The concept of a welfare state is always a welcome idea but the cost of welfare should not be such that it crumbles the state itself

Siddaramaiah has taken oath as CM for the newly elected Karnataka government and the first googly has come out on the five promises which were hyped by Congress scion Rahul Gandhi. In the election manifesto, the Yuvanidhi scheme was announced to give Rs. 3,000 per month for two years to unemployed graduates and Rs. 1,500 per month for two years to unemployed diploma holders. However, minister Priyank Kharge has clarified that it would be affected for the academic year 2022-2023.

As per the initial estimates, the annual cost of five promises would be Rs, 50,000 crores but the actual numbers might exceed this. Debt levels of Karnataka have more than doubled over five years and the ‘Debt: State GDP’ ratio has increased from 18.4% in 2018 to 23.4% in 2023. Certain parts of the increase in debt can be attributed to external factors like the Covid-19 pandemic but there is an important factor that we all must understand.

Some of the existing welfare schemes might be withdrawn by the new government to save some money while new schemes get introduced. In this case, people will benefit only from the differential. The fiscal deficit for FY23 was estimated at around Rs. 61,564 crores and it will exceed Rs. 1 lakh crore with the additional expense even if a tax buoyancy of 10% is factored YoY. It's important to highlight that the GST compensation cess is no longer there to fund the extravaganza of politicians. For perspective, the compensation cess in Karnataka budget was Rs. 25,267 crores in FY 2021-22 which came down to Rs. 5,000 crores in FY 2022-23.

If we keep politics aside, it can be seen from the state finances that the debt level has gone up for almost all the states (except a few like Odisha, and Uttar Pradesh) over the last five years. Political compulsion will never allow the politicians to extend their vision beyond the short-term electoral gains and therefore India needs a law on the freebie culture. Of course, it is going to be a tough exercise because no one would like his hands tied by a piece of legislation and its hard to avoid the temptation which brings you close to the power but we need some fiscal prudence if this country does not choose to be walking on the similar path like Sri Lanka and Venezuela. The Finance Commission, which is a constitutional body, has already highlighted the risk of state debts reaching an unsustainable limit.

The concept of a welfare state is always a welcome idea but the cost of welfare should not be such that it crumbles the state itself. Politicians and activists who keep floating their utopian ideas and taking shelter of our constitution for all their stupidity, forget that Article 292 and 293 of the same constitution talks about borrowings and mandates it to be within the limits specified by the legislature. The Constituent Assembly of India discussed these articles on 10th August 1949 and thought in a different context but the importance of the purpose of the loan was highlighted by Shri H. V. Kamath. Existing political leadership across the board might be shortsighted but Ananthasayanam Ayyangar emphasised the impact of borrowings in the constituent assembly discussion and his words can be referred to in today’s context ‘So far as borrowing is concerned–they may be short or long-term, imposing heavy obligations upon not only the present generation but future generation also’.

We must remember that nothing comes free in this world. If the cost of freebies is curtailing the capital expenses, piling up the debt, and slashing the social sector expenses like education, healthcare etc. then freebies are not free at all and we all will be paying the price one way or the other.

(The writer is a chartered accountant, and policy analyst. Views expressed are personal)