Karnataka And The Pitfalls Of Freebie Politics

The dangerous pitfalls of ‘revdi politics,’ became apparent in Karnataka when the Deputy Chief Minister, D K Shivakumar, recently cited a lack of funds to pursue development projects—after meeting the election promises of doles. 

Karnataka is among the most advanced states of India and a top destination for foreign direct investment (FDI).

If it sacrifices development for doles, the entire nation will suffer. If that happens, Rahul Gandhi’s Congress must take the blame. 

Congress in Karnataka

Congress won the state by a mammoth margin in May. For a party that had suffered a humiliating defeat in two successive Lok Sabha elections, it was a major morale booster.

Ideally, in such cases, state governments go on a development overdrive. 

But that’s not happening. For a state that remains in the national news for water crisis and related conflicts, even Shivakumar’s water resources and irrigation department did not receive funds for projects in the latest budget. 

Because, the state had to provide a whopping Rs 40,000 crore (nearly $5 billion) for unemployment dole, free electricity, free bus ride for women, cash handouts to women and cash-handout equivalent to 10 kg rice per person, per month over and above the centrally-sponsored 5 kg. 

Splurging Beyond Means

The rollout of the subsidy schemes has just begun. It means the expenses may go up in the days to come.

Many may argue that the doles were required for social equity and, given its access to resources, Karnataka can manage these expenses. 

The argument is partly true. Care Ratings placed Karnataka fifth from the top in the recently published “States’ Ranking 2023.” The scores were decided based on the states' performance in seven areas — economic, fiscal, financial inclusion, social, infrastructure, governance and environment. 

Karnataka has been the second-best major state, after Gujarat on the economic front, fourth on fiscal discipline and financial inclusion, ninth on social, 10th on infrastructure, 14th on governance and second in environment. 

The dole politics may aggravate governance problems as the state wouldn’t have enough money to invest in administration and social infrastructure.

Restricted resources should also mean less investment in infrastructure, which should ultimately impact its fiscal and economic performance. 

To put it differently, the economic thought of Rahul Gandhi might end up aggravating the problems of Karnataka and may put serious hurdles before India’s growth ambitions. 

The images of severe waterlogging in Bengaluru last year, didn’t send the right signals to global investors.

Chief Minister Siddaramaiah's government was expected to correct that but it has put a serious question mark on its ability. 

Congress might show the theoretical benefits of doles, like increased spending etc. The question is, for a state that reports 159 per cent higher per-capita gross domestic product (GDP) compared to the national average, how much dole was required and for whom. 

According to the muti-dimensional poverty index prepared jointly by NITI Aayog and United Nations Development Programme (UNDP), Karnataka has an estimated 45 lakh poor (7.5 per cent) out of a total population of six crore. 

Theoretically, a rich state may decide for a targeted intervention for the poor. But how does that justify free bus rides for women or unemployment doles for degree and diploma holders? 

The Rs 10,000 crore Anna Bhagya scheme (cash handout equivalent to 10 kg of rice per person) of Karnataka is worse. It is created to rival the centrally-sponsored free-foodgrains of 5 kg each, to 81 crore Indians for one year. 

The central scheme — Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) — is a compromise to save nearly Rs 1,50,000 crore on food subsidies offered during the pandemic years.

The Centre has also kept the options open to narrow down the scope of the scheme by making it time-barred. 

Anna Bhagya has no such cushion. Moreover, it is highly questionable if people eat 15 kg of rice a month. It is well known that a substantial part of the PMGKAY rice remains unused and comes back to the open market. A good part of it also makes its way to government procurement. 

The Siddaramaiah government initially wanted to distribute rice. Thankfully, they failed to procure it and settled for a cash handout. The nation is saved from more damage to its rice market and the national exchequer. 

Karnataka’s claims about targeted benefits also seem doubtful. A Rs 5,000 monthly cash handout per person to 45 lakh poor, would have restricted subsidy outgo by one-third, to Rs 27,000 crore.

At 4.4 average family size in India, monthly support to each poor family would have exceeded Rs 20,000. 

Financial Impairment 

India’s opposition parties, particularly Congress and Aam Aadmi Party, had weaponised doles as a success-mantra in state elections for some time.

It had pushed financially weak states — like Rajasthan and Punjab — towards more distress. 

By going overboard in Karnataka, Congress wanted to showcase its model for the 2024 Lok Sabha election.

The results will be apparent in the state finances over the next 10-15 years. 

Siddaramaiah government has also started discussing a return to the old pension scheme for government employees, as part of its poll promise. While this could offer temporary relief to the state finance, it would be at the cost of long-term fiscal discipline. 

If not checked, Karnataka will prepare a minefield for India’s fiscal future.

Understandably, Shivakumar and some of his elected party colleagues are wary of that. There is no other reason why he would let that ‘no funds’ remark go out to the media. 

It is to be seen, if the party thought leaders Rahul, Priyanka and Sonia take note of that. Chances are they will not.