Ahead of the recently concluded assembly elections in five states, including Rajasthan, Chhattisgarh and Madhya Pradesh, political parties banked on a slew of populist measures to woo voters. Both the Congress and the Bharatiya Janata Party (BJP) promised subsidies and cash transfers to clinch victories, bringing the focus back on the fiscal risks of “freebies”.
Weighing in on the debate, veteran economist Montek Singh Ahluwalia told Moneycontrol that history shows while political parties make fiscally risky promises to win elections, governments that come to power aim to be fiscally disciplined.
“We need to create an awareness that politics is a competitive business and politicians will promise whatever gets them votes. The question is: what is the discipline of whoever wins power? Are they going to drive the fisc crazy? I think, so far, in the last 10-20 years, our record on the fiscal front does not suggest that any government will allow the fiscal situation to go crazy,” Ahluwalia told Moneycontrol in an interview.
The pre-poll promises made by the BJP and Congress in the runup to the recent assembly elections, including subsidised electricity, free laptops and scooters, worried experts over the political commitment to fiscal prudence, especially with general elections around the corner.
But Ahluwalia believes that while political parties may not believe in fiscal discipline, governments do.
“Investors abroad probably assume that irrespective of what is said in elections, whoever is running the government is sensible enough and will not allow the kind of fiscal collapse that leads to an economic crisis. In an interconnected world, with the economy being open and money coming in and going out, the cost of that sort of fiscal indiscipline can be very high. I think the government realises that. Political parties don’t,” said the former finance secretary.
Ahluwalia does make a fair point. The BJP-led government at the centre has committed to meeting its fiscal deficit target. On December 12, Finance Minister Nirmala Sitharaman said that India has kept fiscal prudence as its top priority without denying funds for the welfare of the poor.
The latest data suggests that the Centre is well on track to meet its deficit target of 5.9 percent of GDP for 2023-24.
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