Chhattisgarh, Mizoram polls: Two key parties and the narrative of freebies

BJP and Congress bets on welfare schemes or freebies to clinch wins.

As state elections get underway, Moneycontrol does a deep-dive into welfare or freebies in the offing this election season. And while there are no free lunches, experts are divided on the fiscal impact versus the development effect of these measures.

Voting kickstarted on November 7 to decide the electoral fate of Chhattisgarh and Mizoram for the next five years. Not surprisingly, the last few months witnessed heated debates over freebies making a comeback, as political parties banked on populist announcements ranging from reservations for women and income guarantee schemes, to free education to woo voters in crucial constituencies.

In both these states, the two key parties - Congress and the Bharatiya Janata Party (BJP) have declared a slew of steps in their manifestos to lure major demographics to vote in their favour.

Mineral-rich Chhattisgarh that currently has a Congress Government is seeing tough competition between the ruling party and the main opposition BJP when it comes to announcing welfare measures that some may call doles ahead of elections. Elections to this 90-member assembly are being held in two phases - November 7 and 17.

The ruling Congress party in Chhattisgarh unveiled its manifesto titled 'Bharose ka Ghoshna Patra 2023-28'. Some of the key announcements include higher paddy procurement prices, another farm loan waiver, free ‘KG to PG’ education, subsidy of Rs 500 per cooking gas cylinder to women of all income groups, and free electricity to residents for consumption of up to 200 units.

The main opposition in the state is not far behind. Some of the promises made by the BJP in its manifesto named 'Modi ki guarantee' are LPG cylinders at Rs 500, government jobs to one lakh youth in two years, annual financial assistance of Rs 12,000 to married women, and paddy procurement at Rs 3,100 per quintal.

On the other hand, in the north-eastern state of Mizoram the contest is largely between the ruling Mizo National Front and the main Opposition Zoram People’s Movement. The Congress and the BJP are the third and fourth players respectively in the state.

Important measures promised by Congress in the state if it wins elections are LPG cylinders at Rs 750, old-age pension of Rs 2,000 per month and health insurance coverage of up to Rs 15 lakh. BJP, on the other hand assured rice at Rupee one per kg, home to every homeless family, 33 percent reservation for women in all government jobs and an increase in health insurance coverage from Rs 5 lakh to Rs 10 lakh under the Ayushman Bharat scheme, among others.

Voting took place on November 7 for the 40-member Mizoram assembly.

Economics of Freebies
The debate over freebies is not new. Several experts and institutions including the Reserve Bank of India (RBI) have consistently highlighted the need to distinguish freebies from public or merit goods, which bring larger economic benefits.

One of the key announcements made by these states seemingly keeping in mind elections is on the Old Pension Scheme (OPS). While Chhattisgarh has already implemented the decision to switch back to the OPS, the government of Mizoram is said to be exploring the idea as well.

Back in September, India’s central bank, in its monthly bulletin, said that a shift by state governments to OPS will be "fiscally unsustainable" and a "major step backwards".

"…short-run reduction in states' pension outgo, which may be driving decisions to restore OPS, would be eclipsed by the huge rise in future unfunded pension liabilities in the long run. States' reverting to the OPS would be a major step backwards and can increase their fiscal stress to unsustainable levels in the medium to long-term," the article, released on September 18, said.

Concerned by some states transitioning to the old scheme, the Centre has constituted a panel, led by Finance Secretary, T V Somanathan, to review the issues plaguing government employees' pensions.

While the OPS guarantees a fixed pension of 50 percent of a government employee's last drawn salary without any contribution during their working life, the National Pension System (NPS) requires employees to contribute 10 percent of their basic salary and the government 14 percent, with the eventual pension contingent on market returns on the corpus.

Concerns around the culture of freebies was also highlighted by none other than Prime Minister Narendra Modi himself. In an interview to Moneycontrol in September, Modi said that there was a need to eschew such “financially irresponsible schemes” citing the long-term impact of these measures on the economy as well as on society.

But not everyone agrees. JP Morgan’s Jahangir Aziz believes that some of these steps may have a positive impact on the economy since the size of these cash transfers is not large enough to upset the fiscal arithmetic of the country.

Chhattisgarh Deputy Chief Minister, T S Singh Deo, too defended measures announced by his party in the run-up to assembly polls by terming them as steps to empower the people.

“At election time you present to the people what you would want to do for the people in the next five years. This is what we would like to do for the people in the next five years. Some people may call it a freebie, we call it and I call it empowering the people by deepening the pockets of the section of the people that needs most assistance”, Deo told Moneycontrol on November 7.

The major risk associated with rampant subsidies or freebies is an increase in fiscal deficit as such measures create additional pressure on revenues. In this regard, Chhattisgarh is faring better than Mizoram.

While Chhattisgarh has been able to contain its fiscal deficit within its targets in recent years, and is aiming to bring it down to 2.99 percent of GSDP in the current fiscal below the mandated aim of 3 percent as recommended by the 15th Finance Commission, the north eastern state of Mizoram saw its fiscal deficit widen to seven percent of the GSDP in FY23 and is looking to bring it down to a level of 3.5 percent in 2023-24. or welfare measures to clinch victories.

November is crucial as more states go to polls banking on freebies or welfare measures to clinch victories. Voting in Madhya Pradesh, Rajasthan and Telangana will take place later this month and counting of votes for all states will be conducted on December 3.

Polls in these five states are said to be key to assessing the mood of the people ahead of general elections to be held in April-May next year.