• Congress advertisements promise crop loan waiver and Rs 1000/ allowance to Women but manifesto says something else. Freebies offered in manifesto risk jeopardising fiscal stability; the financial calculations behind these initiatives appear flawed or unsustainable.

Last week the Hindustan Times Mumbai carried a full page advertisement of the 5 Nyay Guarantees by the Congress. In particular, these promises caught my attention. I am listening to Rahul Gandhi’s speeches and am impressed.

There will be a Rs 1 lakh annual cash transfer to women. Two, the minimum wage per day for NREGA would be Rs 400/. MSP for agri-products is to be backed a by legal guarantee.  

While the advertisement refers to Loan Waiver to Farmers, the farmers section of the Congress manifesto makes no reference to a loan waiver. On the ‘1 lakh annual cash transfer to Women’ the manifesto states it is a transfer to those who are at the bottom of the income pyramid!! 

First, here is an overview of cost of key promises – 

 Table 1                                                     Rs crores  

@number of women entitled to allowance is not clear. Conservative estimate is Rs 50k crs. #Estimates vary. 

Since Execution is not one of Congress’s strong points actuals could be higher. 

For details I referred to the Congress Manifesto. Read on.

 1.       Rs 1 lakh p.a. to Women

Pg 16 of the manifesto under section Women reads, “Congress resolves to launch a Mahalakshmi scheme to provide 1 lakh per year to every poor Indian family as an unconditional cash transfer. The poor will be identified among the families in the bottom of the income pyramid.”

So the Rs 1 lakhs annual allowance is not to all women but only to woman whose families are in the bottom of income pyramid. What does bottom of the income pyramid mean? Is it those below the poverty line?

This term was popularized by Management scholar C K Prahalad as a profitable consumer base in his 2004 book The Fortune at the Bottom of the Pyramid.

According to statistica.com, the number of women below the poverty line in 2022 was app 45 million (published by Manya Rathore). So cost of this proposal is Rs 4.5 lakh crore per annum.

According to World Population Prospects 2023 by United Nations - In 2022-23 poor population is likely close to 1 %; 1 percent poor women is 5 million! If we use this number cost is Rs 50, 000 crore p.a. 

The cost depends on what number is used and definition of poverty.

Note that currently app 81 crore beneficiaries are getting free food grains. List of beneficiaries is decided by states.  Read    Centre must review NFSA beneficiaries for Budget. Use Aadhar database, not 2011 Census

 Will a Congress government ask states to do away with the allowances they give to women and consolidate them into a   scheme run by the Centre? Will it make the families of women who receive this allowance become ineligible to receive free   food grains under the National Food Security Act (NFSA)?

When UPA passed the NFSA in 2013, few asked the Congress or the Bharatiya Janata Party thereafter where the money for free food grains (current cost atleast Rs 1.75 lakh crore) would come from?

 2.        Increase in wage under NREGA to Rs 400 per day.

Pg 37 of the Congress manifesto reads, “We will increase the wage under MGNREGA to Rs 400 per day.”

To ascertain additional cost we need to know current cost and that the NREGA Act states that the government shall provide 100 man days of work per rural household p.a. Here are actuals from NREGA site.

Table 2  

So, if the wages are increased from Rs 236/ to Rs 400/ per day the increase of Rs 164/, assuming that in Fy24 person days of central liability and other elements of cost are the same, it would result in additional cost of Rs 50, 709 crore taking total cost to Rs 1,56,157 crore .  

The cost of a NREGA type for Urban areas cannot be quantified but the amounts will be sizeable.

 3.    Farm Loan Waiver

According to a MINT report the Congress manifesto included, “A Standing Farm Loan Waiver Commission will be set up to waive loans of farmers and determine the amount of the loan waiver that is required.” No loan waiver. 

Pg 18 of the manifesto reads, “We will appoint a Permanent Commission on Agricultural Finance that will report periodically on the extent of agricultural credit and the need for loan forbearance.” Note the word waiver is not used. 

Note that the last big farm loan waiver was announced by UPA in 2008-09 and it was worth Rs 72,000 crore. Source Agriculture, being a state subject, many states announced farm loan waivers post 2014.  The Punjab Farmers Kisan Credit Card outstanding are Rs 66,749 crore. December 2023 report

 4.    Waiver of Education Loans

Page 14 of manifesto reads, “Due to widespread unemployment, as a one-time measure of relief, the amount due including unpaid interest as on 15 March 2024 in respect of all student educational loans will be written off and the banks will be compensated by the government.”

Cost according to this Business Standard report is Rs 15,000 cr.

 5.      Legalise MSP

Pg. 18 of the manifesto reads, “Congress will give a legal guarantee to the Minimum Support Prices (MSP) announced by the government every year, as recommended by the Swaminathan Commission.”

Senior journalist, late Sunil Jain wrote in December 2020, “In case the MSP is guaranteed, and that will have to be for all crops and across the country – and once this is given, those growing other crops like fruits and vegetables will also demand MSP – the impact will be huge. The impact will differ from crop to crop, and even mandi to mandi, but given the difference between mandi prices and MSPs range between 20 and 50%, the cost to the government can run into several lakh crore rupees every year.” Financial Express

 Making MSP legal obligation can create complexities, warns agricultural economist Ashok Gulati.

He wrote in Moneycontrol.com, “CRISIL's analysis indicates that if the government were to procure the entire output of the 23 crops for which MSP has been announced, it would require a working capital of nearly Rs 6 lakh crore during the current marketing season. This projection is based on the assumption of procuring crops that are exclusively trading below the MSP in mandis. However, the actual expense to the exchequer, considering the differential between MSP and mandi prices, is projected to be around Rs 21,000 crore for the 2023-24 marketing season.”

 There must be a reason why UPA refused farmer’s demand to legalise MSP.

 6.      We will amend the RTE Act to make education from Class I to Class XII in public schools compulsory and free.

Hope only Hindu Schools will not have to bear this cost, like under RTE where they have to reserve 25% of their seats to be allocated by the government.

Note that in 2019, the Congress had promised a Minimum Income Guarantee Scheme. The 2019 Congress Manifesto (not available now) referred to NYAY, as a joint scheme of the Central and State governments. It would target 5 crore poorest families. Each family would be given an assured cash transfer of Rs 72,000/ p.a. Source

 All Parties that offer freebies like above must tell public source of incremental government revenue that would be used to fund the expenditure.

If any political party continues with huge doles then what might happen?

I f thanks to excessive government expenditure the combined centre/state fiscal deficit crosses pre-determined limits it shall increase inflation i.e. eventually borne by the common man. Simply put, inflation is more money chasing fewer goods. 

One of the reasons things are looking better today is macroeconomic stability on various fronts including improved current account deficit, robust banks and easing inflation pressure.

If one compares the current situation with UPA2, macro-instability was then caused by fiscal expansion, high crude and food support prices, 2013 run on the rupee, phone banking, banking sector problems and over-leveraging etc.

It is because of macro-economic stability that Bloomberg and JP Morgan decided to include Government of India Bonds in their index. Since part of the budget deficit will be financed by foreign savings, it will relieve pressure on domestic savings, which can help bring down overall cost in the economy. 

 Cause of 1991 Economic Crisis

Reason 5 has excerpts from Dr Manmohan Singh’s 1991 speech. 

 1. The immediate trigger was Iraq’s invasion of Kuwait and the spike in crude prices. It caused a balance of payment crisis. Those days deposits from Non-resident Indians and remittances helped fund the trade deficit. NRIs pulled out in light of the war. Then there were no Foreign Portfolio Investors and Foreign Direct Investment was minimal. Foreign Commercial Borrowings fell too.

With a volatile Middle East, Russian-Ukraine surge in crude prices could recur.   

 2. All through the 1980s there was a fiscal expansion spree. There was lots of foreign borrowing by government and public sector.  

 3. India ran a massive fiscal deficit and increasing foreign debt. It was a deeper problem of the economic model being followed then. 

 4. “A fiscal deficit of 8 per cent of gross domestic product (GDP) and a current account deficit of 2.5 per cent of GDP all added to the government’s woes.” Source ThePrint

 5. Excerpts from Dr M Singh budget speech of 1991, “The origins of the problem are directly traceable to large and persistent macro-economic imbalances and the low productivity of investment, in particular the poor rates of return on past investments. There has been an unsustainable increase in Government expenditure.

During the fiscal year ending 31st March 1991 the wholesale price index registered an increase of 12.1 per cent, while the consumer price index registered an increase of 13.6 per cent.”

 NOTHING COMES FREE. The choice is yours.

 (Utmost care was taken in information collection. Errors, if any are without malafide intent.)

 First published Here

Also read

1. Why are Punjab farmers protesting

2. How to make MSP work

3. Why it is necessary to diversify the farming basket

4. Who is a Distressed Farmer

5. Farmers will shift from Paddy only when

6. Freebies could lead to a 1991 type crisis

7. The Truth about Farm Loan Waivers

8. How waiver of loans impact states