’s GDP.”

Media reports indicate that the Congress is eager to use the template of the guarantees in other election-bound States this year, which means that there will be tremendous interest to see how Karnataka’s economy fares in the future under the burden of implementing the popular welfare schemes.