The political landscape in Karnataka has been significantly shaped by the implementation of various freebie programs announced by major political parties during election campaigns. These initiatives, primarily aimed at providing financial assistance and essential goods to citizens, have sparked intense debate regarding their economic sustainability and impact on state finances. According to available data, the Congress party has outlined several key promises that form the core of their welfare agenda. These include the provision of 200 units of free electricity to households, which is projected to cost approximately Rs 25,800 crores. Additionally, the party has pledged a monthly sum of Rs 2,000 to working women belonging to Below Poverty Line (BPL) card holder families. With 1.28 crore BPL card holders currently in the state, the Grihalakshmi scheme is estimated to cost Rs 30,000 crores annually. Furthermore, the promise of free bus travel for women is expected to impose an additional burden of Rs 3,000 crores. Collectively, these three major promises from the Congress party are anticipated to cost the state exchequer an estimated Rs 58,000 crore.
In contrast, the Bharatiya Janata Party (BJP) has also put forward significant freebie promises to woo voters. The BJP's proposals include providing a free half-litre of Nandini milk to 1.17 crore BPL card-holder families, an initiative expected to cost about Rs 8,000 crore annually. Another major promise is the distribution of free LPG cylinders to the same 1.17 crore BPL card holders, which would require Rs 3,700 crore per year. Combined, these two primary freebies from the BJP are estimated to add a burden of Rs 12,000 crore to the government exchequer annually. The competition between the two parties regarding freebies is fierce, with economic experts noting that the three main freebies announced by Congress would mean an additional burden of Rs 58,000 crore on the state, while BJP's two main freebies would impose Rs 12,000 crore.
The financial implications of these promises are a major point of concern for economists. The state is already facing a revenue deficit of Rs 14,699 crore in the 2022-23 budget. Experts warn that the lack of funds for capital expenditure will adversely affect basic development projects. According to the Medium Term Financial Plan of 2022-26, 90% of the total revenue collection is already allocated towards fixed expenditure. The introduction of these large-scale freebie schemes is expected to exacerbate this situation significantly. To understand the magnitude of the impact, it is necessary to compare these free promises with the state's fiscal deficit and Gross State Domestic Product (GSDP). The fiscal deficit should ideally be within the limit of 3% of GSDP. Karnataka's GSDP for 2023-24 is Rs 23.33 lakh crore, with a current fiscal deficit of Rs 60,531 crore. The additional burden from the freebies could push the state deeper into debt, potentially doubling its fiscal deficit as estimated by some analysts.
The debate over these freebies is further complicated by the distribution of funds between the central government and the states. Data indicates that Karnataka's share of the Centre's total budgetary expenditure has decreased to just 1.1%. Between 2016-17 and 2019-20, states received 46% of the total transfers; this has now dropped to 36%. In terms of the latest Budget, there is a drop of Rs 4.6 lakh crore. If states had received their legitimate dues, Karnataka would have obtained a portion of these funds, which could have been utilized to pay for its five guarantees. This reduction in central transfers places additional pressure on the state's finances, making the sustainability of expensive freebie programs even more questionable.
Despite the economic concerns, the political leadership remains committed to the implementation of these schemes. Deputy Chief Minister DK Shivakumar has expressed pride in the guarantee schemes, calling them a model for the entire country. He noted that other parties, including the BJP, are adopting this model. However, internal dissent within the ruling party has emerged regarding the execution and potential misuse of these programs. Senior lawmaker RV Deshpande, who heads the administrative reforms commission, has argued in favor of reviewing the guarantee schemes, stating they are being misused "in some places." Deshpande specifically highlighted the Shakti scheme (free bus travel for women), noting that some women are traveling to the same places repeatedly. He described the provision of free goods and services as "as good as it’s dangerous" and emphasized the need for transparency and ensuring that benefits are limited to those who truly deserve them.
The discussion around the Shakti scheme has led to talks within the government about imposing a cap on the distance a woman can travel for free. Authorities are considering daily or monthly limits, which would require the rollout of smart cards for women to track travel distances. This measure is intended to curb potential misuse and manage the costs associated with the scheme. However, Chief Minister Siddaramaiah and Deputy CM Shivakumar have clarified that there is currently no proposal to review any guarantee scheme, including Shakti. This indicates a potential conflict between the need for fiscal prudence and the political commitment to welfare promises.
The economic arguments against the freebies suggest that they may not be suitable for a relatively wealthy state like Karnataka. While Karnataka is the fourth-richest state in India with an average monthly income of Rs 22,000 per person, this average hides significant disparities. The richest five districts, clustered around Bengaluru and Udupi, account for about a quarter of the population and have a monthly per capita income of nearly Rs 45,000. Conversely, a large portion of the population remains economically vulnerable, justifying the need for welfare measures. The challenge lies in balancing the needs of the poor with the overall fiscal health of the state.
The potential for these freebie programs to cause severe financial distress is underscored by reports from other sources. Allegations have been made by over 450 vendors threatening 'mass suicide' due to unpaid bills worth Rs 300-350 crore, claiming that 6,000 families are in financial distress. While the veracity of these specific claims from social media posts requires careful verification, they highlight the risks associated with implementing large-scale welfare schemes without adequate financial planning and timely disbursement of funds. The burden on the state exchequer from the freebies could lead to delays in payments to vendors and contractors, affecting the broader economy.
The sustainability of these programs depends heavily on the state's revenue generation capabilities and the efficiency of implementation. The Medium Term Financial Plan indicates that 90% of revenue collection is already committed to fixed expenditures. Introducing new, large-scale liabilities without corresponding revenue increases or expenditure cuts in other areas is unsustainable. The state's fiscal deficit is already at Rs 60,531 crore, and the addition of Rs 58,000 crore (Congress) or Rs 12,000 crore (BJP) annually would severely strain the budget. This could lead to cuts in essential services, infrastructure projects, and other developmental activities, ultimately affecting the state's long-term growth prospects.
The political calculus behind these freebies is clear: they are designed to appeal to a large segment of the electorate, particularly the poor and women. The Congress party's promises target BPL families and women specifically, while the BJP's promises focus on essential commodities like milk and LPG. The effectiveness of these strategies in securing electoral victory remains to be seen, but the economic consequences are already being debated. The reduction in central transfers adds another layer of complexity, as the state must rely more on its own resources to fund these schemes.
In conclusion, the freebie programs in Karnataka represent a significant shift in political strategy, with major parties committing to expensive welfare schemes. While these initiatives aim to provide relief to vulnerable sections of society, they pose substantial risks to the state's fiscal stability. The estimated costs of Rs 58,000 crore for Congress and Rs 12,000 crore for BJP annually are significant relative to the state's budget and GSDP. The concerns raised by economists regarding the impact on capital expenditure and development are valid. Internal calls for reviewing the schemes to prevent misuse highlight the operational challenges. The sustainability of these programs will depend on careful financial management, potential adjustments like caps on free travel, and the state's ability to generate sufficient revenue. The situation in Karnataka serves as a case study for other states considering similar welfare models, underscoring the need to balance populist measures with fiscal responsibility.
Sources
- Karnataka: Congress outruns BJP in 'freebies race' by huge margin
- Challenge for Congress to give out freebies in Karnataka
- Another fallout of mindless freebies? Now the Karnataka Congress government is facing serious allegations made by over 450 vendors
- Freebies are as good as they're dangerous, says Cong MLA R V Deshpande