Karnataka: What poll guarantees tell us about the state of the economy

The five guarantees put forth by the Congress in its Karnataka election campaign were based largely on welfare measures. The wide acceptance that these promises received point to a larger problem in the Indian economy. This was evident not only in Karnataka, but also in Himachal Pradesh, West Bengal and Delhi elections.

The growth story that one often hears has major gaps. Some of these hold serious political and economic significance, not only locally but also nationally. 

Let us start with unemployment, one major issue that Congress raised in the Karnataka elections. The youth unemployment rates in India, as per International Labour Organisation estimates, were as high as 25% in 2021 and 28% in 2022.

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In the small state of Himachal, too, where Congress gained power with the promise of creating one lakh jobs, more than 12% of the population was registered with the Department of Labour and Employment as job-seekers in March 2022.

It is not surprising that this issue resonated with people’s concerns across the board. Voters in Karnataka responded positively to announcements such as Yuvanidhi, which would provide Rs 3,000 every month for unemployed graduates and Rs 1,500 for diploma holders, in the age group of 18-25 for two years.

Guarantees

Price rise was another issue in this election – a common reference point was the price of an LPG cylinder, now ranging between Rs 1,100 to Rs 1,200. 

The response to unemployment benefits as well as to other guarantees that Congress promised reflect the levels of economic distress in Karnataka's households.

These guarantees include 200 units of free power to all households (Gruha Jyoti), Rs 2,000 monthly assistance to housewives (Gruha Lakshmi), 10 kg of free rice given to every member of a BPL household (Anna Bhagya) and free travel for women in public buses (Shakti).

In West Bengal, the Trinamool Congress had also included a basic income transfer to all female heads of households. The AAP government in Delhi has already implemented free bus travel for women.

Indeed, such promises have become the playbook for all parties, including the BJP, which has given away Rs 6,000 a year to farmers, LPG connections to rural households, free food to millions and a host of other benefits ahead of elections, starting with the income support to the farmers in 2019. 

In states such as UP, it has constantly communicated to labarthis (beneficiaries) that they were getting this largesse courtesy Prime Minister Narendra Modi and the BJP and therefore they should vote for the party. The party, in Karnataka, promised to provide three free cooking gas cylinders annually and half a litre of milk daily to all BPL households. 

In addition, they promised to establish Atal centres to give affordable food to the urban poor, having shut down the Indira Canteens that had been established by the previous Congress government. 

Therefore, the BJP manifesto in Karnataka also seemed to have taken note of the economic distress and made promises, although only half-heartedly. 

The fact that guarantees of significance resonated with voters, especially those from low-income groups, in several states including Gujarat, where AAP managed to find good inroads in an invincible BJP stronghold, is indicative of a widespread economic distress across the country.

But why are we looking to election promises and results to gauge the state of the economy, instead of relying on economic data and statistics?

India was one of few post-colonial countries to have a robust statistical system for decadal census and periodic large-scale sample surveys on various socio-economic markers. That system now stands broken. We had our last All India Population Census in 2011. The Centre has indefinitely suspended the Census that should have taken place in 2021. The most recent data available from the Consumer Expenditure Survey (CES) is also from the same period. This is due to the decision by the Modi government to not use data from the next round conducted in 2017-18.

However, the absence of data does not mean the absence of a particular phenomenon. The 2022 World Inequality Report declared India as one of the most unequal countries in the world. The lack of a single, reliable source for data on how the pandemic and demonetisation have impacted various sections of society is a major setback. Therefore, we are forced to put pieces together, using a range of indicators to weave a narrative. Election manifesto promises, voter response and results have become some of these key indicators.

Welfare measures

Welfare measures are often referred to as ‘freebies’ or ‘handouts’ in common discourse. This is perceived to be at odds with ‘development’, a term which is rarely defined. Most commonly under the current government, it has been used to refer to infrastructure alone: Roads, highways, airports, bullet trains and the like. There is no doubt that infrastructure is critical for development and investing in it has the potential to spur economic growth and create jobs. However, if growth, in turn, fails to create employment opportunities for the youth and brings prosperity to only a few, is such growth really development?

In such a situation, it is important for the State to protect vulnerable sections of society. The transfers and welfare measures promised have the potential to push demand, on the one hand, and support human development, on the other. This makes these policy measures even more desirable in times of economic slowdown.

One such period, the pandemic, adversely affected most economies. India was no exception. But the Indian economy had started slowing down much before the pandemic hit, especially in the post-demonetisation phase.

Although it has since shown signs of recovery, the growth has largely been jobless growth. Private investments are not picking up despite several fiscal incentives such as lowering the corporate tax rate. One reason is that private investors will not invest if they do not foresee a growth in demand.

At such times, supply-side measures such as easing credit access will help. But what we need even more are policies and public investment that can push demand. Welfare measures that depend on transfers have the potential towards achieving such a purpose.

Ultimately, by encouraging spending, the so-called handouts might succeed in gaining the economic result that incentives catering to the rich have failed to do. Simultaneously, they can also address issues of food security and livelihood, to an extent.

The series of election results, the latest being from Karnataka, indeed tell us that everything is not fine with the economy in the states nor with the Indian economy at large. But given the inherent strength of Karnataka’s economy, coupled with the potential to convert non-functioning subsidies into productive transfers, the new government in Karnataka should be in a position to fulfil the promises it made. Depending on whether the state keeps its welfare promises, while also pushing the economy to grow, the Karnataka election results should hold lessons for framing national economic policies.

(Jyotsna Jha heads the Bangalore-based Centre for Budget and Policy Studies)