Karnataka's Freebie Schemes: Financial Sustainability and Political Impact

The political landscape in Karnataka has been significantly shaped by competitive freebie promises from major parties, particularly the Congress, which won the 2023 assembly elections with a platform of five major guarantees. These promises include ₹2,000 monthly assistance to women heads of all families (Gruhalakshmi), 200 units of free electricity to all households (Gruhajyoti), ₹3,000 monthly for graduate youth and ₹1,500 for diploma holders (Yuvanidhi), 10 kg of free rice per person per month (Annabhagya), and free travel for women in state public transport buses (Uchita Prayana). According to analyst estimates, the total annual cost of these freebies amounts to ₹65,082 crore, with Gruhalakshmi costing ₹42,960 crore, Gruhajyoti costing ₹15,498 crore, Annabhagya costing ₹5,728 crore, and Yuvanidhi costing ₹896 crore.

Political Context and Competitive Freebie Politics

The battle of poll promises began ahead of the April/May 2023 assembly polls in Karnataka, with both the ruling BJP and the challenger Congress floating promises in the form of freebies. Chief Minister Basavaraj Bommai announced special financial assistance for women to take care of their households, likely to be included in the state budget scheduled for February 17, 2023. This assistance was expected to be up to ₹3,000 per month "depending on calculations" and working out resource mobilisation aspects. The BJP promise, if kept, could cost up to ₹54,000 crore a year.

On the Congress side, AICC general secretary Priyanka Gandhi Vadra at the 'Naa Nayaki' convention announced 200 units of free power to every household and ₹2,000 per month deposited into the accounts of every woman head of household if voted to power. It was estimated that these two promises alone would cost approximately ₹45,000 crore per year, considering that electricity supply companies were already debt-trapped and supported by ₹21,000 crore, which includes ₹13,000 crore raised against guarantees by the state government.

The announcements attempted to mirror the Aam Aadmi Party's (AAP) model of providing freebies in Delhi. While this model helped the party retain power for a second term in 2020, the AAP-ruled government faced huge costs that forced shortages of funds for essential civic amenities. This pattern appears to be a concern for those making political promises of freebies in Karnataka.

Financial Impact and Budgetary Concerns

The expenditure on freebies could derail existing programmes and affect planned ones for want of funds. These freebie announcements were made much ahead of the respective parties' poll manifestos, indicating a degree of desperation in both parties—the BJP with anxiety over retaining power, and the Congress, smarting under its recent victory in Himachal Pradesh, looking to regain its hold in the South. Even if met, these promises of freebies are not likely to be sustainable.

The Congress' 'five guarantees' have made the commentariat very angry, with concerns that these vote-buying 'freebies' will send the state deeper into debt. The additional cost of approximately ₹50,000 crore would nearly double Karnataka's fiscal deficit, with the burden ultimately falling on honest taxpayers. While some argue that such freebie politics may make economic sense in poor states, it may not be suitable for a rich state like Karnataka.

However, the average income hides reality. While Karnataka is the fourth-richest state in India with an average monthly per capita income of about ₹22,000, just a shade behind Telangana and Haryana, the richest five districts clustered around Bengaluru and Udupi, home to about a quarter of Karnataka's population, have a monthly per capita income of nearly ₹45,000. This indicates significant income disparity within the state.

Budget Allocations and Opportunity Costs

The newly elected Congress government in Karnataka presented its budget for FY24 on July 7, focusing on the five freebies. The budget reflected the opportunity cost of neglecting crucial sectors including agriculture, horticulture, water resources, health, rural development, and cooperation, with reductions in previous allocations. The total outlay was ₹3,27,747 crore, an increase of 6% from the previous BJP CM Bommai budget of ₹3,09,182 crore. However, this 14th budget of Chief Minister Siddaramaiah was criticized for lacking wisdom, rationale, and experience.

Agriculture Sector Impact

Karnataka farmers will lose ₹4,000 per year under PM KISAN due to a 40% reduction in the state's share. The Congress budget cut the 40% state's share of PM KISAN that was awarded by the then BJP CM BS Yediyurappa. Consequently, 48 lakh farmers of Karnataka are deprived of the state's share of PM KISAN and will not receive the ₹4,000 per year from the state government.

Additionally, the allocation to agriculture and horticulture was drastically reduced from ₹9,370 crore allocated by the BJP Bommai government to ₹5,744 crore, a mammoth reduction of approximately 40%. This significant cut will seriously affect the agriculture sector.

Water Resources and Infrastructure Impact

The Congress government drastically cut the allocation to water resources from ₹22,839 crore allocated by former BJP CM Bommai to ₹19,027 crore, a reduction of 17%. This represents a severe setback to existing irrigation projects located in Northern Karnataka, which already suffer due to imbalance in economic development.

Implementation Challenges and Promise Gaps

There have been concerns about the government's ability to deliver on all promises. For the Annabhagya scheme, the state is expected to provide 10 kg additional rice. However, the Congress government indicated that it would only provide 5 kg in addition to 5 kg provided by the Government of India, suggesting the government has already gone back on its promise.

Broader Economic Concerns

The freebies are characterized as indiscriminate and come at a huge opportunity cost to the Karnataka state, leaving huge loans for payment. This approach robs the opportunity to generate income by incurring capital expenditure. The economic impact is expected to be deleterious in terms of transaction cost, affecting the growth rate. There are concerns that Karnataka, which had earned the name as a financially disciplined state, may fall into the trap of financial indiscipline due to indiscriminate freebies drastically increasing revenue expenditure.

Political Tensions and Federal Relations

The issue has created political tensions at the national level. An exchange between Congress chief Mallikarjun Kharge and Prime Minister Narendra Modi intensified when Kharge advised Congress units to promise financially "doable" guarantees. Prime Minister Modi attacked the grand old party's "unreal promises," which prompted Kharge's response calling it a "cheap PR stunt" pertaining to the NDA's 100-day plan.

Karnataka Chief Minister Siddaramaiah and his deputy DK Shivakumar also criticized the Prime Minister for making false accusations and copying their model. Shivakumar stated that Karnataka's financial strength is stronger than that of the country's strength.

The state has been accusing the NDA-led Centre of ignoring its concerns for months. Karnataka reportedly sent a delegation during pre-budget discussions to meet Union Finance Minister Nirmala Sitharaman, requesting ₹5,400 crore as recommended by the 15th Finance Commission. In July, Siddaramaiah skipped the NITI Aayog Governing Council meeting chaired by PM Modi in Delhi.

Sustaining Political Promises

The sustainability of freebie promises remains questionable. The commentary suggests that instead of focusing on freebies, parties should convince the electorate on how issues like the prevailing divisive communal environment, unemployment, education, ecological sustenance, and security for farmers, women, and minorities are addressed. These substantive issues could be accommodated in manifestos rather than relying solely on financial incentives.

The political freebie model in Karnataka represents a significant experiment in welfare politics, with substantial financial implications for the state's economy. The success or failure of these schemes will likely influence future political strategies not only in Karnataka but potentially across other Indian states, as parties weigh the electoral benefits against fiscal sustainability concerns.

Conclusion

The freebie promises in Karnataka, particularly those made by the Congress party, represent one of the most significant welfare policy experiments in recent Indian state politics. With total annual costs estimated at ₹65,082 crore, these schemes have substantial implications for the state's fiscal health, budget allocations, and development priorities. While the promises have clear political appeal, concerns about sustainability, opportunity costs, and long-term economic impact remain prominent among economists and policy analysts. The implementation challenges, including potential backtracking on some promises and significant cuts to critical sectors like agriculture and water resources, underscore the complexity of balancing welfare commitments with fiscal responsibility. The ongoing political tensions between the state and central governments further complicate the financial landscape, as Karnataka seeks additional resources while managing ambitious welfare programs. The Karnataka experiment will serve as an important case study for the political economy of freebies in Indian states.