Lok Sabha Election 2024: How Much BJP, Congress Manifestos Cost The Exchequer
Nomura does not see an upside risk to the FY25 fiscal deficit target from the BJP's manifesto.
The Bharatiya Janata Party and the Indian National Congress have released their election manifestos recently ahead of the start of the Lok Sabha polls. With opinion polls suggesting an overwhelming majority for the BJP, its manifesto also appears to signal business as usual, while the Congress manifesto appears to be relying on populist measures.
Key takeaways of the BJP's manifesto include improving connectivity, ease of business, and affordable housing targeted at the middle class by strengthening the Real Estate Regulatory Authority Act, as well as promising to expand some of the flagship schemes like free food grains, free housing, Rs 6,000 assistance for farmers and water-connection availability.
The Congress has promised a slew of measures if it comes to power, including a right to apprenticeship act and filling up 30 lakh vacancies in the Union government.
Macro Implications
"The ruling party has been careful to avoid any fresh populism that would upset its FY25 fiscal deficit target of 5.1% of GDP announced in the interim budget in February," a research note by Nomura said. Instead, its focus has been on continuing or expanding its existing programmes and highlighting its focus areas.
"Hence, we do not see an upside risk to the FY25 fiscal deficit target from their manifesto," Nomura economists Aurodeep Nandi and Sonal Varma said. While the manifesto skips any serious next-generation reforms on factors of production like land, labour, capital and farming, this could be due to the political sensitivity of these reforms and mentioning them in the manifesto might have made their implementation tricky, they said.
The Congress' manifesto does not offer a roadmap on how it intends to fund the largesse that it is proposing, and it is difficult to arrive at precise estimates, they said. "That said, back-of-the-envelope calculations suggest that the fiscal costs might rise significantly."
Estimates by Nomura:
In the case of the cash-transfer scheme, if the new government uses the conservative $2.15 poverty line, and assumes four members per household, then the cost swells to Rs 86,000 crore or about 0.3% of the gross domestic product.
The current outstanding education loans is about Rs 1.2 lakh crore or nearly 0.4% of the GDP.
Studies suggest that an urban employment guarantee scheme could cost about 1.7–2.7% of the GDP based on the programme design, according to estimates by the Centre for Sustainable Employment, Azim Premji University.
"We calculate cess and surcharges at around 21% of gross tax revenues in the FY25 budget," it said. "So a cut to 5% would lead to a loss to the exchequer of about Rs 4.1 lakh crore or 1.25% of GDP."
If the Congress wins the election and implements its manifesto promises, then rough estimates suggest that the current FY25 fiscal deficit target of 5.1% of the GDP might rise significantly due to additional expenditure and lost revenues, according to Nandi and Varma. While this might be a positive for consumption in the near term, it would also disrupt India’s macro stability, creating upside risks for inflation and the twin deficits on fiscal and current account, they said.
The Congress manifesto has greater fiscal commitments, including the urban employment generation scheme, a national minimum wage of Rs 400 per day and wages under the MGNREGA too at Rs 400 per day, according to Teresa John, economist at Nirmal Bang Institutional Equities.
In case of the BJP, the manifesto displays a strong commitment towards continuing with the infra push, along with provding more credit support to foster entrepreneurial spirits, and affordable insurance products, along with facilitating quality housing for low-middle income families, Citi said.