The decision by Indian Prime Minister Narendra Modi to effectively cut food handouts for the poor in advance of state elections in 2019 and a general election in 2024 is financially smart, but how well the charismatic leader can sell it to voters will be a key political factor.
In India, where receiving food assistance is a legal right and more than 800 million people received an additional 5 kg of free rice or wheat in the last 28 months as COVID-19 devastated their budgets, subsidies for food and other goods are crucial to winning elections.
The government spent about $47 billion on the free food programme, which increased the fiscal deficit and caused the government’s wheat stocks to drop to multi-year lows.
With effect from January, India will stop providing an additional 5 kg of food per person during the COVID-19 pandemic and instead provide 5 kg of free food for an entire year. However, lowering populist measures before elections is dangerous.
This month, Modi’s Bharatiya Janata Party (BJP) broke previous records in Gujarat, his home state, and is largely anticipated to prevail in the upcoming general election. According to analysts, he has more freedom to impose financial discipline because of reality.
Under the context of budgetary restraints, it is actually, in my opinion, rather good politics, according to Yamini Aiyar, director of New Delhi’s Center for Policy Research.
With the COVID free food programme no longer in place, the government anticipates saving close to $20 billion annually.
The budget for the upcoming fiscal year will be unveiled on February 1 by Finance Minister Nirmala Sitharaman. According to a government source, the decision to stop the free food programme from the COVID era will lower the government’s subsidy burden by roughly 30% in the upcoming fiscal year and help it rein in the fiscal deficit more quickly than expected.
From approximately 5.5 trillion rupees in the current fiscal year, which ends on March 31, the government’s subsidy bill on three major goods, including food and fertiliser, is anticipated to drop to under 4 trillion rupees (about $48 billion) in the following fiscal year.
India’s three main subsidies are depicted in the following graph: http://www.reuters.com/graphics/INDIA-SUBSIDIES/INDIA/movakkrwgva/chart.png
The official also mentioned that the 6.4% fiscal deficit objective for this fiscal year would be reduced by at least 50 basis points for 2023–24.
THE VOTER BELIEVED IN MODI
As COVID limitations loosened, some economists wanted to end the food programme months ago. The government said last week that the programme will terminate in December and be replaced by pre-COVID law-sanctioned food that would be free for a full year.
A law that has been in effect for ten years guarantees food for the underprivileged in India.
Subhash Chandra Garg, who resigned from his position as India’s finance secretary three years ago, declared that cutting the effective food allotment per person from 10 kg to 5 kg was “obviously non-populist.”
“However, it was obvious that the increased meal intake was not necessary to achieve the calorie need.” Therefore, if you can persuade people that impoverished people would receive the 5 kg per person that they need to meet their genuine food demands, free of charge, perhaps the negative effect can be offset.
According to Yashwant Deshmukh, the founder of polling firm CVoter Foundation, Modi is renowned for being a master at conveying the message he wants to deliver to voters, which is aided by the absence of a clear opponent in the nation.
According to CVoter data, Modi has an approval rating of about 60%, compared to Rahul Gandhi of the main opposition Congress party’s roughly 20%.
“I think Modi has been carrying out the majority of his policies because of his trustworthiness and popularity,” Deshmukh said, referring to actions like banning high-value currencies in 2016 that caused significant hardship, but he still comfortably won numerous elections after that.
“People do not question his intentions, which is why.” “For any other leader, and if the trust had not been there, it would have been challenging to stop such a food programme prior to elections.”
However, prominent BJP figure and former minister Ravi Shankar Prasad said that politics or elections should not play a role in the decision to cut back on food handouts.
“When COVID first arrived, this started.” “The poor’s inclusion and empowerment are crucial components of Narendra Modi’s government,” he said.
subsidies for food
Nine states must hold elections in 2023 before the national election takes place a year later. A free housing and cooking gas scheme for the underprivileged helped the BJP easily defeat the Congress in the most recent general election.
According to two government sources, the government’s total subsidies for food, fertiliser, and gasoline will decrease by 30% to less than 4 trillion rupees ($48.27 billion) in the upcoming fiscal year as a result of changes to the food handout.
One of the sources predicts that in the fiscal year beginning on April 1, the government will cut the budget deficit by at least 50 basis points, to 5.9% of GDP. According to the second, the food subsidy could decrease from nearly 3.2 trillion rupees this fiscal year to almost 2 trillion next.
Former Indian top statistician Pronab Sen claimed that if the COVID food programme had been continued, the government’s grain reserves would have run low closer to the general election.
Sen claimed that having to put an end to it in 2024 would have been significantly more harmful.
$1 is equal to 82.8750 Indian rupees.