BJP manifesto: Extension of PM-Kisan Yojana to all farmers, interest-free loans will impose a heavy cost on economy

If there is one big takeaway from the Bharatiya Janata Party’s (BJP) election manifesto ahead of 2019, it is that the party has promptly embraced  the risk of competitive populism. The BJP manifesto  promises three key announcements —  zero-interest loans to farmers for up to Rs one lakh; expanding the Pradhan Mantri Kisan Yojana to all farmers (against those holding cultivable land less than 2 hectares); and pension to small and marginal farmers and small shop owners in the country. On the face it, these are obvious baits to pacify the farmers’ community which is reeling under major agrarian crisis that has hit farm incomes and employment. Along with the promise of Rs 6,000 to all farmers, up to Rs 1 lakh interest-free loans and pensions for all farmers and small shop owners, the BJP manifesto gives a clear advantage to BJP on the populist chart. [caption id=“attachment_6408781” align=“alignleft” width=“380”] Prime Minister Narendra Modi releasing the BJP manifesto.[/caption] However, these schemes, without a doubt, are an immense fiscal burden and create considerable damage to the fiscal discipline if implemented in its entirety. The existing Pradhan Mantri Kisan Yojana, which offers Rs 6,000 to farmers annually, carried some logic. It targeted those with small land holdings. The government could argue that it wanted to uplift small agricultural workers with tiny landholdings who suffer most in the event of an agricultural crisis. Distributing this to all farmers, however, lacks logic and destroys the original purpose. Now, even the wealthy farmer can avail the Rs 6,000. It also raises questions on the intent of the scheme, reducing it to a mere poll plank and only contributing as a further pain to government finances. Add the additional burden of pension being offered to all farmers and small shop owners, it becomes a fiscal bomb. Remember, these aren’t one time exercises but a recurring expense. Where will the money come from?

Naturally, should these schemes go live, lot of arithmetic will come to play probably cutting down critical expenditure and adding to the tax burden of middle class households. Not a good idea for an ambitious economy already fighting a large-scale unemployment crisis. Interestingly, there isn’t much to discuss in the BJP manifesto as to how to deal with the unemployment problem. Similarly, the zero interest loan upto Rs one lakh announced in the BJP manifesto, can have disastrous consequences on the banking sector, assuming that the onus to implement this will fall on already struggling PSU banks. Logically, there will be a rush to all bank branches to get interest-free agri loans. Agricultural loans already carried very low interest (about 3-7 percent) and now these are being made free of interest. Most PSU banks are already sitting on huge agricultural NPAs, and an even a bigger shock is awaits in he form of Kisan credit card loans. The fresh populist shocker from BJP will be even more difficult for banks to handle. One can’t even rule out large-scale fudging of documents by non-farmers to get interest-free loans. When it comes to fiscal burden on account of planned populist schemes, both the BJP and the Congress aren’t very far from each other. A back-of-the-envelope calculation shows that the total burden of Rahul and Congress’ minimum income promise will be Rs 3.6 lakh crore. That’s 1.7 percent of the country’s Gross Domestic Product (GDP). Remember, we are talking about an economy that has breached the fiscal deficit target for three consecutive years and is struggling to mop up revenues to keep its balance sheet healthy. Such schemes, designed for elections and giving fiscal prudence a total miss, will have enormous implications on the fiscal front no matter who comes to power. It re-emphasises the fact that Indian politicians give far greater importance to freebies and will go to any extent to win votes by totally undermining good economics. The idea seems to be about throwing free money to all. Competitive populism has taken the centre stage ahead of the 2019 elections.