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The price of victory for the Congress

December 12, 2018 09:54 IST

The new governments will have to spend much more than Rs 220 billion in Rajasthan, more than Rs 160 billion in MP, and nearly Rs 30 billion in Chhattisgarh.
Abhishek Waghmare and Sanjeeb Mukherjee report.

IMAGE: During the election campaign, Congress President Rahul Gandhi promised to waive loans in Chhattisgarh, Madhya Pradesh and Rajasthan within 10 days if the party was voted to power. Photograph: Kamal Kishore/PTI Photo

With the first massive victory in a one-on-one political fight against the Bharatiya Janata Party after the 2014 general election, the Congress -- emerging victorious -- is staring at a fiscal nightmare in the key states it has won.

Congress President Rahul Gandhi promised to waive loans of farmers in Chhattisgarh, Madhya Pradesh and Rajasthan within 10 days if the party was voted to power.

The respective new governments will have to spend much more than Rs 220 billion in Rajasthan, more than Rs 160 billion in MP, and nearly Rs 30 billion in Chhattisgarh to keep the promise, said an estimate.

 

This will put enormous pressure on the near precarious fiscal situation in two of the three states: Rajasthan and MP.

To waive crop loans up to Rs 100,000 per indebted farmer, Rajasthan will need to spend Rs 219 billion from its fiscal kitty, a September 2017 Reserve Bank of India study had estimated.

If the new government decides to extend the per farmer benefit up to Rs 150,000 or Rs 200,000 -- similar to Karnataka, which went ahead with the latter -- the fiscal burden will be substantially more than the RBI estimate, experts surmise.

Similarly, the amount to be spent in MP will also escalate.

The burden in Chhattisgarh will be relatively safer to handle for the new government.

A look at the latest data reveals the fiscal situation of Rajasthan and MP is fragile in comparison to Maharashtra and Karnataka which have implemented similar waivers.

While Rajasthan expects a big improvement in its fiscal deficit from 3.5 per cent of its gross state domestic product in 2017-2018 to 3 per cent in 2018-2019, the state is prone to fiscal slippages due to higher interest burden in the medium term since it took state electricity distribution company debt on its books, under the Ujwal Discoms Assurance Yojana.

The annual spending on agriculture and allied activities in Rajasthan is about Rs 82 billion, much lower than the loan waiver outgo.

Its capital expenditure, budgeted at Rs 257 billion in FY19, too will suffer, slowing down the construction of roads, bridges, and irrigation.

MP expects its fiscal deficit to soften marginally, from 3.4 per cent to 3.3 per cent. Despite no loan waiver implemented by Shivraj Singh Chouhan in the state, the state government has spent heavily in the last two years on procurement of wheat, soybean, and pulses under the Bhavantar Bhugtan Yojana.

After UDAY and BBY, the two states will probably need to curtail their expenditure in key areas which need funds, experts said.

"Though the waiver will be staggered over three to four years, a more important question will be the set-off that it will create," Ashok Gulati, agricultural economist at the Indian Council for Research on International Economic Relations, said.

"The investments in agriculture," Dr Gulati added, "will suffer as a result since the same money will now be channelised for loan waivers."

Abhishek Waghmare and Sanjeeb Mukherjee
Source: