It’s politics over economy in Cong manifestos
With party no longer a major player in UP and Bihar, it must win or improve vote share in MP and Chhattisgarh to challenge BJP in the 2019 Lok Sabha polls
Unlike Uttar Pradesh and Bihar, which slipped out of the Congress’ grasp after 1989, undivided Madhya Pradesh (MP) continued to be its stronghold at least until 2003. But the party has failed to win a single assembly election ever since MP was bifurcated and Chhattisgarh was created.
A perusal of the Congress’ manifestos, released last week, for the two poll-bound states would suggest its keenness to make a comeback to power. The party has made some interesting promises to the people of the two states, including farm loan waivers and prohibition in liquor Chhattisgarh.
While the Congress has argued that it has prepared manifestos after discussions with its workers, non-governmental organisations, and other stakeholders in both the states, there is little denying that the party, if comes to power, could struggle to raise revenues to fulfil these promises.
The answer to the conundrum is less economics and more political. With the party having ceased to be a major player in Uttar Pradesh and Bihar, the battle for the Congress is that of survival in these two states. And a win or an improved vote share is important if it needs to mount a challenge to the Bharatiya Janata Party (BJP) in the 2019 Lok Sabha elections.
A 15-year hiatus from power in Madhya Pradesh and Chhattisgarh has hurt the Congress not just in the states but at the national level as well. While it could form the government in 2004 at the Centre, after having lost in these two states just months before in 2003, its Lok Sabha performance here as abysmal.
In the 2004 Lok Sabha polls, the Congress could win just four of Madhya Pradesh’s 29 seats, while the BJP bagged 25. In 2009, on the back of UPA-2’s welfare schemes and arguably a weak top leadership in the BJP being a factor, the Congress could win 16 seats with the BJP claiming 12 and the Bahujan Samaj Party bagging one. In 2014, the BJP won 27 of MP’s 29 seats, while the Congress could win only Jyotiraditya Scindia's and Kamal Nath’s seats. In Chhattisgarh, the BJP won 10 of its 11 seats in 2004, 2009, and 2014. The Congress won just one seat.
This time, the party in its manifestos has proposed and made some interesting promises to get back to power.
Axe on revenue imperative after liquor ban
The Congress has promised liquor prohibition in Chhattisgarh, but not in Madhya Pradesh. The reason, as the party insiders think, could be that the Chhattisgarh has a bigger rural and tribal population, making it more prone to the ills of alcohol consumption, most importantly gender-based violence. Most policy actions resulting in prohibition have been initiated by activist groups led by women.
However, the impact of prohibition on the state’s revenue earnings cannot be overlooked. Chhattisgarh has budgeted a collection of ~44 billion from its excise tax, which is a fourth of the state’s own-tax revenue (OTR).
OTR is the revenue that a state earns by itself, before the transfers from centre, and excludes the nontax revenue such as dividends from state companies.
If prohibition is indeed implemented, it would slice away a fourth of the state’s own revenue. This is evident from Bihar, where Nitish Kumar, who rode to power with the same promise, banned liquor from 2016-17.
From roughly ~35 billion, or about 15 per cent of its OTR, its revenue from excise dropped to zero, making it more dependent on goods and services tax and central transfers.
Power is key to power
When it comes to assembly elections, free electricity to farmers has been a perennially effective instrument to buy votes.
But populism comes with a costs: State power utilities did not raise electricity charges commensurately and worsened their revenues and financial health over time.
The Congress has promised discounts in power bills in both the central Indian states. In Chhattisgarh, its manifesto proposes free electricity to farmers who use a water pump up to 5 horsepower (HP). In addition, it vows to halve the electricity bills of all households by reducing the tariff up to 400 units of monthly consumption.
However, the situation of power utilities (discom) in Chhattisgarh has taken a beating this year. The gap between the average cost of supply (ACS) and average revenue realised (ARR) is a key determinant of the discom’s performance. Ideally, the latter should be greater than the former, but discoms in India earn less than they spend on generating a unit of electricity.
For Chhattisgarh, the UDAY target was to reduce the ACS-ARR gap
to minus 50 paise a unit, meaning an effective revenue of 50 paise per unit. While it had gone down to Re 0.1/unit in September 2017, it has deteriorated to Re 0.5/unit, meaning an effective loss of ~0.5 (50 paise) per unit.
This is evident in its tariff policy. Chhattisgarh is one of those states that has not increased power tariffs despite the unachieved target.
The story for MP is not very different. It has an ACS-ARR target of ~0.03 per unit. From ~0.26 per unit in September 2017, it has worsened to ~0.37 per unit. This, however, is despite a 9 per cent tariff hike in each of the two years, FY17 and FY18.
With this situation at hand, the Congress has promised a 50 per cent cut in power tariffs for agricultural pumps up to 10 HP. In addition, it includes a 25 per cent discount on electricity bill used for agriculture.
Contagion of loan waivers
The domino effect of farm loan waivers travelled from Andhra Pradesh to Maharashtra and UP, and to Punjab and Rajasthan, and most recently to Karnataka. Sensing the instrumentality of farm debt waivers, the Congress has promised to waive farmer loans in both these poll-bound states.
While in its promise, it has capped the upper limit at ~200,000 in MP, Chhattisgarh’s waiver plan is yet unspecified.
According to Reserve Bank of India’s research, if loans of indebted farmers are waived up to ~100,000, it would cost Madhya Pradesh ~158 billion. This includes loans given by scheduled commercial banks only, and leaves out those by cooperative banks and regional rural banks. In Chhattisgarh, such a waiver would cost not more than ~27 billion.
Experts say with a cap of ~200,000, the cost to the Madhya Pradesh exchequer would double to ~300 billion, which is about a fifth of MP’s total revenue from all sources. If this is indeed implemented, it would ensue serious limitation on the state’s spending on necessary provisions such as roads, health, and education.
At ~300 billion, the cost of farm debt waiver in MP would be comparable to its annual capital expenditure — spending on physical assets that guarantee returns — of ~293 billion budgeted in 2018-19.