The Politics Of Economics: Signals From The Election Campaign

The impact of state election outcomes on the trajectory of national politics is a seasonally adjusted ongoing debate. Conventional wisdom has it that assembly polls do not necessarily affect the outcome of general elections—after all the Congress won in the assembly polls for Rajasthan, Chhattisgarh and Madhya Pradesh and then the BJP bagged 62 of 65 Lok Sabha seats in these states.

However, when it comes to the economics of livelihoods, regional sentiments get interpreted effectively as the national mood, grief expressed locally is addressed with national policies. History bears out that assembly elections do inform and impact economic policies—remember the changes in GST, the khakra tax narrative which preceded the Gujarat assembly polls in 2017.

The parade of pre-poll promises—visible in the five states once part of the BIMARU states grouping—present a glimpse of discontent and even distress in what is verily a K-Shaped economy. Indeed, the narrative in the poll-bound states is a continuum, virtually a sequel to the saga witnessed during the earlier series of polls in Karnataka et al.

The spectre of distress is illuminated by the findings of opinion polls. For over a year now, every major pre-poll survey conducted by different agencies across media platforms has underlined unemployment and inflation as the hot-button issues.

Consider the findings of the NDTV-CSDS LokNiti Pre-Poll Survey on the performance of the Modi government. The pollsters asked what is the “biggest issue” facing the nation. The response is virtually a petition that is worrying the political class: unemployment topped the list with 29%, followed by poverty at 22% and price rise at 19%.

In the 1970s, economist Arthur Okun conceptualised the Misery Index (adding unemployment and inflation) to measure economic discomfort. If we layer the findings—and add poverty which represents the consequence—effectively 70% of the response underlined economic misery.

Splice the data further for each state and the findings are not very different. For instance, in Rajasthan the top three issues are unemployment at 21%, price rise at 20% and poverty at 15%, while in Madhya Pradesh unemployment is at 27%, price rise at 27% and poverty at 13%.

The political response—cutting across ideological aisles—illustrates and validates the findings of the surveys. It is instructive that the contest in the poll-bound states is less about ideas and ideology and more a competition of schemes. In state after state, political parties have designed schemes to contain discontentment. Unlike in the past, the schemes are targeted to harvest votes—based on parameters of caste, class and gender.

Women voters—who constitute 78 million of the 161.4 million voters—are deemed the X factor, game changers. The instrument of endearment is direct cash benefit transfer. In Madhya Pradesh, the Shivraj Chauhan regime has promised to up the cash transfer under the Ladli Behana scheme from Rs 1,250 to Rs 1,500, and raise it to Rs 3,000 per month. In Rajasthan, the Ashok Gehlot government has promised an annual allowance of Rs 10,000 to women. In Telangana, K Chandrasekhar Rao has promised Rs 3,000 per month to women from eligible households.

There is the promise of direct cash transfer and then there is the top-up strategy where states add to the payments/subsidies provided by the centre with additional allocations from the state kitty. To appreciate, consider the following promises being unveiled in Bhopal, Imphal, Hyderabad, Raipur and Jaipur.

Farmers are a core constituency —over 45% of India’s working-age populace is engaged in agriculture living on a sixth of national income and over half the populace in more than 15 states depend on agri income. The PM Kisan Samman Nidhi assures farmer households Rs 6,000 per year. The Madhya Pradesh government has, under the Mukhyamantri Kisan Kalyan Yojana, added Rs 6,000 to deliver Rs 12,000 every year to farmers. In Telangana, the KCR regime has promised to pay Rs 11,000 and take it eventually to Rs 16,000, while the Congress has promised payment of Rs 15,000. Meanwhile, Maharashtra has launched Namo Shetkari Mahasamman Yojana with a top up of Rs 6,000.

Top-ups are the rage. In August, the union government slashed cooking gas cylinder prices by Rs 200, bringing the price down to Rs 903. Voter anger on inflation catalysed poll-bound states to top up the quantum of subsidies. Result: The Gehlot government in Rajasthan is offering cylinders at Rs 500, while they come at Rs 400 in the KCR government-governed Telangana and at Rs 450 under the Chauhan regime in Madhya Pradesh.

Cash benefit transfers and top-ups for subsidies have been enabled by the availability of the Aadhaar-based DBT-Bharat. Indeed, state governments have registered over 7,500 user codes for a plethora of transfers on the NPCI grid. For sure, there is no free lunch but political parties are not obliged to outline the costs of the promises or how the additional expenditure will be funded. The challenge of executing poll promises is visiting state budgets—the Congress government in Karnataka had to set aside Rs 52,000 crore to fund the guarantees issued before the elections. States are emboldened by rising GST collections, which touched Rs 1.72 lakh crore in October and are averaging at Rs 1.66 lakh crore per month this fiscal.

The promise parade is propelled by the magnitude of discontent and the topography of the political economy. Over 265 million  workers are registered under the rural employment scheme. Since inception, the total expenditure on MGNREGS has been over Rs 9.68 lakh crore—averaging at around Rs 1 lakh crore for the past three years. Nearly half the population is dependent on a sixth of national income. Need drives welfare measures.

Indeed, earlier this month Prime Minister Narendra Modi, while addressing an election rally in Chhattisgarh, extended the free ration scheme for 813.5 million people for five years. The PM Garib Kalyan Anna Yojana was announced as a supplementary scheme during the pandemic and ran parallel to the original scheme under the National Food Security Act. In January 2023, the two schemes were merged into one free ration scheme. The question often asked is do 800-plus million need to be provided free rations? 

The data on national income offers some clues. India is the fifth largest and fastest growing economy. However, there is a wide divergence in incomes across states. India’s per capita income  is Rs 196,983. Topping the list is Telangana at Rs 308,732—followed by Karnataka at Rs 3.01 lakh and Haryana at Rs 2.96 lakh. The gap in incomes between industrialised and populous agrarian states is stark. Per capita GSDP of Bihar is nearly a fourth of national average at Rs 54,383; that of Uttar Pradesh is Rs 79,396 and Jharkhand is Rs 80,060. The consequence is visible in NSS data on asset ownership. The top 10% of households own half the assets while the bottom 50% own less than 10%.  

In politics, the past is often the prologue for the post-poll response of public policy. In 2018, Telangana and Odisha formulated a scheme to supplement the income of farmers—under the Rythu Bandhu and KALIA schemes. The idea was adopted nationally in the 2019 Budget as the PM Kisan Samman Nidhi, creating an entitlement of Rs 6,000 per year payable to farmers.

Government employees are a significant vote bank. In five states, parties have deployed assured benefits (50% of last basic pay). These states have exited the new pension scheme and restored the old one. Last month, the Congress promised to exit the new pension scheme and restore the old pension scheme in Madhya Pradesh and Telangana.

The race has triggered alarm bells. A recent RBI Study reveals that “the cumulative fiscal burden in case of OPS could be as high as 4.5 times that of the new pension scheme” and adds as much as 0.9% of GSDP to annual costs. Notwithstanding the caution, the speculation is rife on Raisina Hill that the union government may well be pushed to amend the NPS to sweeten it for beneficiaries.

The momentum of anxieties in the electoral arena is fuelling questions which merit attention. Will the electoral success of the scheme of cash transfers to women—now visible in five states —go national?  Will the persistence of unemployment in surveys accelerate the adoption of urban employment schemes tried out in Kerala, Odisha, Haryana, Himachal Pradesh, Rajasthan, Madhya Pradesh, Tamil Nadu, West Bengal, and Jharkhand as a national programme 2024? Will discontent over cost of living propel higher cooking gas subsidies to the national agenda? Will the race to promise higher procurement prices in states catalyse hiking of MSP? Will the angst among farmers trigger an increase in the annual cash payments to farmers? The playbook of politics has the potential to rearrange the configuration of fiscal balances.

The decibel levels of the raucous rhetoric signal an emerging consensus on opening the purse strings to address discontent and assuage those in distress. All economics is defined by the contest of politics.