The real cost of populism
Puja Mehra April 16, 2009Fidel Castro would feel at home in India today. Across the political terrain, prominent parties have launched stridently populist manifestos leading up to the general elections— from handing out cheap food grains to farmers’ loan waivers—in order to lure India’s large, underprivileged vote bank. While it is unclear whether these parties plan to make good on any of their promises, what is certain is that the cost of implementing these populist measures could have disastrous effects on the population.
These are ironic developments, considering that the Congress is led by someone who was the chief architect of liberalisation in the early 1990s while the BJP has generally been recognised as a party committed to deepening economic reforms. At a CII discussion in New Delhi last month, Member of Parliament and industrialist Rahul Bajaj lit into such dubious manifestos: “Where are the reforms in the manifestos? There is only populism. I hope they won’t become policies later,” he said, setting off a round of boisterous applause.
Populist politics sell easily—especially the cheap rice variety—in a country where a huge vote bank of 350 million exists below the poverty line. Ironically, populism thrives in manifestos because— and inspite of—the failure of populist schemes in reducing poverty. In fact, “Rice-at-Rs 2” politics dates all the way back to 1983 when matinee idol-turned-TDP Founder, N.T. Rama Rao, won Andhra Pradesh on the promise of subsidised rice at Rs 2 per kg. Since then, the state has voted out every incumbent that raised the price of rice, including NTR’s son-in-law Chandrababu Naidu, in 2004. And yet the masses in the state have largely remained poor.
This is exactly what critics of populism are incensed about—that populist measures are in fact exercises in inefficiency and excess, and just don’t work. The Congress party should have known this best. A Planning Commission report of the 11th Plan Working Group released in January 2007 had concluded that the subsidies and poverty alleviation expenditures of the Centre and states of Rs 53,770 crore during 1999-2000 should have been sufficient to eliminate poverty within the same year even if administrative costs and leakages used up a third of the allocation. In fact, the Group reached the same conclusion for the outlays for the year 1993-94 as well.
Moreover, the Public Distribution System (PDS) has been disbursing 35 kg of food grains per month at highly-subsidised rates of Rs 3 per kg of rice and Rs 2 kg per kg for wheat to underprivileged people in the country for 10 years now. Still, barely 19 per cent of the rural BPL families and 17 per cent of urban ones benefit from the system, according to the latest round of the National Sample Survey.
Even ex-finance minister P. Chidambaram has been candid about these failures. Addressing the National Development Council in December 2007, he said that 38 per cent of the subsidised grains do not reach the targeted poor: “While the PDS is necessary, unless it is efficient, it could become an albatross around our neck and an opportunity for rentseekers to enrich themselves.” A few days later, at the Institute of Economic Growth, the PM himself remarked that “too much money is being spent on funding subsidies in the name of equity, with neither equity objectives nor efficiency objectives being met”.
These realisations haven’t stopped today’s political manifestos from being chockfull with new populist policies— and they could prove disastrous to the country’s finances. The CPI (M)’s desire to take the NREGS to the urban centres will trigger a huge ruralurban migration (owing to the wage differentials), defeating its very purpose. The BJP’s promise of lowering home-loan rates would amount to a return to the administered interest rate regime that was prevalent till about 15 years ago.
Trying to alleviate endemic and serious problems of income inequality, malnutrition, lack of water and sanitation and literacy is, by any measure, a necessary and noble undertaking. Problem is, intended beneficiaries in India rarely receive such succour. That’s why the mother of all election promises should have been to deliver on all the promises made in the past—and not make any new ones. This isn’t much different from the resolve to match outcomes with outlays that both Chidambram and Singh had made under the UPA government.