Elections 2022: Economic challenges for new governments in UP and Punjab

The picture was clear from the beginning, on Thursday morning, when the early trends from postal ballots started trickling in. Celebrations erupted in the camps of BJP, which later clinched four of the five states which went to polls.

The two big states Uttar Pradesh and Punjab went to BJP and Aam Aadmi Party respectively. While it was Aam Aadmi Party’s first victory in any state outside UT of Delhi, BJP won UP for the second time running.

With this, the BJP has become the first party to win two consecutive UP Assembly elections since 1985. The elections in Manipur and Uttarakhand went in favour of the BJP, which also emerged as the single-largest party in Goa. With the three independent winners declaring their support for BJP in the coastal state, the party is confident of forming the government. 

But, apart from victory, the two most populous states of UP and Punjab are also offering a set of challenges to ruling parties. The freebies announced by both the parties in their bid to come to power will also add to the financial burden.

Like Aam Aadmi Party had announced to give Rs 1,000 to every woman aged above 18 years in Punjab after coming to power. And now that it has come to power, this promise alone is expected to cost the state exchequer over Rs 1000 crore a month. 

Besides this, the party has promised a 24-hour water supply and 20,000 litres of water free of cost to every household each month along with an assurance that no new taxes would be introduced. 

Party convener Arvind Kejriwal had also promised free electricity up to 300 units a month for domestic customers.  

The state is already reeling under a high debt of about Rs 2.8 trillion. For this fiscal, it owes about Rs 8,000 crore in pending power subsidy dues to Punjab State Power Corporation. The annual dues to the state discom have swelled to more than Rs 20,000 crore. Chief minister Charanjit Singh Channi had recently waived off electricity bills and water dues amounting to thousands of crores. 

Punjab has India’s highest debt-to-Gross State Domestic Product (debt-to-GSDP) ratio, which stood at 53.3% in FY22. The situation is so dire that its annual debt servicing liability is higher than its annual gross borrowings.  The state also fares poorly when it comes to own tax revenues as a percentage of total revenue receipts. 

Just 39% of its total revenue came from own-tax revenues. It gets more money from the Centre. About 52% of its revenue comes from Central transfers.  

Meanwhile, UP is a tad better than Punjab.  

Yogi Adityanath, who is set to take over the reins of UP for the second time, will have to factor in UP’s debt which is expected to be one-third of the state’s GDP by this financial year end if he continues welfare schemes and meets BJP manifesto promises of free power supply for irrigation to farmers.

UP distributed free ration between December 2021 and February 2022 as part the Covid relief package just ahead of the state polls. Political observers have attributed this as being one of the factors that turned the voters towards the ruling dispensation.

The free distribution done to almost 146 million beneficiaries is expected to cost the exchequer around Rs 300 crore per month, officials said.

Besides free rations, welfare schemes like PM Awas Yojana, which provided monetary assistance to build homes, Swachh Bharat Abhiyan to build toilets, and cash transfers to farmers under the PM-KISAN scheme also helped BJP come back to power. 

However, Uttar Pradesh had the highest percentage of population who were multi dimensionally poor after Bihar and Jharkhand, according to a recent NITI Aayog report. Nearly 38% of the state was suffering from multidimensional poverty. 

The menace of stray cattle has also emerged as one of the biggest issues of the state’s farm economy, causing heavy losses to the incomes of farmers. According to the 2019 livestock census, there were 11.8 lakh stray cattle in UP, an increase of 1.75 lakh since the previous census in 2012.

This has forced farmers to hold vigil all night to prevent stray cattle from damaging their fields and incur additional costs to install wiring or fencing.

Uttar Pradesh has one of India’s lowest labour participation rates, indicating that many are not even looking for jobs. According to private think-tank CMIE, UP’s labour force participation rate is around 36%, lower than India’s 40%.

Even the unemployment rate among youths in UP is higher than the national average. The Periodic Labour Force Survey says that the unemployment rate in the age group 15-29 stood at 23.2% in urban areas of UP during FY21’s January-March quarter. This was more than double the overall unemployment figure of 10.6% for urban areas during same quarter.