New Delhi: Truth or dare is a befitting phrase to highlight the two-pronged challenge faced by the Congress party just before they get into another round of Assembly elections in Maharashtra and Jharkhand. The choice and realities of the poor fiscal health of the states ruled by the party at present on the one hand and the governance capabilities of the party in these regions. If we take this as a “truth” proposition, the reality prompts an honest, and even stark analysis of fiscal challenges and missteps in governance. But if we see it as a “dare,” it’s a call for accountability, resilience, and perhaps reform. In both respects, the onus is on the senior leadership of the Congress party to come to the fore and meet these challenges head on rather than involve in washing linen in public.
But this is exactly what is unfolding at the moment when Congress Party chief Malikarjun Kharge held a press conference to reiterate with this own party units to not make promises that they cannot fulfil. He reminded them that some of the state coffers may be seriously suffering due to the claims made in the election manifestos. This has opened up a can of worms with BJP, led by Prime Minister Narendra Modi, highlighting the sorry fiscal health particularly in states that are ruled by the Congress party.
In the meet, he said,” In Maharashtra I’ve said that they shouldn’t announce 5, 6, 10 or 20 guarantees. They should announce guarantees based on budget. Otherwise, there’ll be bankruptcy. If there’s no money for roads, everyone will turn against you. If this government fails, the future generation will be left with nothing but a bad name. They’ll have to live in exile for 10 years.” The statement was issued not long after the party leadership in Karnataka suggested that it wanted to review the ‘Shakti scheme’ that ensured free bus transport for women. Kharge in his speech, underscored the importance of fiscal responsibility.
No sooner had he done it that PM Modi seized the opportunity to launch a scathing attack and calling out the party’s “unreal promises”. What followed is a political mumbo jumbo with both Modi and Kharge and supporters of both parties calling each other names and listing out PR tricks to make a point.
Leaving politics aside, economists have long warned that the fiscal health of the nation is not at its best at the moment. India’s fiscal health has struggled with challenges like high public debt, a persistent fiscal deficit, and slow revenue growth. Addressing this “truth” would mean transparent accountability in financial management and sustainable policies but our state governments are not being able to walk this talk. By announcing schemes that would further dent the fiscal growth, they are only using a “cover-up” mechanism which is neither conducive nor tenable.
Here’s a look at the Karnataka and the Himachal Pradesh model to drive home the point of this op-ed.
Fiscal crisis in Ktaka and HP
The economic growth in the state has been on a steady decline with the GDP expected to be lowest in 2023-24. It is pertinent to note here that the GDP of the state has previously outperformed the national average since 2019-20. But the trends have switched. While the national GDP growth is projected at 7.3 per cent, Karnataka’s rate is a dismal 6.6 per cent during the same period.
Apart from the growth decline, the state’s abject financial position is also a cause for worry. There has been a rising fiscal deficit; in 2022-23 Karnataka’s fiscal deficit was pegged at 2.14 per cent of its GDP, which has increased to 2.67 per cent in 2023-24, and according to latest estimates, it may reach 2.95 per cent by 2024-25.
In such a terse environment, the freebies that have been announced by the government can actually prove to be a big burden on the state’s economic growth as more and more people will rely on the same further damaging a strained budget. This decline in growth can lead to reduction of tax revenues. It’s a vicious circle, explains an economist based out of Gurugram. “It so happens that when the growth is on a slow burn, obviously businesses will earn much less and unemployment will rise at a rapid pace. This will result in the government collecting fewer taxes, which in turn will force the government to limit or eliminate free schemes and prioritise essential services instead. Now what happens to that segment of the society that was depending on such freebies for survival?” queries Rakesh Lohia, an associate professor of economics in Delhi School of Economics (DSE).
According to Lohia, such guarantee-based schemes that can exacerbate the financial strain on people is ill advised not just for the Congress party but for everyone in general.
The Himachal Pradesh model is also not something that the Congress can gloat about. From state debt to a glaring fiscal deficit, HP makes it to the top level. While the state’s debt has since increased from 35.3 per cent of its Gross State Domestic Product (GSDP) in 2019–20 to an estimated 42.5 per cent in 2024–25 (making it the highest in average ratio for all states), the fiscal deficit has also creeped up to 5.9 per cent in 2023–24 from a manageable 3.5 per cent of GSDP in 2019–20.
To make matters worse the state’s total spending has also been on an upward incline due to rising salaries and pension promises made by the government. While salaries now account for 30.2 per cent of the total state spending, pensions make up for a robust 16.3 per cent.
According to Lohia, this state is the worst example when it comes to being economically prudent. “If ever there was an example of a state where the schemes have backfired, it is HP. Although the government has taken steps to mitigate the issues stemming from this to a large extent, by rationalising subsidy schemes and adjusting the date of salary release, there is still much that could be done,” he says.
Congress’s ailing governance needs a facelift
The Congress party must use this opportunity of the upcoming Assembly elections in key states to revitalise its governance model and regaining public trust. The grand old party has often been criticised for policy inertia, a top-down approach, and difficulties in addressing contemporary issues, and now is the time to be more assertive about such challenges rather than offering SOPs to woo voters when the state budget doesn’t allow for such a leeway.
Revamping its governance image would require not just internal reforms, but also an approach that aligns with the aspirations of a rapidly evolving and young population. This would mean committing to pragmatic, forward-looking policies and rethinking engagement with both grassroots and urban voters. One feels that if they modify their approach with accountability and reform, the Congress party could open pathways toward fiscal prudence and stronger governance.
The choice for the Congress is a simple one – between revival or further decline. What will they go for?
