There is a growing cynicism about the value and credibility of the promises made in election manifestos. Incumbent chief ministers increasingly believe that if voted to power, they will imperceptibly wriggle out of promises made, and in case voted out of power, are indifferent to the deluge that may follow thereafter! The principal party in opposition invariably makes even taller promises in a bid to acquire power and, if successful, can heap the blame on the pathetic state of finances which in all probability they will inherit for resiling from electoral promises. All this, increasingly, makes election manifestos more and more meaningless.
Let us, for a moment, examine the contents of the two joint manifestos. The joint election manifestos of both the Congress-NCP and the BJP-Shiv Sena make far-reaching commitmentsof free power upto 5HP, waiver of dues and interest, huge outlays for development of backward areas, and financial incentives to farmers. The cost of implementing these commitments are staggering and estimates could vary significantly depending on how these are calculated.
Contrast these with the state of Maharashtras finances. I had the privilege of coordinating the Mahara-shtra Development Report (MDR) which clearly brings out that the development of the state has lagged behind and its finances are in a perilous state. The growth of Gross State Domestic Product (GSDP) has fallen from 7.3% during the last 15 years to 6.8%, 6.2% and 5.2% during the last 12, 8, and 4 years, respectively. And its ranking among the states during the period 1993-94-2000-01 has also slipped sharply. Gross fiscal deficit as a percentage of State Domestic Product (SDP) deteriorated close to 6% during 1995-2000 compared to 2.8% in the earlier five year period.
Maharashtra borrowed primarily to finance its current consumption to pay for salaries and pensions and fund losses in its PSUs including the Electricity Board.
Maharashtra also contracted large stock of debt during the period of high interest rates which has led to a steady increase in its interest payments. Special Purpose Vehicles were created and many of the state PSUs raised money in the capital market on the unconditional and irrevocable guarantee of the government of Maharashtra.
The larger issue of capping state government guarantees through Special Purpose Vehicle and parasital entities defeating the broader objectives of limiting the borrowing programme of state governments within prudent limits deserves the separate attention of the Planning Commission and the finance ministry. The total outstanding guarantees alone constitute 15% of the SDP. The expenditure on interest payment which was Rs 100 crore in 1980-81, rose to Rs 880 crores in 1990, crossed Rs 7,200 crores in 2002-03!
The expenditure on interest payment as a percentage of revenue receipts rose from 5.4% to the unsustainable level of 21% in 2002-03. This is notwithstanding the warning contained in the White Paper on the state finances of the government of Maharashtra in 1999 which had stated that the proportion of productive expenditure showed a declining trend, the capacity of the government to service the mounting debt without resorting to even larger borrowing is undermined. The situation has further compounded in recent years with growing resort to borrowings through bonds floated by state sponsored corporations but with debt servicing (including interest and payment of principal) being assumed by the state government. Clearly, the state of Maharashtras finances should be a source of anxiety to the new government A leading merchant banker recently enquired from me on whether there was any recourse - clearly the recourse could not be the Churchgate station or Mantralaya!
Over the next two years, other states like Bihar, Jharkhand, Haryana, Tamil Nadu, Kerala, West Bengal and Assam will be going to the polls. There will be fresh competitive populism in the run up to the elections. They will also be in disregard of the financial capabilities of these states to implement these programmes. Unfortunately, electoral penalties for disregarding electoral pledges are tardy and come after a long time. In the meantime, there is growing disconnect between electoral commitments and governance realities. Surely, it is not intended that while elections should be contested on party manifestos, governance should be based on Common Minimum Programmes. The electoral rhetoric pays scant heed to the saner advice that it is better to under-promise and over-perform.
In the instant case of Maharashtra, one of the first tasks of the new government would be to repair the finances of the state, retire high cost debt, and work toward a sustainable debt servicing profile. Beyond that is the larger responsibility of restoring Maharashtras pre-eminent position for enabling the state to grow at rates of 7-8% achieved earlier. These will require difficult decisions.
While both Chidambaram and Montek can help, the state government would need to exhibit both administrative responsibility and political will to bring prosperity to Maharashtra which, notwithstanding pockets of high affluence, has large regions mired in poverty and underdevelopment.
Electoral promises hastily made cannot inspire trust and one cannot take the cynical view in believing what Lord Keynes had said that in the long run we are all dead.
One must be cautious in making commitments be-cause, to quote Keynes again, he had said that I do not know which makes a man more conservativeto know nothing but the present or nothing but the past. In this case, the past will haunt the present as a new government grapples with many complex challenges to convert the daunting promises of the election manifesto into reality. Maharas-htra needs all our support in realising its development potential to once again become an engine of growth for the Indian economy.