NOVEMBER 23, 2024

By Naresh Minocha, Consulting Editor

THE bitter wordy duel between BJP & Congress over failures/difficulties in honouring political promises (PPs) is welcome. Welcome, because it has turned focus on the Centre and States' capacity to fund & sustain PPs, which have been marketed as guarantees in recent years.

The politicians' urge to market guarantees to the poor masses has enriched narrative with racy Hindi phrases such as 'khata-khat', 'taka-tak', 'tana tan', 'safachat' and 'pat pata, pat.'

We need not delve into these Hindi phrases in this column as anyone can find on the Net which leader uttered such or similar words to either laud his/her party's freebies or deride the ones promised by rival parties.

This column would focus on hard facts on all guarantees including Political Guarantees (PGs) to enlighten the public about grave risks of reckless PGs over and above off-budget guarantees.

The tsunami of freebies might start a chain of knock-on impact. The effect might start with fiscal crisis resulting in sharp fall in foreign exchange reserves, alarming fall in value of local currency, runaway inflation & crisis of confidence in the country.

It would be sufficient to note that Prime Minister Narendra Modi himself triggered the latest duel with a series of tweets on 1st November 2024. In one tweet, he wrote: " Check any state where the Congress has Governments today - Himachal Pradesh, Karnataka and Telangana- the developmental trajectory and fiscal health is turning from bad to worse. Their so-called Guarantees lie unfulfilled, which is a terrible deceit upon the people of these states."

PM continued: "The victims of such politics are the poor, youngsters, farmers and women, who are not only denied the benefits of these promises but also see their existing schemes diluted." Congress leaders retaliated by citing unfulfilled promises that Mr. Modi himself made over the years.

The BJP-Congress clash should thus be seized as the God-gifted opportunity to shift from masala (spicy) narrative to serious debate on how to save the Nation from competitive popularism.

Both the Supreme Court and 16th Finance Commission are seized of the freebies issue. Time is, therefore, opportune to contain, if not resolve, PGs war. The way-out of war can serve as a ramp for Viksit Bharat in 2047.

Political parties dangle freebies before the voters during the elections. The ruling party is always in an advantageous position to offer goodies a few months before announcement of elections.

The combined effect of these appeasements, if prolonged, might be more dangerous than the deadliest cancer. Both the Centre and the States have borrowed left and right to honour PGs including direct transfer of cash benefits to potential vote banks.

The face-saving commitment to PGs is squeezing & staggering capital expenditure on public assets. The change in seat of power gives an opportunity to the new ruling party to blame its predecessor for inheriting financial mess & fiscal rot.

At the states, it is becoming a regular practice for new ruling party to issue white paper on State finances, etc. The new regime's objective is to highlight grave legacy issues & unleash its own welfare propaganda.

Shocking evidence on this count keeps flowing periodically from the States, which, unlike the Centre, can't pile up debt without any enforceable restriction. Take the case of Andhra Pradesh where victorious Telugu Desam party & its allies (NDA) dislodged YSRC after the assembly polls in June 2024. NDA has prepared record seven white papers on problems it has inherited in different domains.

In a directive dated 27th September 2024, AP Government ordered immediate cancellation of projects cleared before 1st April 2024. The Directive also stipulated all works on which expenditure has been less than 25% should be closed at a " safer stage ". Three types of projects, such as the ones under centrally sponsored schemes, are exempted from this diktat.

The Directive "noted that large number of engineering works/projects were sanctioned by relaxation of FRBM norms resulting in huge pending work bills to the tune of Rs 39,000 Crores." It continued: "these are ending up in the court cases turning into Contempt of Court cases for non-payment of the same."

It added: "the spill-over commitments of Departments for the current year have already exceeded the AP FRBM norms of three times the budget estimates due to the accumulation of liabilities and sanctions issued in previous year. This has created uncertainty in the payment cycle, causing apprehensions for contactors undertaking works in the backward and tribal regions."

PGs thus disrupt the usual expenditure trends, compelling the ruling regime to reallocate expenditure between welfare and capital expenditure. The compulsions often result in closure or merger of existing welfare schemes/ capital works with ones rolled out as fulfilment of PGs.

The other day, Rajasthan's ex-CM Ashok Gehlot lambasted successor BJP regime for winding up or merging several welfare schemes that were launched by the preceding Congress regime.

All PGs are not freebies. Some of them cost little money but require unflinching commitment to good governance. The cup of unfulfilled promises including freebies has always overflowed for decades because there is no mechanism to enforce them. And nobody remembers all the unhonoured promises that leaders made since 1947.

Is there any guarantee from any Leader to exorcise the curse of rapes, manhole deaths, pothole deaths, dumping of newborns in dustbins from the country as part of forgotten mission of Transforming India?

Did Parliament debate the status of Modiji's eight promises that were trumpeted as pledges for all Indians to be fulfilled by 2022 under the brand - "New India Pledge- #SankalpSeSiddhi"?

Leave aside PPs/PGs, the political class has failed for years to fulfil constitutional guarantees even when they are backed by specific laws. The laws are toothless wonder when it comes to making the Government accountable for failure or delays to implement fully and effectively such PGs.

Before elaborating some aspects mentioned in this column, one needs to picturise the whole domain of guarantees including policy and laws that govern them.

We can classify Guarantees as 1) constitutional; 2) statutory; 3) political promises; 4) administrative ones; 5) written product or service warranties that supplier provide; 6) corporate guarantees- the ones that companies give in different forms during the course of business, 7) credit guarantee funds and 8) sovereign guarantees to lenders that are governed by National or State Guarantee policy and respective Fiscal Responsibility and Budget Management (FRBM) Act.

The word 'Guarantee' figures 12 times in the Constitution. The deemed usage of word 'Guarantee' in the Constitution is aplenty if the Supreme Court verdicts are factored in. Several judgments have declared different laws and regulations as violative of rights guaranteed in the Constitution. This standpoint becomes clear if we recall Supreme Court's 5-bench judgment on electoral bonds (EBs).

As put by the verdict dated 15th February 2024, "Article 19(1)(a) has been held to guarantee the right to information to citizens." It then concluded that EBs scheme and the relevant amendments in 2017 to the Representation of the People Act and the Companies Act "are violative of Article 19(1)(a) and unconstitutional."

The Judgment continued: "And The deletion of the proviso to Section 182(1) of the Companies Act permitting unlimited corporate contributions to political parties is arbitrary and violative of Article 14."

The crystal-clear fact is that successive regimes have tried to curtail rights guaranteed by the Constitution through new or amended laws & administrative orders such as " Bulldozer justice " against the houses owned by alleged criminals.

All regimes have failed to guarantee fundamental rights in all cases including reported, unreported and unresolved crimes. The fact also gets reinforced by frequent petitions for protection of right before the Courts & strong judgments in many cases.

Another instance of failure to implement fully & efficiently a constitutional guarantee is the Right to education (RTE). The Constitution says: "The State shall provide free and compulsory education to all children of the age of six to fourteen years in such manner as the State may, by law, determine."

This is Article 21A, which was inserted in the Constitution through Constitution (Eighty-sixth Amendment) Act, 2002. It took the Centre nine years to enact a law to implement RTE.

The Right of Children to Free and Compulsory Education Act, 2009 (RTE Act) was notified on 26th August 2009 and became effective from 1st April 2010. States formulated their own rules under this law at different points of time as Education figures in Concurrent List of subjects under the Constitution. Tamil Nadu, for instance, notified RTE rules for the first time in November 2011.

The Centre amended RTE Act in 2017 to extend the deadline for training of untrained primary school teachers by five years to 31st March 2019. This all shows casual approach towards constitutional guarantees by leaders who always vie with one other in voicing their guts & grit to defend the Constitution.

No wonder then that there is neither Mr. Modi's nor any Opposition leader's guarantee for complete and effective implementation of RTE & other constitutional guarantees. Ironically, BJP's Manifesto for 2024 Lok Sabha polls provided "Modi ki Guarantee" for Quality higher Education.

The Manifesto, titled 'Modi-Ki-Guarantee-Sankalp-Patra' also stated: "We will ensure that every student gets the opportunity for high-quality school education. For this, we will strengthen the network of PM SHRI Schools, Ekalavya Schools and other such schools as per NEP (New Education Policy) to make them world-class. We will work towards a 100% Gross Enrolment Ratio from pre-school to secondary level."

Compare this promise with bitter truth embedded in CAG and other credible reports. It is apt to quote CAG report No. 8 of 2024 on ' Union Government (Civil) Compliance Audit Observations ' released in August this year.

It says: "Lack of planning and monitoring by the Ministry of Tribal Affairs resulted in 279 out of 681 residential schools for Scheduled Tribe under Eklavya Model Residential School (EMRS) Scheme sanctioned upto March 2022, remaining non-functional as of December 2022. In 57 out of 279 schools, the construction work was either incomplete or yet to be started, resulting in blockage of funds amounting to Rs. 916 crore released." These delayed schools have remained non-functional for 3-12 years!

Apart from RTE, there are three guarantees whose implementation is enforced through specific laws. These are: The National Food Security Act (NFSA), 2013; the National Rural Employment Guarantee Act (NREGA), 2005 and non-political guarantee under Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961.

In addition to these, there are certain types of guarantees that are covered by generic laws such as Companies Act, 2013, Consumer Protection Act, 2019 and Contracts Act, 1872.

Revert now to specific law-envisaged guarantees. The flaws in the implementation of free ration, child nutrition and food security of pregnant woman under NFSA keep getting reported periodically. Similar is the story with Mahatma Gandhi NREGA (MGNREGA) scheme. One can also refer to Parliament questions and CAG reports to understand where the country stands in implementation of these two laws that impact right to life.

As for guaranteeing repayment of people's savings deposited in banks, DICGC's liability is limited to only repayment of Rs. Five lakhs per depositor in case a bank undergoes liquidation or is saved through merger. This guaranteed cap on repayment of deposits was hiked after 23 years in April 2020 from Rs 1 lakh fixed in May 1993.

As all regimes are borrowers' friendly, there is no PG from any party to hike DICGC's liability towards repayment of savings to Rs 10 lakh per depositor per failed bank. This is, in spite of the fact that public savings are key to generating resources required to make the country Viksit Bharat @ 2047.

Other welfare schemes are not regulated through any tailor-made laws. Thus, all central and centrally sponsored schemes (Many of them as Pradhan Mantri schemes) are mere administrative schemes. These get modified or dropped over the years. There Centre-State joint funding pattern might also undergo change as happened in 2015 after Modi Government came to power.

This brings us to another constraint on PGs that leaders don't tell the public: PGs have to be implemented within the framework of Guarantee Policy and the ceiling on Guarantees applicable to both the Centre and the States under the respective FRBM Act.

The Finance Ministry issued Guarantee Policy for the first time in 2010. It issued a new one in 2022.

As put by the existing Policy, "Since guarantees result in increase in contingent liability, they should be examined in the same manner as a proposal for a loan, taking into account, inter alia, the credit-worthiness of the borrower, the quantum of risks sought to be covered by a sovereign guarantee, the terms of the borrowing, justification and public purpose to be served, probability of invocation and possible costs of such liabilities, etc. Government will be liable to pay in case the entity/organization defaults in respect of which guarantee is given."

It says: "The best and often the only time to regulate fiscal risk effectively is before it is taken."

The 2022 policy banned issue of comfort letters by ministries to different companies or projects. A letter of comfort is akin to good reference letter that a credible entity issues in favour of another, implying its repaying capacity.

A case in point is the Letters of Comfort (LoC) that Department of Fertilizers used to issue to fertiliser companies. LoCs were issued under special banking finance arrangements to help firms take short-term loans against subsidy dues. The Finance Ministry used to defer/roll over the subsidy dues to next the financial year as part of creative accounting of fiscal deficit.

Politicians should etch in their mind the key elements of Guarantee Policy as PGs have to be implemented within the policy framework.

The Policy is complemented with an annual ceiling on total value of guarantees that the Government can give. FRBM Act thus specifies a cap of 0.5% of GDP for issuance of guarantees in a year.

This ceiling like any other cap in FRBM is subject to change at the discretion of Finance Minister. FRBM is thus nothing but tokenism in absence of firm ceilings and in-built immunity against any court petition against Government decision under the Act. (Don't degenerate fiscal responsibility into a set of malpractices JANUARY 24, 2014)

Apart from guarantees specified under the Guarantee Policy & FRBM, the Government has spawned a vast empire of off-budget guarantees in the form of credit guarantee funds (CGFs). CGFs are under the administrative control of different ministries and under the operational control of lending institutions.

CGFs are not regulated by guarantee policy or by FRBM framework. Comptroller and Auditor General (CAG) had raised its concern over CGFs in its report numbered 21 of 2023 on Union Government's financial audit for 2021-22.

It noted that Finance Ministry has a wholly owned company National Credit Guarantee Trustee Company Ltd (NCGTC) that operates CGFs. It currently has 11 CFGs/trusts under its control.

NCGTC's outstanding guarantee as on 31 March 2022 aggregated to Rs. 3,80,252.61 crore. As put by CAG, "Since NCGTC is a 100 per cent Government owned entity, the guarantees extended by NCGTC construe an implicit Government guarantee and should be shown in the UGFA. CAG referred the matter to Finance Ministry during September 2022. The report adds: "reply was awaited."

It is high time Modi Government issues a white paper on all CGFs including Mudra to indicate how much of collateral-free loans have become non-performing assets (NPAs). Does the Government not bail out regularly public sector banks and financial institutions as and when NPAs burden threaten their survival?

Ruling party, of course, has alternative ways to implement PGs. The new regime, for instance, either diverts or cuts expenditure on projects and existing welfare schemes. The Government might contrive new means to raise debt off-budget to implement PGs. It might levy new imposts including cess to raise funds for PGs. Or it might simply roll over unpaid bills/dues to next year to create illusion of fiscal discipline.

This brings us to the need for forcing political parties to disclose before the polls how they intend to fulfil PGs? Would the PGs be funded by levying new taxes? Would resources be generated by selling off Government assets? Would PGs be financed by borrowing more from the domestic capital market or from multilateral institutions?

Would funding be through closure or whittling of existing subsidies and diversion of resulting surplus to funding of PGs? Would PGs be given statutory framework?

To force political parties to come clean on PGs, the Government should either enact a new Contracts law or amend the Contracts Act, 1872.

The new or amended legislation should mandate political parties to submit PGs as contract documents to the Election Commission. The latter should be empowered to impose penalties (to be specified in new enactment) on ruling parties that fail to implement PGs in the manner and timeframe specified in their respective contracts. Penalties might include forfeiture of bank accounts of parties and debarring them from contesting next elections for next 10 years.

Simultaneously, the Government should belatedly enact a debt ceiling law as visualized by Dr. B.R. Ambedkar in Constituent Assembly in 1949. Debt ceiling law has also been recommended by Finance Commissions in the past as well as by an expert committee (Replace FRBMA with debt ceiling law as mooted by Dr. Ambedkar JUNE 30, 2016).

It is highly unlikely that Union Government would ever accept the rationale for subjecting itself to borrowing discipline and for setting up of independent fiscal Council for regular monitoring of fiscal health of the country. (Make Fiscal Discipline Enforceable & Independently Verifiable JULY 18, 2019)

This should spur anti-freebies litigants to urge the Supreme Court to issue a Writ of Mandamus to the Government to enact a debt ceiling law as well as new Contracts Act for PGs as legally-binding contract between PGs-dangling party and Election Commission as voters trustee.

This plea, if accepted, would act as double-edged restraint on politicians who use PGs as instruments to capture power with no concern for national exchequer, Bharat's fiscal health and for the future generations.