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Statistically Speaking

AAP’S CHIEF MINISTERIAL CANDIDATES FOR 2022

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The Aam Aadmi Party (AAP), a few years ago, declared its mission to expand beyond its footprints in the national capital. In January 2021, the party announced it will contest in all six state elections scheduled for 2022, which are Uttar Pradesh, Himachal Pradesh, Goa, Gujarat, Uttarakhand, and Punjab. The AAP has been vigorously campaigning in these states. Bhagwant Mann was announced as its chief ministerial face for the Punjab Assembly elections and Goa-based lawyer turned politician Amit Palekar as its Chief Ministerial candidate for the state last week. Since its inception in 2012, the AAP has contested Assembly elections in at least 14 states outside of Delhi. It has, however, failed to win even one seat in 13 states. So far, the only state outside of Delhi where the party tasted victory was in Punjab in 2017, where it won 20 seats and is currently the main opposition party. While the AAP’s intense campaigning in Uttarakhand and Uttar Pradesh is unlikely to have a huge impact on the electoral results of the states, the party is pitched to influence the results in Goa and Punjab. The party, which has been pedalling its “Delhi Model” of governance, including free provision of water and electricity (up to a fixed number of units) and improved health and education infrastructure, has made very similar promises in the four states along with a new strategy of defections from other parties.

Just as in Delhi and Goa, AAP has promised 300 units of free electricity and a bill waiver if it comes to power in Uttar Pradesh.
Source: Twitter AAP

BHAGWANT MANN IN PUNJAB

Party supremo Arvind Kejriwal and CM candidate for Punjab Bhagwant Mann are leading the campaign for AAP in state.
Source: Wikimedia Commons

On 18 January 2022, the AAP announced Bhagwant Mann as its chief ministerial face for the Punjab Assembly elections. While Mann was probably always the chosen candidate for the Chief Ministerial face of the party, the AAP delayed this announcement, launching a crowd-surfing campaign and urging Punjab voters to decide the party’s Chief Ministerial face. Mann, who is currently the Member of Parliament (MP) for the Sangrur constituency, has been one of AAP’s most consistent leaders in the state and has been the party’s state chief for almost five years. He will be contesting from the Dhuri Assembly constituency this election, which is in the Malwa region of the state. The Dhuri assembly segment falls under Mann’s Lok Sabha constituency, Sangrur, and had helped him garner the maximum number of votes in the 2019 general election.

In 2014 during the general election, Mann was not only able to deflate the Modi wave in Punjab, but also won the seat by a margin of over two lakh votes (19.24% vote share margin) and a vote share of 48.47 percent despite the presence of the Indian National Congress (INC) and Shiromani Akali Dal (SAD) candidates. He won the seat again in 2019 and was the only AAP candidate who retained a Lok Sabha seat during the general election. Considered one of Punjab’s most popular politicians, his rallies and public gatherings draw huge crowds – he has the ability to turn political speeches into gripping stage performances due to his background as a household comedian prior to his stint in politics.

Punjab is divided into three main regions, and the AAP’s decision to declare Mann as the chief ministerial candidate from Malwa, which has 69 seats in around 12 districts, is definitely a strategic one – the region, nestled between the Satluj and Ghaggar rivers, has had a monopoly over the state’s Chief Ministers for the last three decades.

In the 2017 Assembly elections, the AAP came in second in Punjab, securing a vote share of around 23.7 per cent as compared to the ruling Congress which secured 38.5 per cent of the votes in the state. As per figures by the Centre for the Study of Developing Societies (CSDS), which mines electoral data, in 2017, the AAP got 30 per cent of the Jatt Sikh farmer votes against the Congress’ 28 per cent. The Jatt Sikhs, who are Punjab’s landowning community comprise about 20 per cent of its population and dominate its politics. However, the voter groups of Punjabi Hindus and Dalit Sikhs were inclined towards the INC in higher numbers. The party’s main challenge in 2022 lies in appeasing these two voter groups, especially with the Congress’ decision to make Charanjit Singh Channi the CM candidate to appease the considerable Dalit voter group.

As per current opinion polls, the Punjab elections are likely to be a three-pronged battle between the major parties in Punjab – INC, AAP, and SAD. As per the Zee News opinion polls, the AAP and Congress are likely to be in a neck-to-neck fight. The poll predicts that out of the total 117 seats in Punjab, AAP is expected to secure around 36 to 39 seats. As per the poll, despite a massive lead in vote share and number of seats, AAP may not get an absolute majority in Punjab. The Polstrat – NewsX opinion poll also predicts a similar seat share for AAP (52-55 seats), INC (42-45 seats) and SAD (17-20 seats). However, the poll conducted by Jan ki Baat-India News shows AAP emerging as the single largest party in the state, by winning 58-65 seats in the 117-member assembly. With a popular candidate as the CM face, a long exhaustive list of promises, attack campaigns against other parties, and its Delhi model of governance, the AAP is leaving no stone unturned in Punjab in an attempt to establish electoral dominance. While the party is likely to make a huge dent in the Assembly elections, it is yet to be seen whether its attempts will be successful in pushing it to emerge as the single largest party in the state.

AMIT PALEKAR IN GOA

Lawyer-turned-politician, Amit Palekar was announced as the Goa CM face by AAP and is now campaigning heavily in the state. Source: Wikimedia Commons

On 19 January 2022, the AAP announced Amit Palekar as its Chief Ministerial candidate from Goa, who will contest the elections from the St Cruz constituency. Palekar is a prominent lawyer in the state and has been practising for the last 22 years. However, he is a newcomer in politics. Palekar is also a social activist – he has been vocal about corruption in the state, participated in hunger strikes, and worked to support the state during the second wave of the COVID-19 pandemic. He belongs to the Bhandari Samaj, a numerically strong community among Goa’s Other Backward Caste (OBC) community. In November 2021, the AAP announced that its CM face would be from the Bhandari community.

Out of 11 lakh voters in the state, around 3,50,000 voters belong to the Bhandari Samaj community, which is around 30 per cent of the total voter base. In addition to this, the second-largest voter group in the state are Christians who comprise around 26 per cent of the population. If both the Bhandaris and Christian voter groups support a party, it wins roughly 50 per cent of the votes in Goa. The AAP has taken its approach to target these two voter groups one step further by announcing that its Deputy Chief Minister candidate from the state will be Christian. The AAP’s Goa campaign is hinged on three primary factors: national convener and Delhi chief minister Arvind Kejriwal’s image, inducting popular leaders from other parties, and promising various social-welfare schemes. The party is also engaged in door-to-door campaigning in the state and is conducting a “Parivartan Yatra’’ daily along with its announcement of a 13-point development agenda for the coastal state.

In the last Assembly elections in Goa in 2017, the AAP made an ambitious debut campaign and pitched 39 candidates. However, the party failed to secure a single seat and was able to secure only 6.3 per cent of the vote share. The ruling Bharatiya Janata Party (BJP) polled the maximum votes in the state, securing 32.48 per cent of the votes and 13 seats, while the Congress won 28.35 per cent votes and 17 seats. Despite not being able to emerge as the single largest party, the BJP was able to retain control of the state in 2017. According to the Times Now opinion poll, the BJP is likely to win 17-21 seats in Goa and will be able to secure a majority mark. The AAP on the other hand is slated to win around 8-11 seats in the 40-member assembly. Similarly, the ABP News-Team CVoter poll predicts around 19-23 seats for the BJP, 5-9 seats for the AAP, and 4-8 seats for the INC. The Polstrat – NewsX opinion poll also predicts a similar seat share with the BJP winning 21-25 seats, AAP winning 6-9 seats and INC winning 4-6 seats. As per various opinion polls, while the BJP is probably going to emerge as the single largest party in the state, it is not clear whether it will be able to pass the majority mark, and will likely have to rely on the support of other parties to establish its victory in the state.

Contributing reports by Damini Mehta, Junior Research Associate at Polstrat and Anurag Anand, Narayani Bhatnagar, Suvidhi Jain, Interns at Polstrat.

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EXTREME HEATWAVES RAISING ALARMS IN INDIA

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Large parts of India and its neighbouring countries, including Pakistan, have been experiencing record high temperatures as a heatwave continues to engulf the subcontinent. The heatwave began in early March and continues to aggravate millions across the country. Major cities, including the national capital, recorded temperatures as high as 49.2 Celsius, which is the highest in 122 years (since records began). Heat warnings and advisories have been issued in many cities and states, with many schools changing school timings to accommodate for the impact such severe weather could have on young chldren.

As per the Indian Meteorological Department (IMD), a region is said to be experiencing a heatwave if maximum temperatures continue to exceed 40 Celsius in lowland regions, or at least 30 Celsius in the highlands, for at least two consecutive days. A heatwave is also declared if temperatures are 4.5-6.4 degrees above average, with temperatures 6.4 degrees above normal being classified as a “severe heatwave”. The heatwave has already claimed many lives across the country, apart from having a direct impact on the livelihood of those engaging in the informal economy and agricultural activities. The heatwave is also having an ecological impact, with reports in some cities of dehydrated birds falling from the sky. Additionally, it has exacerbated India’s power crisis, created by a short supply of coal and excess demand from industries. Amidst reports of the impact of the heatwave, studies produced by scientists at the World Weather Attribution initiative and the United Kingdom Met’s office revealed that extreme weather events such as the ongoing heatwave in India have been made more likely due to human-caused climate change, raising alarms across the globe.

Early season heat-waves strike India, resulting in the hottest March India has witnessed since 1901
Source: Wikimedia Commons

WHAT ARE THE KEY FINDINGS OF THE STUDY?

An international team of climate scientists at the World Weather Attribution initiative published a study last week examining the role of climate change in earlier extreme heatwaves in the Indian subcontinent. 29 researchers, as part of the World Weather Attribution group, including scientists from universities and meteorological agencies in India, Pakistan, Denmark, France, the Netherlands, New Zealand, Switzerland, the United Kingdom, and the United States, participated in conducting the study. They analysed records of maximum daily temperatures in north-western India and south-eastern Pakistan to compare how they have changed with global temperature rise. The month of March this year was the hottest in India since records of the weather began 122 years ago. Pakistan also saw record high temperatures. In an attempt to quantify the changes in the weather, scientists analysed weather data using computer simulations, to compare the climate as it is today, after temperatures rising approximately 1.2 degrees because of global warming since the late 1800s, with the climate of the past.

It was found out that at present the chances of such a heatwave happening are once every 100 years. However, in a world without climate change, such an event would only happen once every 3,000 years, implying that climate change has led to extreme weather events becoming 30 times more likely. The team also used the same climate models to make projections about how the probability of such events could change in the future. The results revealed that if the rise in global temperatures continues to be 2 degrees above pre-industrial levels, such heatwaves could become two to 20 times more likely and could be up to 0.5 to 1.5 Celsius warmer.

In a similar manner, a group of scientists from the United Kingdom’s MET office also conducted a study, published earlier in May, which found that the record-breaking heatwave in India and Pakistan had been made 100 times more likely due to climate change. Scientists explained that the main reason for the difference in findings between the two studies was the different parameters used by the researchers. The Met office focused on a 2010 heatwave that affected different parts of India and Pakistan from May to June and instead imagined this heatwave had occurred in 2022. “Spells of heat have always been a feature of the region’s pre-monsoon climate during April and May,” said Scientist Nikolaos Christidis from the UK Met Office in a press release. “However, our study shows that climate change is driving the heat intensity of these spells making record-breaking temperatures 100 times more likely.” Both studies concluded that due to human-caused climate change, it’s now “common” to find such record-breaking heatwaves and that such “extreme weather events” are no longer “extreme” or “rare”.

HOW HAS THE HEATWAVE IN THE INDIAN SUBCONTINENT AFFECTED LIFE?

On 28 April this year, heat-related watches were in effect in almost all Indian states, covering millions of people and affecting all major cities. As per estimates, 90 people have already died in the subcontinent as a result of the heatwave this year. However, the real figure is likely to be much higher, as India counts ‘heatstroke deaths’ as only those deaths medically certified as having been caused by direct exposure to the sun, thereby capturing only 10 per cent of the real figure, leaving out deaths due to high ambient temperature. A major economic impact of a heatwave is on productivity and working hours for millions of people, especially those who work outdoors. According to an International Labour Organisation (ILO) report from 2019, India lost around 4.3 per cent of working hours due to heat stress in 1995 and is expected to lose 5.8 per cent of working hours in 2030. In absolute terms, India will lose the equivalent of 34 million full-time jobs in 2030 as a result of heat stress.

For the Indian subcontinent, where a large cross-section of workers engages in either the informal economy or in agricultural production, intolerable heat has a dire impact on productivity as it reduces the hours available for workers to work outdoors. Chandni Singh, an environmental social scientist at the Indian Institute for Human Settlements, said people working in informal settlements or those working in labour-intensive outdoor jobs are most affected. The heatwave also has an unequal impact on poor women, who are particularly vulnerable to heat stress as they tend to work inside homes without air conditioning. In rural parts of the country, women’s roles primarily include household work such as cooking and gathering provisions and water from outside their homes, all of which are labour intensive jobs. Daily wage workers, who work in construction not only bear the brunt of the heatwave, working extensively outdoors but also suffer greater heat exposure as they live in overcrowded spaces with little ventilation or air conditioning.

Due to the changes in average weather, overall living standards in India are expected to decline. A report by the World Bank titled “South Asia’s Hotspots—The Impact of Temperature and Precipitation Changes on Living Standards” showcased that when converted to GDP per capita, changes in average weather are predicted to reduce income in severe hotspots by 9.8 per cent in India by 2050.

The early onset of the heatwave impacts agricultural production, which is the primary source of income for millions in the country, especially those living in rural areas. As a result of the combination of the heatwave and the lack of rainfall, thousands of acres of agricultural produce and yield have been destroyed. As a result, the government announced a temporary ban on wheat exports, pushing up global prices further. As per an analysis published by the Economic and Political Weekly (EPW), extreme temperature shocks reduce yields for kharif crop (sown in monsoon) by 4 per cent and for rabi crops (sown in winter) by 4.7 per cent.

Such extreme weather events also cause a rise in spontaneous combustion. In April in New Delhi, a rash of landfill fires was caused due to spontaneous combustion. While in general calls to fire departments typically increase this time of year, Atul Garg, director of fire services in New Delhi, said that this time, the numbers have been a lot more. Typically 60 to 70 calls are recorded per day during this time of year, and this year it has been up to 160 per day.

The National Disaster Management Act, 2005, and the National Policy on Disaster Management, 2009, do not include heat waves in their list of natural calamities. As a result, financial and infrastructural resources are also not diverted towards the problem. Around 100 cities and 23 state governments have partnered with the NDMA to develop Heat Action Plans (HAP) as adaptation measures for extreme heat events. However, these action plans and warning systems are not resilient or effective against heat waves as they are not recognised under the National Disaster Management Act, 2005, making them ineligible for money from national or state disaster response funds.

A labourer taking a splash of water after working under extreme heatwave
Source: Wikimedia Commons

ALARM BELLS RING AGAIN, BUT WILL WE LISTEN?

Undoubtedly, the scorching heatwaves in the Indian subcontinent have been enough cause for alarm that they have occupied national and international headlines for the past few days. Scientists, civic society organisations and environmentalists have pointed out that extreme temperatures are a sign of the direct impact of climate change and the lack of putting climate change friendly policies at the forefront of decision making. At the beginning of the COP26 conference on climate change in Glasgow in November last year, India announced that it aimed to achieve net-zero emissions by 2070. It also announced ambitious targets for 2030, including quadrupling its clean energy capacity to 500 GW, sourcing 50 per cent of its electricity from renewables, and reducing the emissions intensity—the number of greenhouse gases released per unit of economic activity—by 45 per cent compared to the 2005 baseline. While India has added renewable energy at a faster clip than any other large country in the world, including an 11-fold increase in solar-generating capacity over the last five years, scientists argue that the country is not even close to playing catch-up when it comes to mitigating climate change.

Prime Minister Narendra Modi at the COP 26 in Glasglow
Source: Wikimedia Commons

State governments started to formulate targets to combat climate change by designing State Action plans prior to the Paris Agreement on Climate Change, which was signed in 2015. While some incremental steps are being taken by the state governments, these are nowhere near the scope or the scale required to contribute effectively to the national goal of carbon neutrality. Many states have realised the challenges in implementing these climate action plans, with the most prominent being the lack of climate finance along with limited scientific knowledge, and technical and institutional capacity constraints. The lack of coordination between institutions, departments, and stakeholders at various levels has also severely undermined collaborative climate action in the past. Action against climate change continues to be on the backburner for organisations and governments despite alarm bells.

Contributing reports by Damini Mehta, Senior Research Associate at Polstrat and Kaustav Dass, Nehla Salil, Pavitra Mohan Singh, Interns at Polstrat.

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INDIAN ECONOMY SNAPSHOT: SHOULD WE WORRY?

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In the past few weeks, newspaper headlines have caused worry and uncertainty over the future of the domestic economy. The Indian economy, which is still reeling from the impact of the Covid-19 pandemic, has been riddled with many issues in the past few months. Retail inflation in the country has been at an all-time high driven by high food and fuel prices. The value of the rupee against the dollar has been falling consistently, recording an all-time low just last week. Along with this, there has been a considerable decline in the domestic stock market, causing lower confidence in domestic as well as foreign consumers. The International Monetary Fund (IMF) and other institutions have also slashed the economic growth predictions of the country, further impacting confidence. Given these indicators, the question for every consumer and investor is whether there is reason to panic. While the indicators may paint a worrisome picture, they have to be seen in line with overall global economic trends as well as the domestic health and demand of the country, which might tell a different story.

Retail inflation surges to 7.79% in April, highest in 8 years, hitting vegetable vendors the hardest.
Source: PxHere

INDIAN RETAIL INFLATION REACHES EIGHT-YEAR HIGH

In the past few weeks, newspaper headlines have caused worry and uncertainty over the future of the domestic economy. The Indian economy, which is still reeling from the impact of the Covid-19 pandemic, has been riddled with many issues in the past few months. Retail inflation in the country has been at an all-time high driven by high food and fuel prices. The value of the rupee against the dollar has been falling consistently, recording an all-time low just last week. Along with this, there has been a considerable decline in the domestic stock market, causing lower confidence in domestic as well as foreign consumers. The International Monetary Fund (IMF) and other institutions have also slashed the economic growth predictions of the country, further impacting confidence. Given these indicators, the question for every consumer and investor is whether there is reason to panic. While the indicators may paint a worrisome picture, they have to be seen in line with overall global economic trends as well as the domestic health and demand of the country, which might tell a different story.

Source: Politico

ECONOMIC GROWTH, PRODUCTION AND DEMAND: PRESSURE POINTS?

In the latest World Economic Outlook (WEO) report published by the International Monetary Fund, India’s economy is expected to grow by roughly 8.2% in the 2023-24 financial year. The RBI has estimated the growth rate for the Indian economy for 2022-23 at around 7.2% (it had lowered the figure from its earlier prediction of 7.8% due to the impact of the Russia-Ukraine war and the breakdown of supply chains across industries). Similarly, the finance ministry has also predicted an 8% to 8.5% growth rate for 2022-23. It should be noted that the IMF has estimated similar declines for various emerging and major economies, due to the overall slowdown of global economic growth. The IMF’s projection for global growth stands at 3.6% in 2022 and 2023 which is 0.8% and 0.2% lower than its January forecast. Economists also point out that economic growth in the country is likely to slow down further as the RBI increases the interest rates, which have already been increased by 40 basis points to 4.4%.

Another factor that is likely to be a pressure point in the domestic economy is the slow increase in India’s industrial production (IIP), which only grew at 1.9%. Similarly, even though exports increased by 24% in April, there was a higher increase in imports by 26.55% which has further widened the trade deficit in the financial year of 2023. The impact of rising inflation was also seen on the stock market, with both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) recording declines for the fifth consecutive trading season.

IS THERE A REASON TO PANIC?The Indian stock market is currently experiencing gaps towards the downside as well as a heightened volatility.

Contributing reports by Damini Mehta, Senior Research Associate at Polstrat and Arin Prabhat, Ashita Koul, Kaustav Das, Nehla Salil, Interns at Polstrat.

Reading these headlines might cause the average consumer to panic and worry about the future stability of the Indian economy, especially given the unpredictable nature of the impact of Covid-19 as well as the ongoing geopolitical tensions.

However, it should be noted that the Indian economy is likely to continue being the fastest growing economy in the world despite the roadblocks caused by rising inflation, supply chain bottlenecks and global slowdowns.

The IMF’s prediction of the growth rate for the Indian economy for 2022 had been cut from 9% to 8.2%. However, the predictions for India are far better than other emerging or major economies. The IMF has predicted a growth rate of 4.4% in 2022 for China as compared to 8.1% in 2021 and 5.1% in 2023. Similarly, the United States is expected to grow at 3.7% in 2022 as compared to 5.7% in 2021. The report has predicted a 0.8% growth rate for Brazil, 2.1% for Germany and 3.7% for the United Kingdom. The RBI, which had hiked the interest rate to help the pressure on inflation, has also decided to continue its accommodative monetary policy stance. The RBI has also decided to focus on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

Additionally, while the value of the rupee is predicted to decline even more in the coming days, economic experts and analysts state that the rupee continues to perform better than other emerging market currencies despite its fall. Over the last month, the rupee has lost about 1.9% of its value with respect to the dollar.

However, for the same time period, the rupee has gained 1% over the Euro, 3.67% over the Pound, 3.55% over the Japanese Yen and even 3.77% over the Chinese Yuan. While overall in the last 12 months, the rupee has depreciated at around 5% as compared to the dollar, it has appreciated by around 9.29% against the Euro. This is important to note when compared to the 2013 collapse of the rupee when the rupee was trading at around 65 against the dollar (September 2013), having lost 15% of its value. During this time period, the rupee fell from 72 in January 2013 to 86 in September, a fall of 16% against the Euro. Similarly, against the British Pound, the rupee declined from 88 in January 2013 to 102 in September 2013.

As the rupee depreciates, the value of Indian exports increases, which economists predict will absorb the shock from the depreciation of the rupee.

India’s exports increased by 24.22% to touch a record high of US$ 38.19 billion in April driven by increased demand for petroleum products, electronic goods and chemicals. Traditional exports of India such as leather and textiles could also stand to benefit from the depreciating rupee. Another positive indicator has been the increase in hiring activity in the country. India created 88 lakh jobs in April, one of the biggest increases since the Covid-19 pandemic started in the country, although it should be noted that overall unemployment continues to be high as per data by the Centre for Monitoring Indian Economy (CMIE).

Source: moiglobal.com

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DECODING LONG-TERM IMPACT OF FREEBIES ON STATE FINANCES

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Parties offering freebies targeting various sections of society in the run-up to the 2022 Assembly elections was the trend this time. In Uttar Pradesh, the Samajwadi Party, which emerged as the second-largest party in the elections, announced a freebie package worth Rs 25,500 crores, involving 300 units of free electricity to households, free power for irrigation, and allowances for women. Similarly, the Aam Aadmi Party (AAP), which won in Punjab, promised constituents a wide array of freebies as a part of its “Delhi Model”, from loan waivers, free electricity, and several direct benefits such as unemployment allowance for the youth. The estimated value of the AAP’s freebies is likely to be around Rs 20,600 crores per annum. The Bharatiya Janata Party (BJP), in an attempt to emulate the promises being made by other parties, promised an unemployment allowance, farm loan waiver, and free electricity along with allowances for students. The Indian National Congress (INC), which failed to win in any state, had also made similar promises, including pension for elderly women and free gas cylinders for households.

While the Arvind Kejriwal-led AAP has popularised freebies, making it a core element of their election promises across states as part of its “Delhi Model”, parties have been using freebies to lure in voter groups for years. In the hypercompetitive political landscape of India, the last few elections have been a testament to the fact that parties are continuing to use freebies as a bargaining chip with voters. However, the impact of the provision of freebies and their overall benefit has been long up for debate, with many industry experts stating that in the long run, the cost of providing such freebies increases due to the hidden externalities associated with their provision. Speaking at an event last week, N.K. Singh, the Chairperson of the Fifteenth Finance Commission flagged the rising culture of “competitive freebie politics” in India as an issue to contend with. He added that freebies affect the macroeconomic stability of governments and distort the expenditure priorities of governments. Let’s dive into the impact the provision of freebies has had on the fiscal health of some states and evaluate the costs, both actual and hidden, of providing them.

Free electricity to farmers was also promised by the BJP in the 2022 UP elections keeping in mind the rising anti-farmer image the party seemed to have inculcated.
Source: Wikimedia Commons

FISCAL IMPACT OF FREEBIES IN DELHI

The AAP came back to power in 2020 with a generous welfare and subsidy policy with benefits ranging from free bus rides for women, free electricity up to 200 units, free water up to 20,000 litres a month, fee-waivers and free tutoring for students from lower-income families, and free primary healthcare, amongst a host of other provisions. The party also made similar promises in 2016 and despite concerns pertaining to the viability of these schemes, the 2013-18 CAG (Comptroller and Auditor General) report concluded the Delhi State Government did not have any debt sustainability issues despite running such schemes. Although it should be mentioned that when the AAP came to power, it had a revenue surplus of around 4.2 per cent, and while this has declined gradually, it has stayed steady at around 0.6 per cent to 0.9 per cent. Overall, there has been a decline in both the capital and development expenditure undertaken by the state, which has automatically increased the cash funds at the disposal of the government. The Union Territory of Delhi has the highest funds available in the country for development spending and could have spent Rs 20,142 crores in the financial year 2019-20 while remaining within the fiscal deficit limits according to the state finances report by the Reserve Bank of India (RBI). Even the 2019 CAG Report showcases that the Delhi government has consistently managed to have a revenue surplus, prompting the AAP to use this as evidence that its policies are fiscally prudent and do not impact the financial health of the state. However, critics of the policy state that such policies are only fiscally prudent in the short term and have a much larger impact in the long term, making them unsustainable.

Arvind Kejriwal and Punjab CM Bhagwant Mann pitching free electricity plan in Punjab.
Source: The Hans India

The state’s revenue surplus has been falling every year, along with a fall in its own tax revenues (OTRs). While the state continues to operate with a surplus budget, experts point out this is largely due to the huge surpluses created by previous governments in the state. In addition to this, it has been pointed out that while expenditure on both education and healthcare (considered the two most important sectors in the “Delhi Model” of development of the AAP) has increased, overall investment in new infrastructure has actually reduced. Financial experts suggest this could indicate these popular welfare policies have come at the cost of asset creation and infrastructure development, which directly impacts the long-run financial health of the state as well as its overall production capacity.

PUNJAB’S FISCAL HEALTH

The AAP in Punjab inherited a state government with a debt of around Rs 2.82 lakh crores from the previous INC led state government. When the INC government came into power in 2017, it inherited a debt of around Rs 1.82 lakh crores from the 10-year rule of the Shiromani Akali Dal (SAD) led government.

In the run-up to this election, the AAP had promised free electricity up to 300 units to the people of Punjab, and Rs 1,000 per month for every woman, aged 18 years and above in the state. These policies are likely to put substantial pressure on an already debt-ridden state economy. Given that the promise of the AAP would cover each household in the state (for the provision of free electricity), even at the most conservative estimates, it is likely to increase the subsidy bill by at least Rs 5,000 crores. Additionally, financial assistance of Rs 1,000 per month for every woman aged 18 years and above in the state, is expected to put an additional financial burden of Rs 15,600 crore on the State Exchequer, according to experts. AAP chief and Delhi Chief Minister Arvind Kejriwal also announced that the party will not levy any additional taxes in the state, which would also mean there is no avenue for the state to increase its tax revenue streams. The huge estimated costs of these welfare policies raise the question of their viability, especially for a debt-ridden state like Punjab. It should also be noted that newly elected Chief Minister Bhagwant Mann, in his first meeting with Prime Minister Narendra Modi in March, sought a financial package of around Rs 50,000 crore to improve the financial condition of the state.

Punjab State Government has been in debt since a long time, at present accounting to Rs 3 lakh crores with GSNP of 2021-22 standing at approx.
Source: Al Jazeera English
To appease women, in the 2022 state elections AAP promised a Rs 1000 monthly allowance to all women above 18 years of age.
Source: Al Jazeera English

THE DEBATE OVER FREEBIES

The Chairperson of the Fifteenth Finance Commission, N.K. Singh, speaking at an event earlier this month highlighted the dangerous nature of freebies and the impact this could have on the financial health of any state.

“The economics of freebies is invariably wrong. The economics and politics of freebies are deeply flawed. It is a race to the bottom and it is not the road to efficiency or prosperity, but a quick passport to fiscal disaster,” he said. Other financial and policy experts also believe that short-term welfare measures take weight away from growth-enhancing measures like strengthening the public distribution system, employment schemes, and healthcare infrastructure.

Tamil Nadu’s public debt has exceeded Rs 2,00,000 crores in 2015-16. West Bengal has doubled its outstanding state liability in excess of Rs 3,00,000 crores over the last five years.

Source: Al Jazeera English
In Tamil Nadu elections, parties have gone as far as to promise mixers and grinders, TV sets, laptops for students to appease voters.
Source: Al Jazeera English

They believe competitive freebie politics undermines the macroeconomic stability of states. AAP’s promise of freebies in Punjab is likely to cost around Rs 17,000 crores, which would cost an additional 3 per cent of the GDP of the state.

Even the Supreme Court, responding to a public interest litigation (PIL), said political parties competing with each other to announce freebies and doles during electioneering has the potential to upset states’ finances and vitiate free and fair polls.

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AAP, BJP LAUNCH POLL CAMPAIGN IN HIMACHAL PRADESH: WILL GRAND OLD PARTY BE LEFT BEHIND?

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“You have given 30 years to Congress and 17 years to BJP to rule the state, all they did was loot Himachal. Just give me five years. If you are not satisfied, you can change us,” proclaimed New Delhi Chief Minister and National Convener of the Aam Aadmi Party (AAP), Arvind Kejriwal, during the party’s first-ever roadshow in Mandi, Himachal Pradesh on 6 April 2022. On the same day, Himachal Pradesh Chief Minister Jai Ram Thakur launched the Bharatiya Janata Party (BJP)’s “Chalein Booth Ki Ore – Barhein Jeet Ki Ore” campaign in Mandi, on the occasion of the party’s foundation day.

Congress stalwart and Ex-CM Virbhadra Singh’s (right) demise in 2021 has left a power vacuum in the Indian National Congress. After the party’s victory in 2021 bypolls, several of its leaders are vying to be projected as the CM candidate in the upcoming elections. Virbhadra’s son (left) and wife have also launched their political careers
Source: Wikimedia Commons

Setting aside murmurs of factionalism in the party between supporters of Jai Ram Thakur (left) and ex-CM Dhumal, BJP has confirmed it’ll fight the 2022 elections with Thakur as the CM candidate.Horticulture is a key source of income for farmers from Himachal Pradesh. Demands for an MSP for apples have been raised after the volatility of prices fetched for the produce.

The Assembly elections in 68 constituencies of Himachal Pradesh are scheduled to be held in November 2022. While the hill state sends only four members to the Parliament, the BJP and Indian National Congress (INC), both of which have formed alternative governments in the state, are giving utmost importance to the state polls, especially with the AAP joining the fight this time. In the last three decades, no ruling party in Himachal has managed to return to power a second time. The contest has so far been a bipolar one, between the INC and BJP. However, given the national ambitions of the AAP, and its recent victory in Punjab, the party is charged to fight elections in the hill state, pedalling its “corruption-free model”.

POLITICAL ROADMAP

Political fortunes in Himachal Pradesh have always been uncertain. So far, the competition has been majorly two-sided with the INC and BJP wrestling for victory. In 2012, the INC under the leadership of Virbhadra Singh defeated the BJP, winning by a slim majority of 36 seats in the assembly with a vote share of 42.81 per cent. Meanwhile, the BJP secured 26 seats and a vote share of 38.47 per cent. The 2012 elections were marked by a series of internal issues for both parties with party members deserting their positions for other parties. However, the BJP definitely suffered more damage, and tensions between senior leaders Dhumal and Shanta Kumar were reflected in the party’s performance in the Kangra district, where the BJP only won three out of 15 seats.

Subsequently, in 2017, the BJP successfully wrestled back control from the INC, securing a vote share of 48.79 per cent along with 44 seats. The INC managed to win 21 seats with a vote share of 41.68 per cent.

The BJP took advantage of the anti-incumbency in the state and attacked incumbent Chief Minister Virbhadra Singh for enabling a “Mafia Raj” in the state. The party attacked the deteriorating law and order situation as well, driven by a rise in the number of murder and sexual assault cases in the state. The anti-incumbency was further fueled by the lack of industry, poor growth in tourism due to infrastructural deficits, and connectivity issues. The INC also faced a lack of support and backing from senior leaders after the loss, as described by incumbent Chief Minister Virbhadra Singh. However, in October 2021, during the by-polls held in Arki, Fatehpur and Jubbal-Kotkhai Assembly segments, the INC managed to win all three seats, giving the BJP a jolt as these seats were considered the BJP’s strongholds. The party managed to win the Lok Sabha constituency Mandi during the bypolls. Unlike the state polls, the BJP had previously consistently won Parliamentary elections in the state from 2009. It repeated its performance in 2019, winning all four seats, and also managed to increase its vote share from 53.85 per cent to 69.71 per cent in 2019.

MAJOR ELECTORAL ISSUES

The BJP’s losses in the bypolls held last year have been a testament to the fact that there is rising discontent amongst the electorate against the ruling government. Some of the major issues that were brought up during the by-polls included rising fuel prices and unemployment, which will continue to dictate the narrative for the 2022 Assembly polls. The unemployment rate in the state was 12.1 per cent for March 2022 according to the CMIE. This is significantly higher than the Indian average of 7.6 per cent. The unemployment rate has remained elevated above 10 per cent for most months since November 2017. In addition to this, there is rising discontent amongst apple growers in the state as wholesale prices have taken a hit. Agriculture is a major contributor to the economy of Himachal Pradesh – around 90 per cent of the state’s population resides in rural areas, out of which 56.5 per cent are associated with agricultural activities and are dependent on agriculture for survival.

Another major issue likely to come up is the Hatti community’s demand for Scheduled Tribe (ST) status. The community, which has around three lakh members, could influence the outcome in nine constituencies in the state and is largely concentrated in the Trans-Giri area of the Sirmaur district. Although the community used to be politically fragmented, members began to lean towards the BJP almost 15 years ago when the party promised that it would grant them ST status. This promise remains to be fulfilled, despite the BJP repeating it in its manifestos, including in the 2017 Assembly elections. Other electoral issues will include the demand for the old pension scheme by government employees as well as internal factionalism and infighting in parties. There have been reports of BJP members being dissatisfied with the leadership of Chief Minister Jai Ram Thakur. These have been fueled by allegations of corruption and bureaucracy during his tenure, including against his top officials, such as Chief Secretary Ram Subhag Singh.

ROAD SHOWS AND FREEBIES: PATH TO 2022

With around six months to go, parties have launched their campaigns at full speed in the state. The BJP, as a part of “Mission Repeat 2022”, kickstarted its campaign with a Maha Jan Sampark (mega public outreach) drive and a Padyatra in all assembly seats. With an eye on Assembly elections, Jai Ram Thakur announced that his government decided to provide free power for up to 125 units from 1 July. The party also said water bills in rural areas will be waived, which would result in families getting a benefit of ₹30 crores. Other announcements by the party also include a 50 per cent discount on travelling in Himachal Road Transport Corporation (HRTC) buses for women, a ₹5 crore allocation to expedite work on Holiuttarala road as well as legislation that will guarantee 120 days of wage employment to households in urban areas. The Chief Minister also tabled the state budget in the assembly earlier this month with a focus on agriculture, women, and the youth.

More women exercised their franchise than men in Himachal Pradesh which recorded its highest turnout in Assembly polls of 2017 at 74.61 percent, according to official figures.Himachal Pradesh recorded its highest ever voter turnout in Assembly elections: 74.61 percent as compared to 73.51% in the 2012 assembly elections. The turnout broke the previous record set in 2003: 74.51 percent. Men accounted for 50.74 percent of the voters, women made up 49.26 percent.Muslim Population in Himachal Pradesh is 1.50 Lakhs (2.18 percent) of total 68.65 Lakhs according to the 2011 census. Chamba district has one of the highest concentrations of muslims accounting for 6.25% of the district’s total population.

The AAP, which has not fought elections in the state before, kicked off its campaign with a massive roadshow led by Arvind Kejriwal and Punjab Chief Minister Bhagwant Mann, boasting the attendance by thousands. The party appointed an eight-member team to devise its poll strategy in the state, and the election in-charge in the state is Delhi health minister Satyendra Jain, while Durgesh Pathak has been appointed state in-charge with Ratnesh Gupta as his deputy. The AAP will contest the election on the issues of corruption and providing better infrastructure for schools and hospitals as per the party spokesperson. As part of its strategy, the party is considering contesting the civic body elections scheduled to be held in Shimla next month. According to analysts, the AAP could be viewed as a viable alternative to the bipolar system of power-sharing that has dominated the politics of the state given, especially, that the party has been making inroads in the state by attracting voters from economically weaker sections with its welfarist policies.

The INC has not officially launched its campaign in the state yet, due to infighting. However, it has formulated a committee to tackle the Shimla Municipal Elections likely to be scheduled next month. The state president Kuldeep Singh Rathore mentioned that the party will raise issues of unemployment and inflation in its election campaign. The INC’s infighting has aggravated even more after the passing of six-time Chief Minister Virbhadra Singh, which left a power vacuum in the party in Himachal Pradesh. Second-generation leaders in the party have been vying for the top spot since his demise, leading to factionalism. Given the speed and fervour of campaigns by both the BJP and the AAP, the INC stands to lose the momentum it gained during the 2021 by-polls if it doesn’t start campaigning soon,

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ALL EYES ON DEC POLLS IN GUJARAT

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24 hours after the Bharatiya Janata Party (BJP) retained power in four out of the five states it contested in the first round of assembly elections in the country, Prime Minister Narendra Modi set out on another election campaign trail, kicking off preparations for the upcoming Gujarat elections.

Gujarat is the home state of the Prime Minister and is set to go to poll in December this year.

Shortly after the launch of the BJP’s campaign in the state, the Aam Aadmi Party (AAP), riding high on its success in Punjab, also announced its campaign in the state, on the occasion of the Hindu festival Chaitra Navaratri in Ahemdabad. The Indian National Congress (INC), still reeling from its poor performance in all five state elections, announced its “Azadi Gaurav Yatra” four days after Arvind Kejriwal’s announcement, attempting to emphasise the role played by the Congress party in India’s freedom struggle and its contribution to nation-building after independence.

Let us have a look at the campaigns, promises and electoral history of the state, to see what could happen in the polls in December this year.

POLITICAL HISTORY OF GUJARAT

Gujarat has been dominated by the BJP since 1995, except for a period of 18 months during which former Chief Minister, Shankersinh Vaghela split away from the BJP to form the Rashtriya Janata Party. Vaghela served as the Chief Minister of Gujarat from 1996 to 1997 and was succeeded by Dilip Parikh, who served as Chief Minister till 1998. Since the 1998 state elections, only BJP Chief Ministers have served in Gujarat. In the 2012 Assembly elections, the BJP won 115 out of the 182 seats with a vote share of 47.85 per cent, while the Congress only managed to secure 61 seats with a vote share of 38.93 per cent. The Gujarat Parivartan Party and Nationalist Congress Party (NCP) won two seats each, while the Janata Dal (United) (JD(U)) and an independent candidate won one seat each. While the BJP continued to dominate electoral politics in the state, its seat share fell in the last Assembly elections held in 2017. The party had set a target to win 150 seats in the state but won 99 seats with a vote share of 49.05 per cent. The elections witnessed a tough fight between the INC and the BJP, with the INC winning 77 seats with a vote share of 41.44 per cent. However, due to defections from Congress and by-poll wins, the BJP’s tally increased to 112 while Congress slipped to 65. One of the key issues of the election was the Patidar reservation. Since 2015, there have been large scale demonstrations, protests and riots by Patidars in Gujarat, as they were seeking Other Backward Class (OBC) status. One of the key highlights of the elections was the rise in popularity of Hardik Patel, who currently serves as the Working President of the Gujarat Pradesh Congress Committee, as an important political force in the state. Patel led the Patidar reservation agitation starting in July 2015 and became the face of the agitation. After the win, Home Minister Amit Shah said the victory of the BJP in the state was a victory of “developmental politics” over “caste-based politics”. The 2017 elections also marked the first time the option of choosing None of the Above, NOTA, was made available to voters. A whopping 1.8 per cent of voters chose NOTA, making its share higher than that of parties such as NCP, Bahujan Samaj Party (BSP), and others.

At present, there are a total of 4.47 crore voters in the state. Out of which, women account for 2.14 crore votes.
Source: Wikimedia Commons
In the 2017 elections, BJP emerged as a clear winner, winning 99 seats, while Congress came second with 77 seats. At the time, there was a fierce competition between the two major parties of the country.
Source: Wikimedia Commons

The BJP also swept the state in the 2019 Lok Sabha polls, winning all 26 seats. BJP President Amit Shah led the charge, securing his parliamentary election debut from the Gandhinagar seat. However, in September 2021, approximately a year before the scheduled Assembly elections, Vijay Rupani, the BJP Chief Minister from Gujarat, tendered his resignation. “I believe that the journey of Gujarat’s development should go ahead under a new leadership, with new excitement and new energy. Keeping this in mind, I have resigned as Chief Minister Of Gujarat,” he wrote in a letter, not giving any specific reason for his resignation. Bhupendra Patel was unanimously elected as the BJP legislative party leader and Chief Minister-elect of Gujarat a few days after that. A new cabinet was sworn in on 16 September, 2021.

A series of local body elections were also held in the state in March 2021. The BJP swept the urban local bodies of Gujarat winning all six municipal corporations in Ahmedabad, Surat, Vadodara, Rajkot, Jamnagar, and Bhavnagar. This was one of its largest victories in civic bodies in the state as it won more than 80 per cent of the seats in all the municipal corporations. One of the biggest surprises of the local body elections was the performance of the AAP. The AAP was contesting local body elections in the state for the first time and managed to secure 27 out of 120 seats, becoming the principal opposition party in the Surat Municipal elections, while the Congress failed to win even a single seat. Similarly, the All India Majlis-e-Ittehadul Muslimeen (AIMIM) won seven seats in Ahmedabad in Jamalpur and Maktampura wards, both Congress bastions for years.

GAME, SET, CAMPAIGN

Prime Minister Narendra Modi effectively kickstarted the BJP’s campaign in Gujarat in March 2022 with a massive roadshow. It was held in Ahmedabad and attended by thousands of young people, as well as village and district and panchayat representatives.

Following this, the Gujarat government has announced that it will be expediting a slew of infrastructure projects, including the second phase of the Gandhinagar-Ahmedabad metro, a greenfield international airport at Rajkot, a diamond bourse in Surat and more.

Gujarat has been a BJP bastion since 1995, with the party winning all the elections till 2017 assembly elections. Prime Minister Narendra Modi was the chief minister of Gujarat from 2001 to 2014.
Source: Wikimedia Commons

The party has also launched a six-month-long campaign to reach out to voters, especially those from economically backward backgrounds, and take up the responsibility of nourishing children found to be under-nourished, under a scheme called Suposhan Abhiyan.

Overall, BJP aims to continue highlighting its achievements and development brought about in the state, as part of its campaigning.

The party will promote the impact of the Ayushmaan Bharat Yojna, PM Awas Yojna, and the Covid-19 vaccination drive in order to highlight its achievements in the state.

Prime Minister Modi is also scheduled to address public rallies in north Gujarat and visit the tribal-dominated district of Dahod, followed by a visit by Amit Shah.

The INC, which has been trying to combat its diminishing footprint in national and state-level politics, is also attempting to campaign in the state.

The party won 77 seats in the 2017 assembly elections in the state and failed to secure a presence in the local body elections held last year.

On 6 April, the party launched its Azadi Gaurav Yatra to showcase the role played by the Congress party in India’s freedom struggle and its contribution to nation-building after independence from Gandhi Ashram in Gujarat. The party has announced its “Dwarka Declaration”, which is its blueprint to win 125 seats in the 2022 polls.

As a part of this blueprint, the INC will promise to resolve 12 major issues of public welfare with a focus on farmers, eliminating inflation, and tackling unemployment.

The Congress promised to waive farmers’ debts and halve electricity bills in rural or urban areas. Other promises include a promise to build “Mahatma Gandhi Model Schools’’ and increase health facilities in the state, including the promise to recruit more health workers.

WILL AAP BE THE LEADING OPPOSITION PARTY IN GUJARAT?

The AAP launched its election campaign led by Delhi Chief Minister Arvind Kejriwal and Punjab Chief Minister Bhagwant Mann on Navaratri, an auspicious day for Hindus, stating it was a key message to the people of Gujarat and the party cadre of AAP that the new year will bring peace and prosperity to all.

Fresh from the victory in Punjab, Delhi Chief Minister and Aam Aadmi Party (AAP) convenor Arvind Kejriwal and Punjab Chief Minister Bhagwant Mann held a large roadshow in Ahmedabad on 2nd April. He was on a two-day visit to Gujarat, where elections are scheduled later this year.
Source: Wikimedia Commons
With nearly a third of the total electorate of 3.78 crore voters being youths, aged 18-29 years, the ruling BJP and the main Opposition Congress are leaving no stone unturned to woo these youngsters.
Source: Wikimedia Commons

The AAP launched its roadshow from the Khodiyar Mata temple in Nikol, which is a not-so-affluent neighbourhood in Ahmedabad’s old city area, where most residents are working-class Patidars and migrant labourers. Nikol was also one of the epicentres of violence during the 2015 Patidar agitation for reservation led by now Congress leader Hardik Patel.

The AAP has so far been successful in attracting a section of the Patidar community, who have been disenchanted with the ruling party. This was visible in the party’s victory in the 2021 Surat civic polls.

The AAP has also been reaching out to youth in various parts of urban Gujarat, raising the issues of employment, education, and various scams, aiming to carve its position in the anti-BJP space with the Congress failing to dislodge the BJP from power for 25 years now.

The party has appointed Dr Sandeep Pathak, who is credited to have played a large role in AAP’s Punjab performance, as its Gujarat election in charge, while Gulab Singh Yadav will be the campaign in charge.

While expanding its organisational base in the state, the AAP subsequently inducted a slew of prominent faces from different fields, including popular TV anchor Isudan Gadhvi, youth leader Yuvrajsinh Jadeja, farmer activist Sagar Rabari, and Patidar youth leader Nikhil Savani into its fold.

The party is also likely to look into allying with regional parties for the elections. On 27 March, Kejriwal met Bharatiya Tribal Party (BTP) leader and Dediapada MLA Mahesh Vasava. The party, which has two MLAs at present, is likely to ally with the AAP for the assembly elections later this year.

While the Congress is dealing with a shrinking footprint and has been incapable of taking power away from the BJP in the state in the past few decades, the AAP’s performance in the civic body elections and overall preparations and campaign strategy shows its ambitions to come out as the principal opposition party to the BJP in the upcoming elections.

Contributing reports by Damini Mehta, Senior Research Associate at Polstrat and Abhinav Nain, Akhil Chirravuri, Uday Wadhwa Interns at Polstrat.

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THE SRI LANKAN ECONOMIC CRISIS EXPLAINED

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The economic crisis in Sri Lanka has debilitated the country, leaving it unable to pay for essential imports, including fuel, and has prompted widespread shortage of essential items across the island nation. Public outrage culminated in a series of mass protests across the country last week, leading to violence and clashes with the police. As a response, the government announced a curfew along with a ban on social media websites, including Facebook, WhatsApp, and Twitter in an attempt to curb protests. However, citizens defied the curfew and took to the streets, demanding the resignation of the Sri Lankan President, Gotabaya Rajapaksa, whom they hold responsible for the crisis. Following the series of mass protests, all Cabinet Ministers submitted their resignations, except for the President’s brother and the Prime Minister, leaving the political future of the country uncertain. Sri Lankans have been dealing with the massive fallout of the economic crisis for several weeks, including standing in lines for hours to gain access to basic goods and power cuts for up to 13 hours. The protests against the government, including against the President are a huge change in popularity for Rajapaksa, who was elected into power in 2019 with a huge majority. Experts state the crisis is a result of decades of economic mismanagement by various governments in the country, and is not a problem that will be resolved easily.

Tea accounted for 11.3% (US$1.27B) of Sri Lanka’s exports in 2020. The industry was hit hard by a loss in growth of exports since 2013 and the Covid-19 pandemic.
Source: Flikr | Nuwara Eliya

REASONS BEHIND THE ECONOMIC CRISIS

Economic and policy experts agree that the current economic crisis in Sri Lanka is a result of mismanagement of the country’s finances by successive governments, along with ill-timed tax cuts compounded by the Covid-19 pandemic. The root of the problem lies in the twin deficit the country is currently experiencing: which is a budget deficit alongside a current account deficit. This spells disaster for the fiscal and monetary health of any country. The roots of the economic crisis in the country can be traced back to factors such as an economy reliant on the export of primary commodities such as tea, rubber, and garments, while essential consumption items such as food and fuel are imported into the country. The country mobilises foreign exchange reserves through a combination of primary community exports and tourism.

President Gotabaya Rajapaksa (Left) with Prime Minister Mahinda Rajapaksa (Right) during a High-level Government meeting in Sri Lanka held in November, 2020.
Source: Wikimedia Commons
In Sri Lanka, transport services are grounding to a halt amid rising prices and unavailability of petrol and diesel.
Source: Flikr | Marcel Crozet / ILO



As global primary commodity prices have continued to fall since 2013, the country’s avenues to earn higher export revenue have also dwindled. Due to this, the country approached the International Monetary Fund (IMF) for assistance in 2016 for a second time. The IMF imposed various conditions, including the reduction of the country’s fiscal deficit to 3.5 per cent, flexibility in exchange rates, and commercialisation of public sector enterprises to sanction the loan. However, the country was unable to stabilise its economy and the Gross Domestic Product (GDP) of the country shrunk from 5 per cent in 2015 to 2.25 per cent in 2019. Other measures of the economic health of the country also continued to dwindle, as the rate of investment fell from 31.2 per cent in 2015 to 26.8 per cent in 2019, while the savings rate for the same period fell from 28.8 per cent to 24.6 per cent. Government revenue, which was already shrinking, was further impacted in 2019 after the government implemented several ill-timed tax cuts that led to even lower tax revenue.

While exports and government revenue was declining, the tourism sector, which constitutes a huge part of the economy also began to decline in 2019, following the Easter terrorist attacks in the country that year. This was followed by the Covid-19 pandemic. The fiscal deficit exceeded 10 per cent in 2020 and 2021, and the ratio of public debt to GDP rose from 94 per cent in 2019 to 120 per cent in 2021. The effects of the Covid-19 pandemic left thousands of Sri Lankan labourers in West Asian countries stranded – they had to return jobless after the first wave of the pandemic. Garment factories and tea estates in Sri Lanka could not function, as infections raged in clusters, and thousands of citizens lost their jobs in cities as establishments abruptly shut down or offloaded personnel.

Another major reason behind the current crisis is the country’s decision to switch to organic farming. The country used to spend around US$ 260 million (about 0.3 per cent of its GDP) on fertiliser subsidies, most of which were imported. However, in May 2021, it was declared that the country would switch completely to organic farming and it banned the import of fertilisers. The ill-timed policy, which was implemented in an attempt to preserve foreign exchange reserves, had a brutal impact on the production of agricultural products, making it necessary to import more food items.

The compounded impact of this meant that all the key foreign exchange earning sectors of the economy, including exports, remittances, and tourism were hit the most, leading to a huge deficit of foreign exchange reserves. These reserves were needed for the country to be able to pay for essential goods such as food and fuel, which the country imports.

INDIA’S ROLE AND THE WAY AHEAD FOR SRI LANKA

Tamil Nadu Chief Minister M. K. Stalin met Prime Minister Narendra Modi on 31st March, 2022 requesting to provide humanitarian aid to Sri Lankan refugees arriving in the state in view of the ongoing economic crisis in the neighbouring island nation. Source: Twitter

The Sri Lankan rupee, which authorities floated last month, has fallen to nearly 295 against the US$, while it stood at around 180 in 2019. Consumer Price inflation is at 16.8 per cent and foreign reserves stand at US$ 2.31 billion at the end of February, falling 70 per cent over the last two years. The country faces a rough journey ahead, seeing as it has to repay its foreign debt which is totalling nearly US$ 4 billion this year and is expected to rise further as it continues to import essentials from its account. In a recent address to the country, President Rajapaksa said Sri Lanka will incur an import bill of US$ 22 billion this year, resulting in a trade deficit of US$ 10 billion.

So what is the Sri Lankan government doing in an attempt to mitigate its way out of this crisis? As any fiscal help is out of reach, the Central Bank of the country has put in place some monetary measures in an attempt to raise foreign exchange reserves. Experts are calling these measures “band-aids”. These include tightening trade restrictions, devaluing currency to encourage remittances and make exports more competitive, and hiking interest rates in an attempt to combat persistent inflation.

The country continues to seek assistance from other countries and international finance organisations. Sri Lanka already owes China around US$ 3 billion due to heavy borrowing during the Mahinda Rajapaksa presidency for infrastructure projects and has approached the country again for a US$ 2.5 billion line of credit. The country is hopeful for a bailout from the IMF. Additionally, they are looking to India for more loan support. Till 18 March 2022, India had extended support amounting to US$ 2.4 billion to Sri Lanka, through a US$ 400 million RBI currency swap, deferral of a US$ 0.5 billion loan and another US$ 1.5 billion as a line of credit for the country to sustain its essential fuel imports. Indian traders have also started loading 40,000 tonnes of rice for prompt shipment to Sri Lanka in the first major food aid. On 28 March 2022, Sri Lanka had sought an additional line of credit of US$ 1.5 billion from India to import essential items.

A major concern that many countries and international financial bodies have with regard to extending additional financial support to the country is that the support extended may be ineffective due to the rampant corruption in the Sri Lankan government. President Rajapaksa had promised citizens stability and a “strong hand” with which he would rule the country. However, since his election, the economic crisis in the country has worsened and experts blame the rampant corruption in both government and the business sector as having facilitated this. Even after the end of the civil war in 2009, which had huge economic repercussions for the country, corruption and authoritarianism penetrated every aspect of government in the country under the rule of former President Mahinda Rajapaksa from 2005 to 2015 and his brother—President Gotabaya Rajapaksa—elected in 2019.

The Rajapaksa family has dominated the politics of the nation for decades and the current shortages and dire economic conditions have prompted protests directly against them, as people seem to be protesting against the larger ineffectiveness of governance and ill-timed reforms, while demanding the resignation of the leaders responsible for the crisis.

Contributing reports by Damini Mehta, Senior Research Associate at Polstrat and Abhinav Nain, Akhil Chirravuri, Interns at Polstrat.

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