Tuesday, September 22, 2020
Home Economy and Finance Facts, No Fiction: Recent farm loan waiver prove that Congress hasn't learnt from its...

Facts, No Fiction: Recent farm loan waiver prove that Congress hasn’t learnt from its past mistakes that drove fiscal deficit up

Indeed, populist policies do give handsome political returns, but these returns are not only small but also extremely short-term while the costs of such policies are huge and tend to show in the medium to long-term.

The recent trend of populist announcements in the run-up to elections by the Congress for petty political gains indicates a reluctant party that is unwilling to learn from its macroeconomic blunders. To be fair to them, such bad Economics always makes for good politics as voters tend to handsomely reward them for such announcements however, the long-term costs of such politics is way too high which is why it is important to discuss this issue at length.

It has been the case that UPA has been fiscally reckless while the NDA has historically been more prudent at the handling of fiscal deficits. Be it the NDA-1 which enacted the FRBM Act or the NDA-2 which modified the act and has demonstrated its staunch commitment towards fiscal consolidation, both these governments have given a lot of importance to strong macroeconomic fundamentals. This is in contrast with the UPA era where fiscal deficit, current account deficit, inflation and interest rates were all significantly high.

The recent slowdown in economic growth under the UPA from 2011 onwards is just one example where populist policies by the Congress led to a complete collapse of growth. There is a direct relationship between fiscal deficits and inflation and thus, high fiscal deficits result in the acceleration of inflation. Thus, the increase in inflation post-2011 can be attributed to the high fiscal deficits Congress maintained from 2008 onwards and this high fiscal deficit in 2008 was largely due to the farm loan waiver that Congress had announced for direct electoral considerations in 2009.

What we are witnessing today with the Congress going around town announcing farm loan waivers is no different than what we witnessed in 2008 but the question worth asking is if farm loan waivers are effective and the answer to this is a definite no. Thus, the Congress is knowingly pushing for a policy that will not address the problem of volatility in farm incomes but it will cost the state exchequer a significant amount of money and it will only cause inflation in the medium run.

- Advertisement -

But it is not a new phenomenon whereby reckless spending by the state for political purposes was witnessed under the Congress government. The episode of 2008-2014 reminds me of the entire growth that India experienced in the 1980s. This growth also came with the backdrop of a widening fiscal deficit and the deficit only increased further during the Rajiv Gandhi’s tenure. While this widening of the deficit did lead to growth, the inflation accelerated further, and this growth also led to a widening current account deficit.

“Current Account deficit is defined as the current account consists of the balance of trade, net primary income or factor income and net cash transfers, that have taken place over a given period of time.”

The reason why current account deficit widened is that the growth led to a trend of importing goods for consumption needs while our exports didn’t increase to compensate for the increase in imports. Thus, the deficit-financed growth under Rajiv Gandhi induced a major problem for India which always maintains a twin-deficit; which is a simultaneous fiscal and current account deficit.

This experiment of deficit financing of growth ultimately led to the balance of payment crisis in 1991 when India finally decided to open its economy and get rid of the rigid state control over economic activity. The point, however, remains that anytime a government follows a populist fiscal policy it is bound to have some repercussions and a prolonged fiscal expansion is bound to result in deterioration of macroeconomic fundamentals for a nation which can swiftly escalate and become a full-blown economic or financial crisis.

Despite the experience of the unstable nature of growth in the 1980s and from 2009-2011, the recent populist policies of the Congress indicate two things; it’s an unwillingness to learn from past economic mistakes and secondly the lack of a sound policy agenda to resolve some of the long-standing issues of Indian farmers.

While farm loan waivers result in great photo ops, but they do little to resolve the problem at hand. In fact, they only further complicate the situation further as they drain out potential resources which could have been allocated for rural infrastructural development. With adequate evidence of farm loan waivers being rendered as an ineffective measure to stabilize farm incomes, the fascination for them is largely due to the political rewards that such measures deliver.

Indeed, populist policies do give handsome political returns, but these returns are not only small but also extremely short-term while the costs of such policies are huge and tend to show in the medium to long-term. The crisis of 1991 and high inflation from 2011-2014 is evidence of the costs that these policies induce upon the citizens and the economy so it’d be wise to advise the Congress to learn from its past mistakes and put the economic interests ahead of its political interest. At the same time, it is important that voters realize that there are no free lunches and it is ultimately the voter who ends up paying for such reckless spending by political parties. It is about time that we learn from the past and stops rewarding bad economic policymaking politically as for only then will the good economic policy be the norm and not an exception.

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

Karan Bhasin
Karan Bhasin is a political economist by training and has diversified research interests in the field of economics. He tweets @karanbhasin95.

Related Articles

Trending now

Mumbai Police made actress Payal Ghosh wait till 2 AM, did not file sexual assault complaint against Anurag Kashyap: Reports

The BMC declared her society a containment zone to prevent the actress from filing a complaint.

ANI Editor rubbishes viral claim of the same person acting as a customer during demonetisation and farmer supporting agriculture Bills

Congress social media co-ordinator Vinay Kumar Dokania in a tweet alleged that a farmer interviewed by ANI over farm bills was the same man who praised demonetisation and Digital India in 2016

‘Secular’ anti-CAA protesters knew their Islamist comrades were trying to incite violence but did not inform police, WhatsApp texts reveal

The WhatsApp conversations revealed that the Delhi riots were organised and facilitated through provocation and active mobilisation of the masses.

‘Remember Kamlesh Tiwari? The same will happen to you’: Asst Stores Officer Shakeel Ahmad threatens UP Minister Rajeshwar Singh

As per police, a case has been filed against Shakeel Ahmed under Sections 504, 506, and 507 of IPC. Once the police finish investigation, they will arrest Ahmed as per law.

For AltNews, Muslims cease to be Muslims if they do not hate Narendra Modi or the RSS

AltNews questions the religiosity of Muslims who extend their support or are associated with the BJP and the RSS

NCB summons KWAN Agency CEO. Did you know Anurag Kashyap aide and film producer Madhu Mantena co-founded KWAN as well as Phantom films

Interestingly, until now, all the big Bollywood names which have emerged in the NCB's probe have links with KWAN Agency

Recently Popular

An eyewitness tells media that Disha Salian was gang-raped by 4 men in the party held on the eve of her death: Here are...

An eyewitness has told News Nation that Disha Salian was gang-raped by 4 men in the party which she attended on the eve of her death on June 8.

‘Whoever doesn’t want to watch the show, can go and read a novel, or turn off the TV’: Justice Chandrachud on Sudarshan News ‘UPSC...

"Read a novel, or turn off the TV", justice Chandrachud stated that if anyone doesn't like the content of the Sudarshan News show, they can choose not to watch it.

Fact Check: Is India going under lockdown once again from September 25?

PIB has debunked rumours on social media about the reimposition of lockdown from September 25 in the wake of Coronavirus surge.

OpIndia, Indic Collective Trust and UpWord file intervention application in SC in Sudarshan News case, ‘Saffron terror’, fake news demonising Hindus find mention

OpIndia, Indic Collective Trust and UpWord Foundation have filed an application seeking an audience with the Supreme Court in a matter of Sudarshan News and UPSC Jihad show

‘Maal you have?’ Deepika Padukone’s name emerges in the Bollywood drug abuse probe as NCB investigation intensifies

In a sensational revelation, Bollywood's top actress Deepika Padukone's name has emerged in the latest drug abuse probe carried out by the Narcotics Control Bureau (NCB)

Bollywood drug web has extended links internationally, money is used for narco-terrorism: NCB chief Rakesh Asthana

Asthana informed that NCB has knowledge about the drug abuse in Bollywood parties and that the agency is gathering more evidence.

Uttar Pradesh: Man rips open pregnant wife’s stomach with a sickle to check the gender of foetus

Man in UP arrested after he cut open his wife's stomach, allegedly suspecting that she is going to give birth to another girl.

Mumbai Police made actress Payal Ghosh wait till 2 AM, did not file sexual assault complaint against Anurag Kashyap: Reports

The BMC declared her society a containment zone to prevent the actress from filing a complaint.

Sushant Singh death probe: Rhea Chakraborty’s judicial custody extended till October 6 by NDPS court

Rhea Chakraborty was arrested by NCB and sent to 14-days of judicial custody on September 8, 2020.

ANI Editor rubbishes viral claim of the same person acting as a customer during demonetisation and farmer supporting agriculture Bills

Congress social media co-ordinator Vinay Kumar Dokania in a tweet alleged that a farmer interviewed by ANI over farm bills was the same man who praised demonetisation and Digital India in 2016

Election affidavit complaints: Income Tax dept sends notices to Uddhav Thackeray and son, Sharad Pawar and daughter

Shiv Sena and NCP have shrugged off the IT notice as 'routine activities'.

West Bengal: Unavailibity of cold storage, inefficient policies blamed for loss to potato farmers in the state

While the State produces 11.5 million tonnes of potatoes annually, there is a storage capacity of only 7 million tonnes.

‘Secular’ anti-CAA protesters knew their Islamist comrades were trying to incite violence but did not inform police, WhatsApp texts reveal

The WhatsApp conversations revealed that the Delhi riots were organised and facilitated through provocation and active mobilisation of the masses.

CM Yogi seeks suggestion from film personalities for the proposed Film City in Uttar Pradesh

The proposed Film City is expected to be set up in Gautam Buddh Nagar in Uttar Pradesh.

‘Remember Kamlesh Tiwari? The same will happen to you’: Asst Stores Officer Shakeel Ahmad threatens UP Minister Rajeshwar Singh

As per police, a case has been filed against Shakeel Ahmed under Sections 504, 506, and 507 of IPC. Once the police finish investigation, they will arrest Ahmed as per law.

Reading, UK: ‘Are you Taliban?’, Sikh taxi driver attacked by four white men in apparent hate crime

Vaneet Singh, a Sikh Taxi Driver from Reading, has informed the Police that he was attacked by four white men on Sunday.

Connect with us

244,181FansLike
454,570FollowersFollow
16,400SubscribersSubscribe