Congress’s Manifesto of ₹ 1L, actually feasible?
It’s there, mentioned on page 15 in the official Congress manifesto. Disguised under the name of Mahalakshmi Scheme, the process of giving away the hard earned tax money of the citizens to the ones in need. Freebies are available in many forms, cash, rations, electricity, water and other services. Freebie culture started off in Tamil Nadu back in 1954, free education and free meals were provided by Kumaraswami Kamaraj, the chief minister of erstwhile Madras state for the children in government school. A warm gesture and a calculated decision for the upliftment of the poor and bringing development to Madras, he was well integrated in the system and had a strong political outlook as well. There was no need for his council of ministers to worry about gaining votes and using freebies to do so until their defeat in the 1967 elections to Rajagopalachari (Rajaji). Over the years freebies went from being a calculated decision to a rogue strategy applied by various parties across the country to bag in votes from the people belonging to the bottom of the income pyramid. The perils of giving freebies, the aftermath of it is rarely ever considered.
There is no denial that every politician uses freebies in one way or another, the sitting Minister of India’s national capital has provided free electricity to around 22 lakh families in Delhi and has vowed to continue the electricity subsidy till 2025. Ration distribution among crowds in villages by other parties is common during the pre-election season. The reason why congress manifesto needs to be highlighted is the sheer volume behind it, the number of people being affected, the amount of money to be subsidised and the economic consequences have never been seen before. We can formulate the data in a tabular manner to get a better understanding about it.
To explain in simpler terms, our current budget for subsidies will not be able to cover the amount that Congress will need to fulfil the commitment made in the manifesto. Taking the best case scenario that they only take 50% of the additional amount as debt and the other 50% is adjusted in the existing subsidies budget, an amount of ₹2.32 lakh crores(estimated) will be needed. This is the best case scenario, the BEST case. To give one an idea, the Education Ministry of India has a budget allocation of ₹1.12 Lakh Crores, two times the amount will be given away as freebies. To convey the macroeconomic repercussions of the following in layman’s terms, increased subsidies will lead to increased deficit which will lead to increased borrowing by the government either from foreign nations or the public. This will also lead to higher payments on interests to foreign or domestic entities leading to a need for higher tax revenue which can only be done by increasing the tax rates across the country. The major load of this will be taken by the existing middle class while simultaneously having the subsidies provided to them cut short.
To be precise, Congress is expecting the middle class to bring them into power while cutting down their consumption and increasing tax on their income. Sounds fair, they are not the ones in as much need and they cannot find ways to avoid paying tax by loopholes and tax breaks like the ones on the top of the income pyramid. But will they even need the middle class, considering the 60% of the population below the poverty line to be of the voting age, receiving an amount of ₹1 Lakh, unconditional, cash transferred to their account. They have no reason not to vote for INC. As for the fiscal deficit, pressure on macroeconomic factors and conditions of the middle class, that will all be figured out before the next election, probably.
~Shubh Om Kanchan.
Apart from the scheme mentioned in the manifesto, the face of Congress, during a speech, mentioned that the reason for this scheme is to put more money into the hands of the people. This increased household consumption expenditure is expected to start factories and industries, creating job opportunities and therefore subsequently increase employment. However, before that happens, another economic shock is likely to hit, causing a rise in inflation.
“Manisha Malhotra, an associate professor in the Department of Economics at Banaras Hindu University, told the newspaper that in the rural Consumer Price Index (CPI), food and beverage components account for 54.18%, while urban inflation accounts for only 36.29%. Rural inflation is a significant concern, as more than 64% of India’s population lives in rural areas.”
When nearly ₹2 lakh crores are in the hands of rural people (majority of India) as free money, even if we assume they save 50% of it, the expected expenditure will be almost ₹1 lakh crores. This substantial expenditure will drive up inflation across the entire nation.
Now, here we introduce the term ‘transfer payment’, which in layman’s terms refers to the freebies that the government gives out, meaning the income received by people without providing any services. As calculated above, a total of ₹2,32,000 crores will be unaccounted for in the GDP calculation.
When the GDP of a nation rises, it typically indicates an increase in the purchasing power parity (PPP) of the people. However, since this entire amount will not be accounted for in the GDP and will instead raise inflation, it will cause significant economic imbalance. For example, the value of household savings will decrease, bank interest rates will go up, and investments will be reduced. These economically significant effects will further destabilise the economy.
Since individuals’ purchasing power has not increased and only inflation has risen, the demand for goods would fall rather than increase in supply due to higher prices. This decline in demand would lead to reduced production as consumers buy less. Consequently, firms would start laying off workers due to decreased production needs. This cycle of economic activities would create a spiral effect, where reduced production leads to higher unemployment. Ultimately, the entire goal of increasing employment would collapse.
~ Anonymous
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