Congress party's poll guarantees: A tightrope walk awaits new Karnataka government

Congress's five major poll guarantees

Sources said the poll guarantees will be implemented in phases and come with various riders.

Finances of Electricity Supply Companies (Escoms) and Road Transport Corporations (RTCs) are already in crisis. A state government committee led by retired bureaucrat G Gurucharan revealed that as of March 2022, the five Escoms collectively carried a debt of Rs 29,764 crore.

Another committee headed by another former bureaucrat, MR Srinivasa Murthy, found that the cumulative losses of the four RTCs increased to Rs 4,689 crore in 2020-21 from Rs 2,307 crore in 2019-2020.

These findings imply that implementing welfare schemes like free electricity and free travel for women on buses will further burden the already struggling state-owned companies unless the government stumps up adequate support.

Congress banks on Siddaramiah 

The Congress party is relying on Siddaramaiah, who has previously presented 13 state budgets as finance minister, to ensure the implementation of these guarantees.

MV Rajeev Gowda, Congress national spokesperson, told Moneycontrol that the new government will need to find a way to alleviate people's distress.

"We will figure out a way to finance it, and it is not impossible," he said.

Gowda explained that according to rough calculations, the poll guarantees for the economy would cost approximately Rs 45,000-50,000 crore per annum.

"Keynesian economics involves putting money in the hands of people to stimulate economic growth. The implementation of the guarantees will take time and the expenditure will not occur all at once. The guarantees will provide resources to help people in poverty and revive the economy, generating more revenues to fund the projects," he said.

Asked about mobilisation of funds, Gowda cited Siddaramaiah's expertise as a former finance minister, emphasising that the government’s goal would be is to improve the state and take care of its people, not to harm them.

Will impact infra projects: BJP  

The Bharatiya Janata Party (BJP) has expressed concern that these guarantees will undermine infrastructure projects.

"Compared to other states, Karnataka's fiscal health is good due to responsible financial management by the previous BJP government. Our focus is on long-term infrastructure development/creating assets such as highways and hospitals"  Tejasvi Surya, a BJP leader and Bengaluru South MP told Moneycontrol.

"However, fulfilling the Congress party's promises will require significant cuts in capital expenditure, which will stagnate growth for years to come. There is a risk of exceeding fiscal limits and draining state finances, hindering asset creation/infra projects. As a progressive state, we must avoid irresponsible fiscal management and mindless populism," Surya said.

The Congress would need to either borrow or reduce capital expenditure to fulfill its promises, he reckoned.

On putting money directly into the people's hands, Surya highlighted India's model of capital asset creation, resulting in a more stable economic recovery compared to countries that faced inflation and joblessness.

Address corruption first: AAP 

The Aam Aadmi Party (AAP) has raised concerns that the Congress party's adoption of poll promises without addressing corruption could have negative consequences for the state's finances.

Ashwin Mahesh, head of the AAP manifesto committee in Karnataka, pointed out that while 95 percent of parents in Delhi send their children to government schools, more than 50 percent of students in Karnataka attend private schools. "This results in government expenditure going to waste due to the poor quality of public schools."

Mahesh suggested that if government schools in Karnataka functioned properly, parents would not need to spend money on private schools, allowing them to spend those money on other things.

Mahesh emphasised the primary reason for the budget increases of AAP’s government in Delhi was the eradication of corruption. By curbing corruption and tax evasion, the government can collect more tax revenue.

He cited examples such as non-payment of property tax by half of the buildings in Bengaluru and undervalued property registrations in the state.

Mahesh cautioned that the additional funds required for the Congress party's poll guarantees, amounting to Rs 60,000 crore, represent one-fifth of the state budget. If the Congress party fails to generate sufficient funds, it could impact public services, leading to underperforming RTCs and a reduced fleet, which will result in longer waiting time for buses.

Mahesh emphasised the need for reducing corruption and providing free, high-quality public services. Increased tax revenue can cover the government's additional expenditure. By reducing corruption and ensuring effective delivery of services like education, more money will be available to the public, which can spend it on goods and services, resulting in additional revenue.

Mahesh stated that people may not spend their money again on services like health and education if they are made free, but the additional money in their hands would drive economic activity and generate more taxes. So the government would be able to fund the poll promises.

Limit poll guarantees to BPL families: Industrialist  

TV Mohandas Pai, chairperson of Manipal Global Education and a former board member of Infosys, suggested limiting freebies to BPL families and senior citizens. While providing assistance to the poor is necessary and widely accepted, giving benefits to everyone, regardless of their need, burdens the taxpayer, he said.

Pai said that promises such as free bus travel, Rs 2,000 monthly financial aid for women, 200 units of free electricity should be extended to only BPL families but with a nominal fee of around Rs 100 per month, which would not be a significant cost for them. This approach would reduce the financial burden to approximately Rs 15,000-20,000 crore annually.

Karnataka's annual budget is Rs 3 lakh crore, and with the economy performing well, the government could potentially generate an additional revenue of about Rs 10,000 crore for the year. To bridge the remaining gap of around Rs 40,000-45,000 crore, it would need to either cut infrastructure expenditures or borrow funds.

On corruption, Pai noted that the Election Commission seized over Rs 380 crore worth cash, liquor and other intended freebies during elections, which was intended for distribution to voters. The elected MLAs would now need to recover that money and also secure funds for the upcoming 2024 Lok Sabha elections. He expressed concern that corruption is unlikely to decrease and may even increase.

Freebies should have expiry period: retired IAS officer 

MG Devasahayam, a retired Indian Administrative Service officer, expressed concerns about two particular promises: free power and the unemployment dole for unemployed. He highlighted the potential for misuse, such as individuals installing multiple meters in a single house to claim consumption below the limit (200 units) for free power.

Devasahayam said the unemployment dole of Rs 3,000 per month to graduates should be structured properly. Simply giving them money without a purpose would not be effective.

He acknowledged that schemes like free bus passes could empower women and enhance their mobility, enabling them to engage in productive work and increase family income. He cautioned that receiving something for free compromises dignity and self-respect.

He suggested that such freebies should have an expiry period, perhaps three years, to ensure efficient governance and prevent a sense of dependence.

Devasahayam explained that diverting funds for freebies would impact capital investment. He spoke of the need for balance and suggested that guarantees and freebies should have an expiry period to ensure responsible financial management.

Economist J Jeyaranjan, who is the vice-chairperson of the Tamil Nadu Development Policy Council, said putting money directly into people's hands would immediately benefit them whereas the impact of infrastructure development and industrial growth takes longer to materialise. Jeyaranjan highlighted that a significant portion of GDP growth comes from consumption expenditure rather than capital expenditure. "When consumption expenditure increases, the market expands, leading to increased private sector investments".