Cong manifesto promises big on economy, jobs. Doable?

Faced with an election that will test if Congress has the strength to weather an “existential crisis”, as senior Congress leader Jairam Ramesh put it, India’s Grand Old Party pulled out all stops in presenting an election manifesto that promises the moon to a cross-section of voters.

The party had already announced its flagship proposal: A minimum income guarantee scheme that promises a cash payout of Rs 72,000 a year to India’s poorest five crore households. It added several other proposals to this ambitious project titled NYAY (justice), such as steep increases in the budgets for health and education; a separate Kisan or farmer-oriented Budget on the lines of the Railway Budget and turning India into a manufacturing hub.

However, its thrust remained firm on attacking the phase of jobless economic growth India has experienced under the Narendra Modi regime.Congress President Rahul Gandhi mentioned how the Indian economy had become “jammed” several times during a short speech after the manifesto release and a Q&A with the press. His party's prescription for this is, “ jobs, jobs, jobs” and a large dose of cash infusion into economy.

Coining a slogan for fellow Congress workers to take to the people, Gandhi said in Hindi: “Garibi pe waar, bahattar hazaar”. He said the country was going through an "economic emergency" and shock therapy was needed to revive it. "That will happen when we give (cash) directly to the poor and increase their buying power."

As far as job promises go, the manifesto pledged to fill all existing four lakh Central government and institutional vacancies by March 2020 as well as 20 lakh state governments vacancies, mostly in healthcare and education. The party also said it would create new jobs for qualified teachers, doctors, nurses, paramedics, technicians, instructors and administrators through a massive expansion of the education and health sectors. It would create a new ministry of industry, services and employment to oversee these new ventures.

While it is true that the Bharatiya Janata Party (BJP)-led government has not created many jobs in the formal sector as promised by Prime Minister Narendra Modi, the Congress' United Progressive Alliance (UPA) government did not do very well on this count either. An International Labour Organisation report in 2016 had said that 85 per cent of the 17 million new formal sector jobs created between 2009-10 and 2011-12 offered no employment benefits and social security.

On the manufacturing sector, the Congress promised to increase the share of manufacturing in GDP from the current 16 per cent to 25 per cent within five years and make India the manufacturing hub of the world. While this may sound like a much-needed move, there are questions about why the Congress could not do much on the manufacturing front during its years in power. During a decade of Congress rule from 2004 to 2014, the share of manufacturing remained close to where it is today. Despite bringing in a new manufacturing policy in 2011, whose aim was to make India a manufacturing hub, enhance the share of manufacturing to 25 per cent of GDP in a decade and create 100 million jobs, India has not moved even a notch. Compared to China, whose manufacturing contributes close to 35 per cent of GDP, India’s has not even reached half the distance.

The manifesto also said the basic weakness of the Indian economy was infrastructure. “Flawed design, inefficient execution, insufficient capacity and poor maintenance of infrastructure have dragged India’s growth rate down,” it diagnosed. Yet, data from the Ministry of Statistics says the cost over-run on infrastructure projects were at 20 per cent in the UPA years as against 17 per cent under the BJP-led National Democratic Alliance (NDA). Despite a promise to build 7 km of roads per day, the UPA tenure never saw more than 2.5 km per day.

While all of these issues raise the prospect of tall claims and poor implementation, the biggest question as far as the manifesto proposals go have to do with the large budgets NYAY and other welfare measures would require.

The cost implication of NYAY stands at close to 2 per cent of GDP. Besides this, the Congress has promised to spend three per cent of the GDP on health and six per cent on education. MGNREGA, which currently provides 100 days of employment, would be increased to 150 days, it said.

Despite all this, it promised to achieve a fiscal deficit target of 3 per cent by 2020-21. As of today, without any such new schemes and extra expenses, the fiscal deficit is at 3.4 per cent of the GDP. Even a back-of-the-envelop calculation suggests that with all these promised expenditures, fiscal deficit will overshoot its targets. The UPA government has a history of indulging in reckless expenditure and overshooting the budget deficit. The fiscal deficit was 5.8 per cent of GDP when they left office in 2014, and current account deficit, another measure of how the external sector is faring, had touched a historic high of over 6 per cent in 2013. This prompted the government to clamp down on gold imports and raise customs duty to 10 per cent from 2 per cent.

With all this promised largess, the Congress has also spoken of increasing the savings level to 40 per cent of GDP. Only time will tell whether national savings go down or increase with the lofty expenditure promises.

At the moment, there is little talk about how the revenues will be raised. The tax experts and economists, including former Chief Economic Adviser, Arvind Subramanian, have already red-flagged that NYAY would entail more taxes in the coming years.

Obviously, any talk of increasing taxes or inventing new sources of revenues to finance such large doles would frighten voters at this juncture. But there is no doubt that there will be a rise in taxes, both direct and indirect, to finance the schemes for the poor. The government may or may not do it in the first year but eventually it will have to. If not, the deficits will go up manifold and the government will end up borrowing more from the market and external sources.

If a Congress-led UPA 3 does come to power, its biggest challenge will be to find the resources to meet the big promises it sets out in the 2019 election manifesto.