Promise the moon and then blame the stars

Cash-strapped states are hitting pause on promises. As expenses soar and income lags, India’s welfare politics faces a fiscal reckoning.

Promise the moon and then blame the stars

Maharashtra minister Ajit Pawar says that the welfare scheme Mukhyamantri Majhi Ladki Bahin made a mistake, giving a financial benefit to all women, admitting that the scheme has been overstretched, and is being pruned as to both outlays and target beneficiaries.

Telangana has stopped paying bills in a routine fashion, and is raising extra revenue through additional levies on liquor, in order to pay for the slew of welfare schemes it announced after coming to power.

Karnataka’s Gruha Lakshmi and Anna Bhagya Schemes face cash crunch. The state road transport corporation has to borrow money to pay salary arrears and provident fund dues, after making bus rides free for women.

In Bengal, the government is revoking incentives and benefits it had offered industry, to encourage them to locate their business in the state, because the chief minister wants to prioritise welfare payment handouts to yet more weaker sections.

The Accredited Social Health Activist (ASHA) workers of Kerala have been agitating for 120 days, demanding that their paltry remuneration of Rs 7,000 a month be raised to Rs 21,000 a month, and they be given retirement benefits. The pro-worker inclinations of the Left Democratic Front government of Kerala have not sufficed for it to concede that these hardworking women have a legitimate case. The government faces a cash crunch, after meeting all its welfare payment commitments, in addition to the regular expenses of the government.

The common theme running through these disparate developments in states run by different parties, belonging to the BJP-led National Democratic Alliance and the Opposition India Alliance is a shortage of resources, in relation to the expenditure commitments taken on by the government. Or, at least, this is how it looks on the surface.

But ask the question, why would the government take on expenditure commitments that it is in no position to honour, and the superficial explanation crumbles. The common theme actually is a variety of political irresponsibility called populism. Parties and leaders promise the moon, in order to win elections. But when the moon continues on its distant trajectory, and refuses to come down to earth to pliantly be broken up and handed around, politicians blame galactical villainy, an inexplicable tendency for the moon to shrink ever smaller and disappear, and newfangled claims that portray the moon as a cratered, unliveable, giant sphere with a dark side, rather than the silvery orb of romance and poetry that people yearn for. They locate the fault in the stars, not in themselves.

The global economy is entering a new phase, marked by artificial intelligence and rampant protectionism on the part of the world’s largest economy.

In a world of AI-enhanced robotic agents and tools, ordinary workers need to be in a position where they make use of AI to boost their productivity, rather than being displaced by them. This calls for the ability to constantly upgrade skills and evolve as workers. This calls for developing the faculty of critical thinking early on in their education process. That means revamping the extant education system. It calls for resources, besides sensible policy.

In order to appease Trump while still maintaining a rules-based trade order, whose essential principle is that every trading partner gets the same, non-discriminatory treatment, economies would have to bring down their tariffs, for all trade. If protection behind high tariff walls ceases to be a viable option, offering companies world-class infrastructure and efficient regulatory support becomes of the essence. This means that governments at all levels have to invest in creating that competitive ease of doing business, without attracting the charge of extending unfair subsidy to local producers.

Governments need to have resources to invest in human capital, physical infrastructure, efficient payment systems and optimal regulatory design and implementation. Governments that have bankrupted themselves by means of assorted welfare payments to an expanding list of ‘weaker sections’, will not be able to offer the wherewithal of surviving competition in the new global economic order.

That means fewer people with jobs that survive the onslaughts of AI and protectionism, and more people dependent on welfare handouts. When the tax base shrinks as well-paying jobs disappear, and the demand for welfare payments increases, the only thing that thrives would be fiscal malignancy.

Promising the moon to win votes would stand revealed as, well, lunacy, as people are forced to appreciate the link between that mental health condition and the moon.

Do we see any sign of any corner of the political space appreciating the dire consequences of endless populism? The Prime Minister once appeared to disparage handouts, but has been at the forefront of dispensing subsidy. He started the practice of giving out free food for 82 crore families during the pandemic. The subsidy continues, and disincentivizes people from returning to the towns they had left, fleeing a killer virus and equally heartless employers who failed to provide for their workers, making it unsustainable to stay on at their places of work.

The PM began an attempt to reconfigure farm subsidy, with cash handouts to the farmer that potentially could align Indian farm subsidy with the global practice of separating consumption subsidy from support for the farmer. But he could not muster the courage to end the traditional conflation of production subsidy and consumption subsidy in the combination of food and fertilizer subsidy, even as income support continues. Half-a-step forward on farm subsidy reform has increased the subsidy burden. The Congress party’s political plank, before it became the caste census, was a universal subsidy.

The fervour to redistribute would be welcome, if there were equal, if not greater, enthusiasm for producing, in the first place, a pie large enough to be shared. In its absence, what we have is pie in the sky. Some would call it a lunar project, or a less charitable variant of moonstruck.