The main subsidies offered by the Center – food, fertilizer and oil – have increased from ₹3.36 lakh crore in BE (budget estimate) 2021-22 to ₹4.33 lakh crore in RE (revised estimate) 2021-22. The main reason has been the extension of the PMGKAY free food grain program and additional spending on fertilizer subsidies to protect farmers from the negative impact of rising prices. In the 2022-23 budget, the allocation to major subsidies was about ₹3.18 lakh crore, or about 1.2% of GDP. Although the current debate revolves around gifts given by states, not by the Center, a comprehensive analysis is essential for any meaningful outcome.
“The key question is who behaved fiscally responsibly – the States or the Union? In 2000-2001 the combined deficit of Union and State revenues reached a dangerous level of 6.45% of GDP, the deficit of the Union being 3.91% and 2.54% of the States After the adoption of the FRBM law, the deficit ratio decreased and, in 2010-2011, it was 3.20%, which was entirely the contribution of the Union Government In 2010-2011, the Center’s revenue shortfall was 3.24%, while the State Governments together had a surplus of income,” says Isaac.
Since then, the average state and center revenue shortfall was 0.05% and 3.15%, respectively, until Covid stalled, Isaac says. “The lesson that can be drawn from these numbers is that the states have been fiscally responsible while the Union government has behaved recklessly. This asymmetry between the Union and the states is still more marked with regard to the budget deficit”, he adds.
Isaac accuses the Center of giving gifts to corporations while accusing others of giving it to the poor. “How can the Union government justify its corporate and other tax concessions to the wealthy while running a continued revenue shortfall? Every year, around ₹1,000,000,000 in direct taxes are forgone as shown in the annexes to the annual budget,” he said.
Even as the blame game continues, the Center tries to discourage unsubstantiated grants in every way possible.
According to the Terms of Reference (ToR) of the 15th Finance Commission notified by the government in 2017, the Commission could consider offering measurable performance-based incentives to states, at appropriate levels of government, to control or stop recurrent expenditure on populist measures. . Three years later, the Commission’s report indicated that some states objected to the particular terms of reference on the grounds that the categorization of programs into populist and non-populist cannot be done objectively because development requirements differ from state to state. the other.
Incidentally, the SC had, in S. Subramaniam Balaji v. State of Tamil Nadu of 2013, instructed the Electoral Commission (EC) to develop guidelines regarding pre-election pledges in the absence of any legislative enactment covering the area. On October 4, 2022, the EC proposed to expand the scope of its previous guidelines. The draft directive circulated by the EC speaks of a mandatory disclosure form that explains the scope, financial implications and resource mobilization plans of promises made in the election manifesto. Opposition parties are seeing red as the EC decision will limit their ability to make promises ahead of the election.
Although consensus among political parties on the issue of freebies is unlikely, every stakeholder must accept that the economic and social inequalities that exist in India make some form of social security in the form of grants or freebies essential. . The question is whether it can be better targeted and streamlined.