Watch your pocket — Elections 2009 is going to hit you right there, as parties promise generous sops to woo voters. The likely cost — a few thousand crores of rupees. And the burden will be borne by ordinary taxpayers.

So if the Congress promises 25 kg of wheat or rice every month to all 65 million below poverty line (BPL) families at Rs 3 a kg, the BJP promises 35 kg at Rs 2 a kg. As it is, the government is losing Rs 9.80 to Rs 12.21 on every kg of rice or wheat it sells to the poor at subsidised prices. If these promises are implemented, the loss will rise to between Rs 11.71 and Rs 12.71 a kg. The total expenditure: a cool Rs 22834 crore to Rs 35698 crore.

Hang on, there’s some deceit involved. Thirty-five kg of wheat or rice at Rs 2/3 a kg is already being given every month to 25 million BPL families under the Antyodaya Anna Yojana. The Congress and the BJP will be merely extending this to the remaining 40 million BPL families, who get the same quantity but pay Rs 4.15 for wheat and Rs 5.65 a kg for rice. And the Congress is actually reducing the quantity of subsidised foodgrains — by a good 10 kg a month. The BJP promise will involve additional expenditure of Rs 5684 crore.

Bonanza express

Note: The calculations are based on broad estimates and extrapolated from current levels of spending. Some estimates could be on the higher side.

From poor consumers, the oneupmanship moves to poor farmers. The Congress has the Rs 70,0000-farm loan waiver given last year to boast about. The BJP doesn’t and so its manifesto promises one. It also vows to cap interest rate on farm loans — currently 9 per cent — at 4 per cent, while the Congress says it will waive interest for farmers who repay loans on time. Banks can’t be expected to take the hit, and so they will have to be reimbursed. That could see the government shelling out between Rs 5000 crore and Rs 7200 crore, far above the current payout of Rs 2011 crore (banks charge 7 per cent interest and the government pays them the remaining 2 per cent).

There are several other sops, the cost of which can’t be estimated right now. The Congress, for example, is promising to give free education from school to university to dalit and adivasi children, get the Centre to pay coaching fees for various entrance examinations for scheduled caste/scheduled tribe students, among other things.

Show us the money, say economists. “You can finance any expenditure if you have revenue,” notes D.K. Srivastava, director of the Madras School of Economics. But the BJP is bent on giving away Rs 22450 crore through tax concessions — increasing the standard deduction on income tax to Rs 3 lakh from the present Rs 1.5 lakh, complete income tax exemption for the armed forces and paramilitary forces and scrapping the highly unpopular fringe benefit tax. “This is bad economics,” says Tapas Sen, professor at the National Institute of Public Finance and Policy (NIPFP).

Such grandiose gestures come at a time when government coffers are in a bad shape. A slowing economy and close to Rs 40000 crore of tax sops to perk it up saw the government’s revenues drop by 6 per cent in 2008-09. Meanwhile, expenditure soared 19 per cent, thanks to the farm loan waiver, the implementation of the Pay Commission recommendations and various spending measures to stimulate the economy. After the interim budget was presented, the government gave away another Rs 30000 crore in more tax benefits for industry.

Given this, says Srivastava, the new government is set to inherit a near-depleted exchequer. “Any new government will have to fight with its back to the wall.” By the end of 2009-10, the combined fiscal deficit — when the government’s total expenditure exceeds its total income — of the Centre and the states could be close to 12 per cent of gross domestic product (GDP).

Nilachal Acharya, researcher at the Delhi-based Centre for Budget Governance and Accountability, isn’t worried about this. Fiscal caution, he argues, is not appropriate at a time when the economy is slowing down and the poor are getting a raw deal. But few agree with him. “This is alarming and not desirable at all,” warns NIPFP director M. Govind Rao.

If these poll promises are actually implemented, the deficit could soar even higher to levels never before seen in India’s history, warns Sen, and could push the economy to the brink, similar to 1991. The unprecedented economic crisis of that time was fuelled by spendthrift governments.

Finally, it will be every Indian who will pay.

Managing the government exchequer, notes Sen, is pretty much like managing the household budget. Expenditure should match income and if there is a shortfall, it can be met through borrowings. The only difference is that the government has more options to bridge its gap. “But every method of financing the deficit has a cost that cannot be ignored,” notes Sen.

Raising taxes would be the first option. “More debt today is more taxes tomorrow,” warns Rao. That’ll mean less money in people’s hands to spend, at a time when the economy needs more spending to perk it up.

Or the government could simply print more money to bridge the fiscal gap. But with industry producing less goods and more money in the system, that will only fuel inflation.

The government could also borrow money. But given its huge requirements, that’ll mean less money available for lending to industry and agriculture, further slowing down economic activity. Worse, it will push up interest rates for everyone, including individuals. Home loans and retail loans could get costlier, warns D.H. Pai Panandikar, president, RPG Foundation. Interest payments by the government will also rise, leaving even less money for development spending. People will then have to put up with bad roads, power, water shortages and more.

“Such promises are quite unsustainable and self-defeating,” points out Srivastava. “Eventually, there will be no money to translate them into action.”

The only hope is that the sobriety of office will prompt a rethink on such extravagance. “Election manifestoes are like ads. They are not meant to be taken seriously and are rarely implemented,” says Panandikar.

But what if they are? “Then God help us,” says Sen. Amen.