Between enormously generous support prices to farmers in the past, plus the pressures of pay commission disbursements and the burden of the central government’s Ujwal DISCOM Assurance Yojana (UDAY) scheme to bail out the state power distribution company, Madhya Pradesh is groaning under a debt servicing burden, with a fair proportion of it due in the short term. Its obligations under the UDAY scheme also require it to cut subsidies on electricity prices.
To make good on its election promises in Madhya Pradesh, therefore, the Congress will have to undo even the marginal level of fiscal responsibility that the state government has demonstrated. The state’s fiscal deficit for FY18 is 3.4 per cent and the figure for FY19 is projected at 3.3 per cent, both above the 14th Finance Commission’s recommendation of 3 per cent. How Shivraj Singh Chouhan’s successor will balance these competing demands would be worth watching.
The same conundrum applies to Raman Singh’s successor in Raipur. Here, the Congress did one better by promising a farm loan waiver within 10 days of coming to power, raising support prices of paddy significantly and halving power tariffs. Chhattisgarh, a state rich in minerals but poor in human development, has been reasonably well managed fiscally. It runs a revenue surplus and its projected fiscal deficit for FY19 is likely to be 2.8 per cent. This will provide the next government some leeway in meeting its election promises.
The longer-term issue is this: The state has grown fairly fast — but not enough to generate jobs partly because the poor management of the Maoist rebellion discourages big-ticket investors, and demonetisation caused its small and medium enterprises to shut shop. Chhattisgarh depends on grants and taxes from the Centre to keep it going — the state’s own revenues in revenue expenditure is less than 40 per cent. In the absence of meaningful investment, growth is unlikely to accelerate to make the state solvent enough to finance loan waivers and power tariff discounts.
The incoming government may also find itself tripped up by its promise to impose liquor prohibition in Chhattisgarh. This is a gormless move for several reasons, the unhappy experience in neighbouring Bihar being one of them. Indeed, in 2017, the state government mandated liquor sales only through government outlets, the better to reap the gains from the Rs 20 billion it earns in revenues from local taxes on liquor. It defies logic that a party that promises major handouts should choose to deprive itself of a major source of revenue to pay for them.
In this mix, Rajasthan is sui generis in that the Congress and the BJP have traded the chief ministerial chairs at regular intervals. Earlier this year, Chief Minister Vasundhara Raje rolled out a massive farm loan waiver of Rs 80 billion. That did nothing to win her re-election for other reasons, but Congress Party State Chief Sachin Pilot has indicated that the new government would keep to this promise within 10 days of taking charge. Rajasthan is one of India’s faster-growing states, but it struggles to live within its means. The state’s fiscal deficit was 3.5 per cent in FY18 and was projected to be 3 per cent in FY19, but the farm loan waiver will mean that this target is unlikely to be met.
This means all the three states will have to borrow more from the markets, crowding out private borrowing in the old, unending financial conundrum that besets corporate investment in India.
Demonetisation and the rushed implementation of the goods and services tax made unemployment a particular problem for these states. The cow slaughter ban added to dairy farmers’ woes and compounded the problems for all the three chief ministers. This even as the same party at the Centre made few moves to mobilise the most obvious solution to relieving farmer distress — exports and structural changes to domestic market access. Hindutva had less of a role to play in the BJP’s denouement in these three states than hard economic issues. The incoming Congress governments would do well to understand that.