Guj's financial position makes it easy to go for freebies. But should it?

At the outset, Gujarat seems quite a prosperous state. Its per capita income was Rs 2,41,507 in 2020-21, which was 65 per cent higher than the national average of Rs 1,46,087. 

However, 18.6 per cent of the population in the state, which will see two-phase polling for the Assembly elections in December, was multi-dimensionally poor in 2015-16. Though it was less than the national average of 25.1 per cent, 15 states were better off than Gujarat in this respect.

The Gujarat Assembly elections will be held in two phases on December 1 and 5, and the results will be declared on December 8.  Of the 182 seats in the Legislative Assembly, 89 will go to polls in the first phase and 93 in the second. There are over 40.9 million eligible voters this time. 

Next to Gujarat, West Bengal was a poorer state that year as 21.43 per cent of the population was multi-dimensionally poor.

Besides West Bengal, 11 other states were poorer than Gujarat.

One may argue that multi-dimensional poverty numbers were released for 2015-16 and hence represented a picture of around six years back. If one takes numbers from the National Family Health Surveys (NFHS) for 2019-21 on the basis of which new multi-dimensional poverty numbers would be released, the state was not very far from the national average on certain parameters.

For instance, 73.5 per cent of women were literate in Gujarat in 2019-20 against 71.5 per cent at the all-India level in 2019-21. Similarly, 87.4 per cent of males were literate in the state against 84.4 per cent over this period.

Similarly, those living in households with access to improved sanitation facilities constituted 74 per cent of the total against 70.2 per cent at the national level over this period. The infant mortality rate in the state was still 31.2 per 1,000 live births in 2019-20, though less than 35.2 at the national level in 2019-21.

Besides, Gujarat has been witnessing a higher inflation rate than the national average in recent periods. Its average retail price inflation stood at 5.5 per cent against the 5.3 per cent national average in 2021-22. The same was the trend in the first six months of the current financial year when the state saw an average inflation rate of 7.8 per cent against the national average of 7.2 per cent. 

In this connection, if one wants to help the vulnerable section, the state has scope for it financially. Its own tax revenues were always close to at least 55 per cent of the state's revenue receipts during the current BJP rule. In the last year of the previous BJP rule too, it was over 58 per cent. In 2021-22 and 2022-23, the proportion is projected to go beyond 60 per cent but these are yet to be tested.

Similarly, the state's debt level is quite low. Its public debt remained less than 20 per cent in all five years of the BJP government's current stint as well as the concluding year of the previous stint.

As such, the poll promises by Aam Aadmi Party (AAP)’s National Convener Arvind Kejriwal to provide free electricity up to 300 units to each family and Rs 3,000 per month to unemployed youths or by the Congress to provide an LPG cylinder at Rs 500 could be easily met, given the financial condition of the state compared to say Punjab or Himachal Pradesh. Punjab's outstanding liabilities were projected to constitute 48.48 per cent of the state's GSDP in 2022-23, though slightly lower than 49.46 per cent in the previous year (budget estimates). 

Himachal Pradesh, which would see Assembly elections on November 12, projected its outstanding liabilities at over 40 per cent of its GSDP in 2021-22 and 2022-23.

That way, Gujarat is in a much better position to provide these freebies, but the issue is should it do that?

According to a report by the Comptroller and Auditor General of India (CAG), the state used to spend 80.79 per cent of its borrowed funds on capital expenditure in 2016-17. Over the years, this proportion has dwindled. It came down to just 45.5 per cent in 2020-21. The issue is if it uses the money more for freebies without capital assets generation, this proportion would further come down and borrowings would be used increasingly for revenue expenditure which is not considered a prudent approach from the fiscal point of view.