AN EXPENDITURE CAP

Aspartiesstepupelectionpromises, normsongovernmentspendingareneeded

The common man will vote for projects whichgenerateemploymentandincome, not make them worse off, if, for instance, this involvesgivinguptheirlandforthelargergood. Theissueofcompensationisstillcontentious. And besides the landless labour attached to the land will be out of employment. But this decisionislefttothegovernment. Thisiswhy therearevariedviewsonspendingpriorities.

Hypothetically, if all possible avenues of discretionary expenditure (which excludes fixedcommitmentslikesalaries, defenceand interest payments) were put to a vote, individualchoiceswouldleantowards“freebies”. Theammamealintamilnadu, freeelectricity scheme in Delhi, free travel for women in public transport — these would find favour with the majority as most people belong to thelowerendoftheincomedistribution. The viewsof thericher/eliteswouldbesidelined. This is why it has been observed that states tend to be more inclined to give freebies as theyareclosertothecitizensthanthecentre.

Statesalsohaveadifferentpositiononsocalled freebies. There is an argument that when cycles, saris and dhotis are distributed forfree, the expensesincurred arenot totally wastefulastheydoincentiviseproductionin theirrespectiveindustries. Thesameholdsfor free or subsidised meals. In fact, free power and water to farmers in Punjab has been defendedonthegroundsof wheatpricesbeing kept subdued as in the absence of the same, the costs would have gone up. These argumentsmaybeconsideredfairbysome.

Thislineof thinkingcanalsobeextended toloanwaivers. Theargumentgoesthatwhen badloansofindustryareprovidedforbybanks orwrittenofffromtheirbooks, thedepositors’ money is being unfairly treated, while a loan waivercomescleanasitisbeingprovidedfor bythegovernmentforavulnerablesection.

How then are governments to decide wheretospendtheirlimitedresources?

Whenpartiescontestelections, promises aremadetothevoters. Whilethereisadivergence between promises and delivery based on fiscal constraints, in general parties do try nottorenege. Butthisisacompetitivearenaas eachpartypromisesmorethantheother.

One way out is to put a cap. And to ensure that there is parity across all the levels of government. Thereisaneedtorevisitthe subjectof expenditureallocations. Thenext Finance Commission may consider drawing up such norms.

Thewriterischiefeconomist, Bankofbaroda andauthorofcorporatequirks: Thedarker sideof thesun. Viewsarepersonal