The Election Commission should make it mandatory for political parties to estimate the cost of the “freebies” they promise to voters ahead of elections and how they plan to finance them, Ashima Goyal, a member of the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), has said.
From an IPL team to cheap cooking gas cylinders, political parties have been making a lot of promises to voters that have raised concerns about states’ fiscal health, which is already a worry for many of them.
"The Election Commission can help voters understand that freebies are never free by asking parties to estimate costs of schemes and also announce what tax will rise or what expenditure be cut to finance poll promises," Goyal wrote in a recently published paper.
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"Better measurement will enable the imposition of PAYGO rules, so that a new scheme can be announced only if the funding for it is shown," she added.
PAYGO, or Pay As You Go, refers to a US rule that mandates government debt stay unaffected by new expenditure or changes in the tax system, ensuring new spending is met by money that is available and not borrowed.
Goyal is the Emeritus Professor at Mumbai-based Indira Gandhi Institute of Development Research. Her paper 'Indian Fiscal Policy: A possible escape route' was published last week and comes amid a bunch of state elections and ahead of the national elections in 2024.
According to Goyal, governments have to be committed to fiscal consolidation for it to happen as they can "always find escape routes". While political stability has meant the Centre has taken the long view and been "relatively conservative", the case at the state level has been different.
"States governments are able to sidestep attempts at discipline by local institutions and banks that are dependent on them. Political deal-making offers another escape route," she said.
Ahead of the Karnataka assembly elections in May this year, parties made a variety of promises to the public, including a one-time grant of Rs 25,000 to poor families to undertake travels to places of religious importance such as Tirupati and Ayodhya (Bharatiya Janata Party), interest-free loans to women to buy two cows or buffalos (Congress), and Rs 2 lakh cash incentive to brides of young farmers (Janata Dal-Secular), among others.
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Opposition parties in particular have also made a return to the Old Pension Scheme (OPS) a key plank of their pre-election pitch – despite it being seen as fiscally unsustainable. Such has been the Centre's concerns around states transitioning to the old scheme that it constituted a panel, led by Finance Secretary TV Somanathan, to review the issues plaguing government employees' pensions.
The Somanathan-led panel is yet to announce its decision.
Goyal said while some strengthening of institutions and supportive incentives has resulted in higher capital expenditure by states and improved the performance of power distribution companies, more is required to reduce "competitive fiscal populism and finally reach the constitutional promise of good quality uniform public services through the country".
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