No fiscal space for doles but polls need promises

A typical politician, as Soviet statesman Nikita Khrushchev said, is the one who can promise to build a bridge even where there is no river and make people believe in him.

These days the two main political parties, the Bharatiya Janata Party (BJP) and the Congress, are making efforts to convince people that their model of eradicating poverty is the best one. The party which plays the poverty card best still stands to win the elections. After all, 80 per cent of India lives in poverty even when the country has supposedly joined a global elite of superpowers, post India’s anti-satellite missile test.

To this end, we first saw the BJP-led government promise a giveaway of Rs 6,000 to each poor farmer household a year under the PM-Kisan Yojana. Then came Congress President Rahul Gandhi's promise to transfer up to Rs 72,000 a year to five crore of the poorest households, called NYAY (justice). The PM Kisan scheme is operational and most farm households have received their first instalment.

But experts have raised doubts over both schemes on various counts such as the availability of data on income and the debate on the very definition of who constitute the poor. Some have even argued that the PM Kisan scheme is nothing more than a repeat of what most states already have.

But that is merely a debate about the implementation of the schemes. The fact remains that either one of the two parties is sure to be in the seat of power and the schemes will have to be made fully operational post May 23, 2019, when counting of votes takes place.

Moreover, doles are not all that have been promised. The Congress now says it will abolish the existing 'angel tax' that is imposed on start-ups and improve their accessibility to bank credit. Angel tax is the tax payable on capital raised by unlisted companies via the issue of shares. In February 2019, the BJP-led National Democratic Alliance (NDA) had announced that start ups will be exempted from 'angel tax' on funds raised from investors in the last seven years.

One can expect more such promises from both parties. It is still to be seen what their respective manifestos promise in the name of eradicating poverty, and also how much of that promise turns out to be a 'jumla' after the elections. There are chances that a great deal of the promises will fall short of implementation because both parties are aware of monetary constraints. One party has the experience of ruling the country for over half-a-century and the other for over a decade.

Take for instance, India’s tax revenues. They are going to fall short by over Rs 1.5 lakh crore on the direct taxes side and a few thousand crore on the indirect taxes side even after the government has got rich PSUs like ONGC and OIC to pay a second dividend, halted income tax refunds to people and asked firms to pay their advance tax much in advance.

India has almost never been able to meet its tax revenue targets. Not that they are very ambitious each year, but a majority of India's population does not pay taxes. Only 6 crore Indians out of 132 crore pay taxes, a mere 4.5% of India's population. That in the past 72 years, politicians have been able to increase the tax base only to this extent shows how politically difficult the move could be.

The story is the same as far as non-tax revenues go as well. It’s major components are disinvestment, profits and dividends, interest, spectrum, borrowings and small savings. None of them have fetched great revenue to the government. And disinvestment, a process through which the government sells some of its assets to private bidders, has done so badly in the past few years that each time cash-rich LIC has had to bail out the government. The shoddy state of revenue generation has left the government with a large deficit in the past few years.

The story of fiscal deficit or the gap between the government's revenues and its expenditure is such that it has never been met in the past decade. It had gone as high as 5.7% during the tenure of the previous United Progressive Alliance regime. Here the NDA can be given some credit for bringing it down to 3.4% after its struggle in the last five years.

Any reckless expenditure is sure to throw it out of gear. Only a tight leash on expenditure can keep this deficit on hold. But elections in India are more often than not won on the plank being ‘pro-poor’. The 2004 and 2009 polls were won on welfare pronouncements. It is only the 2014 elections that was chiefly won due the charisma of Narendra Modi. However, the narrative has again shifted to the poor and this time in a big way with large doles. A handful of people, including politicians, know that it will remain a mere promise, but a majority of Indians, including the poor, are at the risk of falling into the trap once again.

One could expect new forms of taxes after elections to compensate for the schemes announced by political parties. There could be a rise in both direct and indirect taxes. But it is unclear how far these collections will go in actually meeting the targets of these schemes.