Note: A shorter version of this piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.
After the Bharatiya Janata Party’s (BJP’s) big electoral triumph in the Uttar Pradesh assembly polls, Prime Minister Narendra Modi reinforced his commitment to several ongoing targeted welfare schemes which, he asserted, played an important role in making the party popular, especially among women. In his address to party workers in the capital after the election victory, Modi said he would not rest until he does “saturation coverage” of the targeted Indian population with these welfare schemes.
Modi has promised “saturation coverage” of welfare schemes at a time when government finances are facing their biggest challenge ever. Needless to say, this challenge has become even more daunting due to the economic fallout of the Ukraine war and sanctions against Russia. It is a given that both inflation and inflationary expectations will rise in the months to come on the back of supply disruptions in energy and food. India’s consumer inflation reading has just crossed 6%, which is the upper limit of RBI’s comfort zone. Most likely, India may have to settle for a lower GDP growth of 4-5% and higher inflation of 7-8% in 2022-23.
The key question is: without generating enough growth and income, how will the Modi government manage “saturation coverage” of various flagship welfare schemes over the next year and a half? At present, the budget has allocated money only for partial coverage of mega schemes like low cost housing grants and tap water connection for every household under the Jal Jeevan Mission. By one estimate, the infrastructure to facilitate tap water connection for every unprovided household would require at least Rs 4 lakh crore. The government’s original estimate was Rs 3.6 lakh crore, but there will be a cost overrun due to rising inflation and higher input prices.
In a year of high inflation and lower GDP growth, where will the government get the fiscal space to implement “saturation coverage “ of key welfare schemes, which Modi has promised to deliver before the 2024 general elections? Of course, even if the government is unable to generate more revenues via higher growth, it can borrow more and more to meet these welfare targets in the run-up to elections. But this strategy would risk fuelling even higher inflation before the general elections.
Also read: A Handful of Grain: Is That All Citizens Are Owed?
The political economy of “saturation coverage” to which the prime minister stands committed can play out in ways full of grave risks to the economy. Free rations to 80 crore people post-Covid cost the government over Rs 2 lakh crore a year. It was supposed to end this March. But one gets the feeling that Modi may want to extend its tenure in some form, given the perceived electoral benefits it has brought.
In 2014, Modi explicitly laid down his philosophy of moving India away from Congress’s “dole economy” to empowering the people to provide for themselves. Eight years on, he has ended up creating a largely “labharti” economy in which there are fewer jobs. But the labharti system is evidently paying rich electoral dividends. Consequently, Modi may find it too difficult to dilute the system just 24 months before the next Lok Sabha elections. If anything, he will be tempted to expand it further. This is really no time for rational economics.