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May 17, 2009

Page: 5/35

Home > 2009 Issues > May 17, 2009

Economics of populism
Cash transfer promise in Andhra Pradesh

By Nirmala Sitharaman

At a cost of Rs 5000 crore, free power is being supplied to 26 lakh pump sets using up 15800 million units. It is anyone?s guess if the TDP can stop this or for that matter, stop the rice scheme to save some money.

In the context of election 2009, two words are uttered by most citizens in Andhra Pradesh?cash transfer. There are a few who refer to it as nagadu bhadali padakam.

It is claimed that the cash transfer scheme, as referred to in the Telugu Desam manifesto, can make or break the party?s political fortune. The party copied this scheme from Brazil. Bolsa Familia or the family fund enabled President Luiz Lula da Silva to win a second term in office in 2006. The Telugu Desam hopes to decide the outcome of this election with this scheme.

The cash transfer scheme as envisaged by the Telugu Desam promises to pay into the bank account of the senior woman of every qualifying household?the very poor, the poor and the lower middle income?an amount of Rs 2000, 1500, 1000 respectively. The woman would also be given an ATM card for operating the account. She will be taught to use the card too. The only obligation on the family would be to ensure that their children are vaccinated following the government?s immunisation schedule. Notwithstanding the various steps initiated, Andhra Pradesh still has many children working, the TDP could have made it obligatory on the families to send them to school.

Just what this magnanimous gesture is likely to mean to the state?s budget can be worked out. Presently in Andhra Pradesh there are 1 crore 95 lakh white ration cards, given to families which are ?below poverty line? (BPL). Those holding pink ration cards are in the ?above poverty line? (APL) category totalling 35 lakh. In other words, in Andhra Pradesh there are a total of 2 crore 30 lakh ration cards. Before we calculate the budget implication it is important for us to understand the level of poverty in AP.

The population of Andhra Pradesh is close to 8 crore. Using a much-accepted thumb rule, we can safely say that about 25 per cent of this population is below the poverty line. If we apply this measure, nearly 2 crore people in AP are in BPL category. If we count families instead of people, not more than 50 lakh families should be holding the white ration cards. But in reality 1 crore 95 lakh families are white ration card holders. Conversely this means, nearly 95 per cent of AP lives below poverty line! One wonders if the Planning Commission and the PM will want to consider this unusual and unacceptable situation in order to provide more assistance to the state! In contrast, in 2007-08, the per capita income of the state was Rs 33970 and is growing at 14.83 per cent. The state government boasted, for the same period, that this was higher than the all India per capita of Rs 33131 which was growing at 11.77 per cent. So, is poverty growing in Andhra Pradesh or is it income?

If the Telugu Desam Party comes to power in June 2009, it will have to mobilise Rs 27,600 crore each year to provide Rs 1000 per month to each card-holding family. The cash transfer scheme as envisaged by the TDP is three layered, as mentioned earlier. If the differential payment structure has to be honoured, annually Rs 46,800 crore will be needed only to serve the white card holders (BPL). The APL and the lower middle class can be served only if/when an additional Rs 6300 crore are found.

Currently the Rs 2 rice scheme requires Rs 1980 crore annually. With 15 lakh new ration cards issued as recently as February 2009 an additional Rs 332 crore have to be provided annually for this now well-entrenched scheme.

At a cost of Rs 5000 crore, free power is being supplied to 26 lakh pump sets using up 15800 million units. It is anyone?s guess if the TDP can stop this or for that matter, stop the rice scheme to save some money.

The revenue receipts (taxes and duties and non tax revenue) of the state was Rs 56126 crore in 2007-08. Revenue expenditure for the same period was Rs 55675 crore. Public debt stood at Rs 83887 crore.

It is believed that the TDP?s own estimates of the state?s revenue is Rs 70,000 crore and based on this, its in-house economists have assured the party that the much-touted cash transfer scheme is sustainable.

Somewhere hidden in the maze of these numbers is the miracle solution to restoring the state?s fiscal health even as the electoral promise is kept.

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