The Election Commission’s proposal to educate voters about poll promises by various political parties has come at an opportune time when a bad economic decision could spell disaster for the Indian economy. At a time when heavy debt burden has led to collapse of many economies, India needs to be cautious.
Despite Covid-19 and an adverse international global economic situation, India has been able to keep its economy steady. But the situation may change if adequate safeguards are not kept in place. Prime Minister Narendra Modi has spoken repeatedly against the tendency of political parties to promise freebies to garner votes. Sadly this has not brought sanity to non-BJP ruled states.
The Election Commission’s proposal should be seen in positive light. This is strange that some political parties such as the Congress have not taken kindly to this. The Congress has described this as “another nail in the coffin of democracy” and against the spirit of competitive politics. Let us try to understand how debt burden has impacted economies of some countries to understand where we stand. Venezuela, once a bright spot of Latin American economy, is now facing heavy debt of billions of USD and is an example of how things can go wrong. The economy has contracted by more than 60%.
While too much dependence on oil and neglecting other industries were reasons for Venezuela’s economic collapse, the main reason was corruption that allowed leaders to control most government institutions and make money through illegal means. They attempted to create a political climate that allowed corruption to thrive.
Recent news from Sri Lanka said it was heavily in debt and the government did not have money to take care of even food or fuel bills. There were news bout Sri Lankan skipping meals due to shortages and their lining up to buy scarce fuel. It was an economy that was growing steadily with a thriving middle class. The currency collapsed and food prices rose massively. It is reported that corruption and mismanagement contributed significantly to the woes.
Even countries known from a strong economy are facing crisis due to abnormal debt burden that have happened due to various domestic factors. The latest example is Italy whose adverse economic situation is likely to impact other European countries. As the adverse impact of war in Ukraine looms large on Europe, the US and Russian, the world economic situation is unlikely to improve. Export and imports are bound to suffer. Global crisis demands that every country should walk cautiously because there is a thin line that divides fiscal prudence and profligacy.
It is in this context that there is need for political parties to be responsible or accountable for their actions. Political parties can promise the moon, but voters being the final masters should know whether these promises can be realized and if yes at what cost. Promises of free electricity, water, cash benefits or such largesse should be seen in the context of the state’s ability to discharge its responsibilities. Users must pay is the maxim of economic sustenance. If enough power is generated then only it can be distributed and there is a huge cost involved in generating power. Setting up distribution lines and sub-stations are costly affairs. If people don’t pay and simply depend on free power, there is every possibility that the chain would collapse one day and there would be darkness. Power shortages and frequent power cuts or load shedding are directly linked to availability of power.
How about those poor people who cannot pay? The government should definitely come to their rescue so that they are not deprived of the basic facilities. It is in this context that the governments either subsidises power to poor or makes others pay—those who are consuming more to sustain their lavish lifestyles. This is because natural resource is scarce and everybody has stakes in that. And those who can pay do not mind paying a bit extra if they know that the less empowered would be taken care of. This is the hallmark of welfare state.
But, what happens if the entire population is promised free electricity. This is nothing but populism that cannot be sustained in the long run. Debt burden of distribution companies would rise and the state would either borrow to pay or not pay at all leading to collapse of the system.
The states have limited resources. Either they would need to increase economic activity to add to the state’s income to fulfil poll promises by political parties or simply borrow from the Centre. The Central government cannot print money beyond a certain limit since it would lead to cascading effect on the economy. The states’ borrowings would increase and it would come under debt trap where it would not be able to meet its financial obligations. The state would find it difficult to pay salaries to its employees or launch any development initiatives.
The Reserve Bank of India, which is the country’s Federal Bank overlooking monetary policy, has turned its focus on 10 Indian states whose economies are stressed and impacting their abilities to service the debts. These states are Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana. Their debt burdens have already crossed the danger marks. This has happened due to poor revenue generation, committed expense and rising subsidy burden. The RBI study of the State’s finances was conducted in the wake of the Sri Lankan financial crisis. While Covid-19 contributed significantly to deterioration in state’s finances, other factors under human control also added up to the crisis. All these states have a debt to state GDP ratio of more than 30%. Punjab’s debt ratio to the state’s GDP in 2026-27 is expected to be around 45% or more. Some States such as Rajasthan, Kerala and West Bengal are expected to have this figure around 35%. This means very low manoeuvrability on the part of these states to take major development initiatives. It is in this context that time has come for people to understand basic economics that there are no free meals. Any investment made must add to the productive activity by increasing infrastructure and empowering people to get involved in economic activity. More economic activity means more taxes to government in various forms and abilities to spend.
The Election Commission has rightly given the format in which the political parties would be forced to understand the state’s revenue and expenditure and the elbow room that may be available to fulfil political promises. Indian political parties have been largely irresponsible since they would do anything to come to power. For them bad economics was good politics, more so for parties that are too ambitious. People were taken for a ride even if such promise compromised their long-term interest. Not many people have bothered to take political parties to task for not fulfilling their promises after coming to power. The Election Commission’s format would empower them to take political parties and leaders to court if they fail to fulfil promises.
This would also help people to appreciate which political parties represent their best interests. Whether they want 24 hour power supply on reasonable charge or they want free power even if it means for a few hours. Whether they understand that it costs a lot to keep things moving and growing? At least the Election Commission’s chart would be a mirror of the State’s finances and the possibilities.