Indian States must learn from the experience of our neighbours Pakistan and Sri Lanka and heed Prime Minister Narendra Modi’s call for fiscal sagacity
Pakistan has now been abandoned by its donors. Pakistan’s Prime Minister Shehbaz Sharif knocked at the doors of all the donors in the recent weeks. He went to Saudi Arabia. Sharif rushed to Beijing to congratulate Xi Jinping when he took the third term as the general secretary of the Chinese Communist Party. He went to Washington and Dubai. Turkey has spurned him. At last, Pakistan is now signing on the dotted lines to secure a $1.2 billion tranche loan from the International Monetary Fund (IMF).
The foreign currency reserves of Pakistan is now below $3 billion. Pakistan is not left with enough foreign currency to meet three months of imports. Offices and commercial establishments now down their shutters by the dusk in Pakistan. Electricity at home is a luxury. Buying petrol and diesel now is a sign of the richness of the people.
As long as dollars flowed into Pakistan because of the largess of the donors, Islamabad indulged in excesses. Economic prudence was foreign to the policy makers and the political establishment. The people were addicted to not paying for the electricity consumption. Electricity subsidies touched all sections of the society. Military, farmers, businessmen, politicians and others indulged in the freebies of Pakistan.
Little more than a year ago, the US left Afghanistan and also left behind a message to Pakistan that Washington would now give a damn to its geo-strategic blackmailing. Pakistan’s former patrons too learnt lessons that they had burnt their cash enough in the Pakistani black hole. China never forgives those who fritter away its money. The pipeline of easy money to leverage a life of indulgence even while there was no healthy revenue ran dry in a span of one year.
Pakistan has gone for a steep hike in the electricity charges. The government there has imposed several surcharges across the electricity consumption groups. Now, all will have to pay for the electricity at rates, which would be much higher than normal market pricing.
Sri Lanka also has decided to hike the electricity rates. The Sri Lankan government on Thursday announced a 66 per cent hike in the electricity rates. Inflation in Pakistan and Sri Lanka is riding rockets. Inflation in Sri Lanka is now over 56 per cent. Inflation numbers for Pakistan are now redundant, as viral videos from the Islamic nation show that the people are indulging in street fights for a piece of bread.
Before Pakistan went broke financially, Sri Lanka had declared default on the servicing of the foreign debts. Pakistan is on the verge of default. Both the nations are begging the International Monetary Fund (IMF) for bail out. The international lending agency has dug in its heels. It is asking for the major lending nations to give no objection certificates. It’s evident that Sri Lanka and Pakistan frittered away their financial autonomy with the recklessness of the politics of freebies.
The current generations of Pakistan and Sri Lanka are paying for the sins of their predecessors. This affirms the saying that freebies are taxes on the future generations. What one cannot afford should stay away from the wish list.
At the initiative of Prime Minister Narendra Modi, the Central government has so far organized two extensive meetings of all the state chief secretaries on the need to embark on the path of fiscal prudence. The backdrop of the two meetings was the report of the Reserve Bank of India on the state of finances of the state governments. The report revealed that the finances of a number of states are in tatters. They are in similar boats as is the case with Pakistan and Sri Lanka.
Under no circumstances, India can allow any of the states in the country to go off on the lines of Pakistan and Sri Lanka. Such a prospect will be disastrous. At a time when India is marching fast to become the fourth largest economy in the world and hit the bull’s eye with a $5 trillion economy size, it will be criminal on the part of any of the states to pull the country back with fiscal recklessness.
Indeed, the RBI report portrayed that the fiscal health of Punjab, Kerala, West Bengal, Bihar and a few other states are in dire need of surgical operations to remove the cancerous fats from the fiscal body. PM Modi built the plank for fiscal prudence after threadbare brainstorming at the two-day Dharamshala conference of the chief secretaries to the meeting of the Governing Council of the NITI Aayog in the national capital. All the chief ministers were sensitized about the imports of the report of the NITI Aayog. Even at such a solemn occasion, Punjab Chief Minister Bhagwant Singh Mann was seen as cold to the sane ideas of fiscal prudence. He sought Rs one lakh crore support from the Central government. The Aam Aadmi Party (AAP) government in Punjab was so audacious in its brazen freebies that the state sought assistance from the Centre to fund its reckless populism.
The virus of freebies is spreading fast. India must invent a vaccine against the virus of freebies. Scientists who can make the inventions are the lawmakers in Parliament, judges in the Supreme Court and members of the Election Commission. They owe to the future generations of India that a vaccine against the virus of freebies is not only invented fast but administered to the errant state government and political parties.
If there is a need, a financial emergency may also be declared to hammer the fiscal discipline on the straying states. Top economists have warned of catastrophic consequences if the Old Pension Scheme (OPS) is revived. Even the likes of Montek Singh Ahluwalia, former deputy chairman of the Planning Commission, has minced no words in slamming the move of the state governments to implement the OPS. He has warned of unprecedented hardships. Yet, Congress governments in Himachal Pradesh and Rajasthan have gone ahead to implement the OPS.
All the gains made by the hard work by late Atal Bihari Vajpayee in unveiling the pension reform and also the unveiling of the New pension Scheme, which were accepted by the government employees wholeheartedly, is being sought to be negated by Congress in its desperation to grab power in states by all means. This is dangerous. It has to be checked right now. If not, the future generation will never forgive.
Indeed, Congress, the AAP and others seek to take shelter by hard-selling that their freebies are welfare measures. Such lies must be countered by all, irrespective of their political affiliations. Freebies are dole outs offered to the people without making any distinctions. Welfare measures are always targeted, and once saturation is achieved, the window is also shut. Freebies are not welfarism. Freebies are political corruption.
Parliament must enact a law to deal with the political corruption of freebies. The Supreme Court and the Election Commission must also step in to help Parliament evolve a mechanism which will sanitise any attempt to sell freebies to the people. Until then, a financial emergency will be a welcome step.
(The author is a policy analyst)