'Freebie-Nataka’: Where Logic Of Economic Growth Is Turned On Its Head

There is a scene in a Star Wars film where Anakin Skywalker, a powerful Jedi knight who has just turned to the dark side, self-destructively seeks to secure his seat of power by taking on more than he can handle. His opponent and former master, wise Obi Wan Kenobi, pleads with him not to do so, because there is no way Anakin can win. But blinded by a lust for power, Anakin attacks, and is cut to pieces.

The Congress party’s position in Karnataka is similar to Skywalker’s. It sought power through a slew of welfarist promises, and now that it has won the mandate, the party is gearing up to self-destructively wreck the finances of the state in a bid to secure its position.

The Congress has promised the dole to all and sundry in the form of monthly cash handouts to housewives and unemployed youngsters. Women will get to ride on public transport for free. Fishermen will be given 500 litres of tax-free diesel, and 6000 rupees a month during the lean season. 

Loans up to one lakh rupees will be waived for sheep and goat rearers. The subsidy on milk will be raised by 40 per cent for dairy farmers. 200 units of free electricity will be provided to every home. The government will bear 10 per cent of the college fees of any government school student who wins a seat in a competitive exam, ‘in any college in India’.

Doctors, medical clinics and nursing homes will be provided subsidies to purchase defibrillators. Subsidies for housing projects to be increased by 3.5 Lakh rupees. 150-300 rupees will be given to children of SC/ST/OBC/Minority every month (that is the bulk of the state’s population!), as an incentive to ensure that they stay in school.

It is a long and sordid list. And, saving the best for last, a welfare fund will be set up for journalists with a seed money of 500 Crores. 

This is Aam Aadmi Party-level (AAP) recklessness, which, if followed through, will turn one of India’s richest, most industrialized states into a fiscal mess of truly apocalyptic proportions.

A leading economic paper estimates that these freebies would amount to over 62,000 crores annually. That is likely a gross underestimation since other calculations show that the subsidy cost of 200 units of power to each household alone would be around 40,000 crores per annum.

Unfazed, the paper goes on to monkey-balance the subsidy shower by saying that the Congress’s freebie bill would be slightly less than Karnataka’s revenue collections, and offset by growth over the next five years.

That is a dangerously optimistic assumption for one simple reason: if subsidies cut this heavily into state earnings, then it will be impossible to balance the book. As a result, capital expenditure will go down. What growth path would Karnataka be on then?

Besides, what rational, economic justification can anyone make for a plan which eats into monies meant for development, since, if this the path the Congress is set to follow, then infrastructure projects will start to hobble, and investments with it. In addition, the state’s liabilities will mount exponentially and drive Karnataka into a debt trap of AAP-ian proportions before the end of this legislature’s term. But the Congress and its pliant compradors refuse to see it that way.

On top of all this is the very real fear that this Congress government would exacerbate such reckless spending by tweaking labour laws to make them employer unfriendly. The impact of such a move on investment in the state would be catastrophic.

The problem is that this Skywalker-ian lust for power has blinded the Congress to the actual linkages between growth, earnings, and welfare spending. In the sane, rational world of fiscal prudence and good governance, the growth horse pulls the welfare cart.

The BJP understands that, which is why its manifesto repeatedly underscored the fact through two basic points: one, that subsidies and handouts would be directed to BPL households (those below the poverty line); and, two, that the primary focus of a BJP government would be on making the state a manufacturing powerhouse, filled with industrial clusters enabled by a ‘Production Linked Incentive Scheme’ (PLI).

But in Karnataka, it appears that the Congress wants to out-revdi the AAP and get the welfare cart to pull the growth horse – a thoroughbred, in fact, set to be mercilessly hamstrung on purpose by its owner.

This is both regrettable and dangerous, both for Karnataka and India, since the state is one of the top economic powers of the country. Haven’t they seen the financial state Punjab is now in? India’s most prosperous state is bankrupt.

Haven’t they seen the state neighbouring Kerala is in? De-industrialized with soaring salary and pension bills, galloping liabilities, crushing debt, and revenues in a rut?

Don’t they know that if the past century has proved anything, it is that socialism doesn’t work; that socialism without growth can destroy a land more effectively than a barrage of thermonuclear devices could?

As far back as 1955, economist Milton Friedman concluded that India’s plans to subsidize a subsistence existence rather than the promotion of free enterprise was a waste of both capital and labour. 68 years later, it appears that Congress thinking has remained not just unchanged, but become even more ideologically rigid because it has to win the competitive welfare sweepstakes if it is to remain a relevant political force.

Whether they admit it or not, the Congress’s wipeout in Punjab rankles a lot more than its ‘High Command’ lets on. And now that they have the mandate, the implementation of their manifesto will come at a severe cost – to the aspirations of Kannadiga youth, the state treasury, and growth. 

This freebie nataka will end up in Hyderabad Karnataka, Bombay Karnataka, Coastal Karnataka, Mysore Karnataka, and the rest of the state being supplanted by a new province – a bankrupt welfare state called 'Punjab Karnataka'.

Also read: Why Karnataka's stellar economic growth in recent years faces serious threat from Congress's reckless and ruinous freebie promises