State govts can't go Lanka way: Mythili Bhusnurmath

“Whether it is identity politics or freebie politics, there is a duty cost. Unfortunately political parties fail and so do we as voters,” says Mythili Bhusnurmath, Consulting Editor, ET Now





The big worry is the state of the economy, especially finances in some of our states. The question is whether they will follow the Sri Lanka pattern, giving out subsidies/freebies that they could ill afford. Is that question a very relevant one for us right now?

The question of the comparison of sub-national governments in India with Sri Lanka does not arise at all simply because states in India are not free to borrow, if they have any debt at all to the Centre. It is written in the constitution and so there is no question of sub national or state governments in India going the Sri Lanka way.

But yes more and more state governments are giving more and more subsidies and freebies and this is competitive federalism of the worst kind, especially when there are very frequent elections. But economists distinguish between subsidies and two types as merit and non-merit subsidies; merit subsidies are those where there is a larger public goal, like in the case of education, health and sanitation because if there was subsidy for one section of the population, it benefits everybody. But all other subsidies are typically taken as non-merit subsidies.

This really is a worry that non-merit subsidies in the country as a percentage of GDP are growing. Also, there are some states which tend to offer much more by way of subsidies and some which give less. Yes in the runup to the elections and this is true across all political parties. So why has the Centre and the prime minister condemned this practice? The fact is all political parties are guilty of offering freebies. Kapil Sibal’s suggestion that the Finance Commission should look into it is not quite the right one, simply because the Finance Commission looks at only tax revenues.

The distribution between the Centre and the states and the horizontal distribution between the states and that is ill recommendatory in nature. All governments have accepted the recommendations but we need something that is not recommendatory but in which all states participate. An inter-state council, which is a body which is enshrined in the constitution Article 263 of the constitution, allows for the setting up of all the industries and councils.

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Unfortunately in India, we have not made much use of this. This is the right body where all political parties and state governments come together and sit down at the common table, like in the case of the GST Council and arrive at an understanding that we all need to be more responsible.

The manifesto has not really been taken seriously when they were published before elections but the kind of promises made and the impact of the outcome one way or the other. For example, the Aam Aadmi Party model of a promise of free electricity up to a certain number of units has continued to work in Delhi and Punjab. That is a promise they have made as their pitch for the Gujarat State Elections. Does this come into the category of freebies that could eventually hurt the economy?

Well it is completely a freebie if it is done without any relationship at all to income levels. Even below a certain income level, at least the cost should be recouped. The fact is we like to blame political parties but what are we as voters doing? We vote in the same political parties who keep offering these freebies. One has to wake up and realise that there is this intergeneration equity issue debt to GDP ratio. There is no free lunch at the end of it all.

All of us voters have to understand that whether it is identity politics or freebie politics, there is a duty cost. Unfortunately political parties fail and so do we as voters.

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William Murphy

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