MP's new government turns to loans to pay for predecessor's generous pre-poll promises

The cash-strapped MP government urgently requires loans of around Rs 25,000 crore to meet poll promises.

From the fairyland of generous pre-poll promises, the BJP government in Madhya Pradesh under new Chief Minister Mohan Yadav has landed to the treacherous surface of reality bites.

Even as the chief minister is still awaiting clearance from the BJP high command for formation of his cabinet, mandarins in the state’s finance department are on overdrive of reviews of the state’s precarious financial position. They have concluded that the government urgently requires taking loan of Rs 25,000 crore to meet the outgoing chief minister Shivraj Singh Chouhan’s promises made to a cross section of voters.

The Ladli Behna Yojana, the game changer scheme in the BJP’s spectacular victory, alone needs Rs 4,200 crore to implement.

Not By Taking Loans Alone

In this election year, the government has already borrowed Rs 40,000 crore since January from the market to meet the expenses on various promises. It is estimated that by the end of the current financial year, the debt on the Madhya Pradesh government is likely to mount up to Rs 4.50 lakh crore.

The finance department, which has been regularly reviewing ways and means to shore up the burgeoning debt burden, has proposed that taking additional loans would not suffice to meet the expenses incurred to the government due to freebies; drastic curtailment in several ongoing development schemes is inevitable. The department recently issued a circular prohibiting various departments from spending money without its prior approval.

Development Schemes To Be Hit

The ongoing schemes and projects, which are likely to face either complete halt or a significant cut in the allocation, include the Mahakal Lok corridor around the Lord Mahakal temple in Ujjain and the multi-billion metro rail services in Bhopal and Indore.

Other schemes, which are likely to be hit are, Khelo India, free pilgrimage for elderly persons, maintenance of government quarters, and subsidy in fees for students studying in private schools under the Right to Education (RTE).

The costliest drain on the state exchequer is, of course, the Ladli Bahana Yojana which is costing almost Rs 1,210 crore per month to benefit about 12.5 million women beneficiaries. Chief minister Mohan Yadav is so far non-committal on its implementation, fuelling speculation about the fate of the flagship handout scheme. In any case, hike in the amount from Rs 1000 per woman under the scheme is highly unlikely. Former CM Chouhan had promised to raise the amount up to Rs 3000.

Many other dole-outs are also burning deep holes in the government’s pocket. The government has widened the scope for free scooty scheme for girls to include boys, adding burden of Rs 200 crore.  Regularisation of contract-workers and increase in their pay-scales is costing Rs 2,000 crore per month. The promise of giving an LPG cylinder at Rs 450 to the Ladli Behna needs additional Rs 100 crore per month to fulfill. Substantial hikes in the salaries of employment assistants, Panchayat department personnel, Anganwadi workers and guest teachers in colleges have also contributed to emptying the state exchequer.

While the Congress had announced Rs 2,600 MSP (minimum support price) for wheat and Rs 2,700 MSP for paddy, the BJP increased the amounts to Rs 2,700 and Rs 3,100 respectively in its sankalp patra, terming it as Modi ki guarantee (Modi’s guarantee).

Challenging Days Ahead For CM Yadav

Finance department sources say coming years are going to be extremely tough for the Mohan Yadav government. For, it cannot keep on taking loans beyond the RBI guidelines. The government’s debt burden at Rs 3.5 lakh crore had already exceeded the budget estimates of Rs3.12 lakh crore when the finance minister Jagdish Devra presented the budget in March this year.

What is worse, additional resource mobilisation is severely circumscribed by the fact that the state government cannot levy extra tax except on petroleum products and liquor.

“After the GST came into existence, we only have two major sources of revenue, that is, excise duty and income generated from the petrol and diesel cess”, finance department sources said.

The Madhya Pradesh government generates over Rs 13,845 crore from the sales of liquor. It accounts for 16 percent of the total income through taxation. It earns nearly 12,000 crore from the taxes levied on petrol and diesel. The VAT levied on petrol is more than Rs 21.50 a litre and over Rs 15 on every litre of diesel. The finance department sources admit the levies on both items are already among highest in the country.

The government’s announcements and schemes in the run-up to the elections are estimated to increase expenditure by at least 10 percent.  The MP government’s average monthly expenses are around Rs 22,000 crore, and likely to get close to Rs 25,000 crore due to the pre-poll announcements. Average per capita debt on citizens has also mounted to Rs 42,000.

Rakesh Dixit is a senior journalist based in Bhopal. Views are personal, and do not represent the stand of this publication.