Finance Minister Arun Jaitley recently stated that there was no room for mindless populism in Budget 2014. In this article, the first of a two-part series, mindless populism will be defined and estimates provided; the second will contain further facts, and remedies.
The following simple definition of populism may be considered representative. Populism means expenditure programmes aimed at subsidising a large, preferably majority, of the voting population. In many countries, populism would be social expenditures targeted at the middle-class. In India, these schemes would be those targeted towards the absolute poor. However, what the Congress party did not realise, or appreciate, is the simple fact that the absolute poor were less than a quarter of the population in FY12, and possibly less than a fifth at the time of the 2014 election.
There is another element to the “mindful” nature of populism. Indian politicians should be aware that as per capita incomes have increased manifold, so has the percentage of population subject to income tax. So this financing class worries about the efficacy of the delivery of subsidies to the poor, and to themselves. Mindless populism is now a deep negative for getting elected in India. Don’t believe me, believe the Congress which, despite many populist programs, has just managed to register the largest loss for any incumbent national government anywhere, at anytime. In 2009, it won 206 seats; in 2014, just over a fifth of the seats. That is a world-record for the BJP and Mr. Modi to be proud of, and for mindless populists to beware.
The longest running, and the most expensive of the social programmes for the poor, is the food subsidy program populistically called the Public Distribution System (PDS)—a scheme that has been in operation since the late-1970s. The total expenditure on this policy in FY15, thanks to it having been enshrined as law by the Sonia Gandhi-led previous government, is slated to be R1.25 lakh crore.
The Tendulkar poor today are likely to be around 250 million. So, the populism of the Congress dictated that the government would spend R5,000 per poor person on food subsidies alone, i.e., not including NREGA (let us call it by its original name rather than introducing the Mahatma into the controversy), not including fertiliser, not including diesel, not including kerosene, and not including LPG. Incidentally, these excluded items together account for