The rs 5 lakh crore electoral gamble – vivek kaul’s diary gas vs diesel rv

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Along similar lines, the promise of a farm-loan waiver, may not make a voter vote for a particular party, given that every big party is likely to promise it in an election. But if a particular party does not promise a farm loan waiver, when other parties do, the voter may decide to vote against that party.

In this way, the farm loan waiver has become a hygiene factor. In the months to come, assembly elections are scheduled in Rajasthan, Madhya Pradesh and Chhattisgarh. Farm loan waivers will be promised and implemented in these states as well.

How much is this going to cost the nation? As per the second volume of last year’s Economic Survey, this is likely to cost anywhere between Rs 2.2 lakh crore and Rs 2.7 lakh crore. As the Survey pointed out: "It is assumed that waivers will apply at the loan rather than household level, since it will be administratively difficult to aggregate loans across households. It is also assumed that other states will follow the UP model. On this basis, an upper bound of loan waivers at the All-India level would be between Rs. 2.2 and Rs. 2.7 lakh crore."

The irony is that the prime minister Narendra Modi initially did not like the idea of farm loan waivers. This is something Prashant Jha discusses in detail in his book How the BJP Wins. The BJP carried out a few surveys in Uttar Pradesh, before the assembly elections. As Jha writes: "The surveys… showed that farm-loan waiver was a major demand of the electorate. The surveys suggested this had the ability to swing close to 3 per cent of the votes."

But Modi, Jha tells us, thinks differently when it comes to doles and waive offs. As he writes: "Many bureaucrats point out that Modi thinks of himself as different from his predecessors, particularly the UPA regime, on the question of welfare. He wants to treat the poor not as victims in need of relief and dole, which is how he views the UPA’s approach, but as independent agents who need to be empowered and enabled enough to compete on their own. A farm-loan waiver did not quite fit into that framework. It was the kind of ‘freebie’ the BJP and Modi were contemptuous of."

Nevertheless, the political push was too strong. As Jha points out: "The state unit and the surveys convinced Amit Shah, who then persuaded the prime minster. And both a loan waiver and a promise of interest-free loans were eventually incorporated into the party’s… election manifesto."

This is how the change in the thought process on farm loan waivers came about. Getting back to Yeddyurappa. One lesson that the opposition parties finally seem to be learning from Yeddyurappa’s resignation is that in order to fight the BJP, they need to come together. (This is a rather obvious point, which they should have realised when Nitish Kumar and Lalu Prasad Yadav, came together to beat the BJP in Bihar).

What are the repercussions of this likely to be at the national level? If the opposition parties form a coalition against the BJP, in the 2019 Lok Sabha election, Narendra Modi and Amit Shah, will need something big to tackle the opposition unity. It is worth remembering that the BJP on its own got 31% of the vote share in the 2014 Lok Sabha elections.

As of March 31, 2017, the total outstanding Mudra loans were at Rs 1,38,209.31 crore. Between March 31, 2016 and March 31, 2018, the total sanctions of Mudra loans has increased by around 36% per year, from Rs 1,37,499 crore to Rs 2,53,677 crore. Assuming, the total outstanding loans also grow at the same pace, by March 31, 2019, the total outstanding loans will stand at around Rs 2,55,000 crore.

By promising to waive off the outstanding Mudra loans, the Modi government can really come up with something big to hit the opposition unity (if it comes through) out of the park. This Rs 2,55,000 crore will be over and above the Rs 2,20,000 crore to Rs 2,70,000 crore, which the Economic Survey expects farm loan waivers to cost. For ease of calculation, let’s assume that the farm loan waivers carried out by state governments will cost Rs 2,45,000 crore (the average of Rs 2,20,000 and Rs 2,70,000 crore).

Hence, the sum total of the bill that the nation will have to foot because of the politicians needing solid electoral planks to fight elections on, is likely to work out to Rs 5,00,000 crore or Rs 5 lakh crore (Rs 2,55,000 crore + Rs 2,45,000 crore).

Of course, the politicians will not foot this bill. You and I, will foot this bill, in the form of higher taxes (both direct as well as indirect). Dear Reader, have you ever wondered, why petrol costs more than Rs 80 per litre in India, while it is much cheaper in all our neighbouring countries?

If the government decides to borrow more in order to foot this bill, it will crowd out the market, lesser money will be available for others to borrow, and this will push up interest rates. You and I will be paying higher EMIs. The corporates will have to pay more to borrow and they will pass on the cost of this borrowing to who else, but, you and I.

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Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India’s Big Government – The Intrusive State and How It is Hurting Us. Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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