When the elections are around the corner, the political parties make lofty promises on which they cannot deliver. From Congress’s NYAY scheme to Samajwadi Party’s unemployment benefits, the elections in India are the season of bad economic ideas. And, despite the lack of financial capacity in the state’s treasury, some parties try to deliver on these promises in parts by looting the taxpayers. The latest to join the bandwagon is DMK’s MK Stalin, who has promised 1,000 rupees to every woman head of the family per month if his party comes to power in Tamil Nadu.
In 2019, the Congress party started a vicious cycle by promising Universal Basic Income (although it was more of a quasi-UBI) to every family under the NYAY scheme, and, since then, many regional parties have promised UBI in one or the other scheme to the voters.
MK Stalin – the leader of the DMK, much-like Akhilesh Yadav before him, promised 1,000 rupees to every woman head of the family per month if his party comes to power. “For all the women family heads in Tamil Nadu, we are going to provide every month Rs 1,000 ‘rights’ assistance. As a result, all the families that get food (essential) commodities from Public Distribution Outlets would be benefited for sure,” said Stalin while releasing the ten-year vision document for the development of the state.
Now, let us calculate how much this populist promise of Stalin would cost to the state treasury. Families in Tamil Nadu are the smallest in the country with just 3.9 members per family and the state has around 2 crore families. If every family gets 12,000 rupees per month, the state government would need to spend around 24,000 rupees a year, and even if the families that do not get ration from Public Distribution Shops are excluded, it would cost Stalin around 20,000 crore rupees per year.
The size of the state budget is around 3 lakh crore rupees and Stalin’s proposed scheme would take out almost 7.5 per cent of the state’s budgeted expenditure. The public debt of Tamil Nadu is one of the highest at around 5 per cent of the state’s GDP.
Just a week ago, Deputy Chief Minister O Panneerselvam expressed his inability to control the fiscal deficit of the state. “With the Covid-19 pandemic, the State Own Tax Revenue (SOTR) collapsed in the first four months of the current financial year due to the lockdown and the additional time provided for remittance of tax dues,” he said during the budget session of the Tamil Nadu assembly.
“It is completely unavoidable that the Government had to resort to borrowings resulting in a higher fiscal deficit,” he added.
Tamil Nadu’s debt burden would only increase if Stalin implements this scheme. Last year, the total capital expenditure (money spent on asset creation) was less than 50,000 crore rupees and if this scheme is implemented, it would further be reduced to around 30,000 crore rupees.
A few weeks ago, the data on Gross State Domestic Product was released and as per the data, Uttar Pradesh has taken over Tamil Nadu as the second-largest economy in the country. If Tamil Nadu continues to spend on only welfare and not asset creation, the states like Karnataka, Gujarat would also take over the state and leaders like Stalin would be responsible for the economic decline of one of the richest states of the country.