Financing the populist schemes

After nearly six months of hibernation, Government of Assam suddenly sprang into action for implementation of a host of populist schemes announced by the Finance Minister. Some of these schemes have found a place in the last budget speech (2020-21) while some others have been accommodated in the budget recently by way of supplementary demands. This move appears to be carefully calculated so that execution of the schemes synchronise with the election process. It may be noted that only five months have been left for announcement of the General election to the State Assembly (March 2021) and within this period it will not be an easy task to spend such huge amount of fund meticulously. Most of these schemes are individual beneficiary oriented and the effectiveness of these schemes has never been tested at any time by any authority. In fact, at present the State has no such institution that can carry out the need analysis, feasibility and preferential test of such schemes before being introduced. This implies that all the schemes that have so far been introduced in last four years have neither been tested nor evaluated for their outcome. The present schemes are also no different – rather their weak structures do not qualify them to be called a scheme- but some policy statements indicating as to how to distribute government money among various communities. People however appears to be sceptical about the announcements and the actual benefits that will accrue in view of the repeated statements made earlier by the Finance Minister about empty coffer. It is indeed a matter of discussion as to how the Finance Minister proposes to finance these schemes.

In a recent media report, the Finance Minister Assam has disclosed that Assam has accepted the 'option one' of the Union Finance Ministry which allows a State to go for borrowing the amount equivalent to the shortfall in GST collection under the special window coordinated by the Central Government. The report quoted the Assam Finance Minister as saying "In the month of April we have discounted, we have thought revenue deficit grant will not come and government of India will not be able to pay GST compensation. The finance minister reconfirmed that she will honour all the mandate of finance commission and repay for the loan which Assam will take for GST compensation." The Union Government perhaps cannot repay a loan taken by a State government neither it can single out one State and finance it for repaying the loan. The Union Government has recently allowed the States to go for borrowing up to 6 per cent of GSDP as against the existing 3.5 per cent pegged by the AFRBM Act. Taking cue of this approval, the State Government has recently amended the AFRBM Act. With this amendment, the State will now be in a position to go for borrowing around Rs 6,000 crore. It is only to be expected that good sense prevails in the Government to not to go for implementing populists schemes with borrowed funds. The State is already under the strain of heavy borrowing to the extent of Rs 68,322 crore constituting about 19 per cent of the GSDP. The democratic practice demands that an outgoing government should not resort to borrowing or make such expenditure which exert heavy burden on the future government.

So far as possibility of using of own source of revenue for funding these scheme is concerned, it may be noted that tax collection has not been in tune with the target set for the year till the penultimate month of 2nd quarter. As regards GST collection, as against last year's collection of Rs 3059 crore current year's collection during April-August, is only to the tune of Rs 2905 crore (unadjusted) which is about 5 per cent lower than the amount collected during the same period of last year. The collection will pick up in the subsequent 3rd and 4th quarter no doubt, but the GST revenue alone would not be sufficient to accommodate such huge burden of expenditure. The budgetary target of GST is only Rs 4331.51 crore. Usually, the volume of revenue receipts realised in a year is confined between 60 per cent and 75 per cent of the target set in the budget. Last year, as against the budgetary target of Rs 83147.93 crore total collection was to the tune of Rs 47713.92 crore till February/19 comprising of only 57.38 per cent of the target. This year, the size of revenue receipt has been fixed at Rs 91930.80 crore in the budget within which there are also the fixed components like Central Sector Schemes ( Rs 21,000 crore), compensation due to low GST ( Rs 10,000 crore), SDRF etc. Keeping these components aside, the size of the revenue receipts becomes Rs 32,000 crore only. While the most important committed expenditure is the payment of salaries, pension wages and interest payment which costs the Government around Rs 35,000 crore. There is therefore no chance to fund the schemes from its own resources.

Despite having such a gloomy economic backdrop coupled with the prevailing uncertain situation created by COVID-19, it is difficult to understand how the State Government can become so un-hesitantly offensive to come out in such a big way for implementing the election-oriented populist schemes. It is undoubtedly the confidence given by the Union Finance Minister who assured to release all the recommendations made by the Finance Commission in time. The election-oriented schemes that so far have been announced can be divided into two major groups — namely i) individual or group beneficiary-oriented schemes costing about Rs 8,000 crore and ii) infrastructure-oriented schemes costing about Rs 12,000 crore. Thus, in all around Rs 20,000 crore is the immediate requirement.

As the Government's own revenue sources have proved insufficient for such huge spending, and using borrowed fund for financing the schemes will also invite severe criticism, Government will be left with no option but to rely on the receipt of Fifteenth Finance Commission recommendations. The Commission has recommended Rs 26,776 crore as share of central taxes and duties for 2020-21 and Rs 7579 crore as revenue deficit grant for the current year. Already Rs 4324.44 crore as share of central taxes and Rs 3789.48 crore as revenue deficit grant released by union government. The remaining amount shall also be released by the Union government as committed by the Union Finance Minister. Thus, apparently there shall be no shortage of fund. But what is unfortunate is the fact that such huge public spending will yield no long-term impact on the beneficiaries and thereby to the society. For example, giving Rs 3000 to each of the tea garden labourers is not a welfare measure but the fund will go waste no doubt. A poor family will spend such meagre amount only for consumption purposes. Similarly, Rs 50,000 proposed to be given to each unemployed selected person cannot ensure livelihood to each of the beneficiaries as expected. Implementation of such schemes in times of election especially when time left is very short, there is every possibility that the genuine persons are left out. The two most critical steps of these types of scheme are i) selection of genuine beneficiary and ii) disbursement of the fund which should have been done through banks. But both these steps have been compromised. As the fund will be directly transferred, there will be leakages - funds may never reach the actual beneficiaries or may be transferred to fictitious beneficiaries. Such leakages will divert the fund towards use for political purposes. There will also be audit objections for the adopted modalities – for distribution of such huge funds (Rs 1,000 crore) in this manner.

The announcement of infrastructure-oriented schemes is unwarranted as most of these were not budget promises. As usual, the announcement about setting up of medical colleges, law colleges etc at various locations were simply to appease the stakeholders concerned and attract them to vote for party in power. Otherwise their announcement could have waited till the genuine necessity of such institutions in the locations is confirmed. But the Government was in a hurry and therefore knowing very well that within the remaining time, not more than 5 to 10 per cent of the scheme could be achieved and the full burden of it will be passed on to the next government, the execution plan has been announced. The Government will be happy to lay the foundation stones of these schemes as by that time the Model Code of Conduct will be operational. Thus, in the process of the declared Rs 12,000 crore schemes, only 8% to 10% will be required (Rs 1200 crore).