India File

Can Tamil Nadu survive its freebies addiction?

Muthukumar K | Updated on January 20, 2018 Published on May 09, 2016

Feeling the weight: Instead of giving freebies, experts say it is better to generate employment to remove poverty - Photo: KV SRINIVASAN

Though the State scores high in social indicators, an emptying coffer is feeling the strain of its politicians’ populism

The peak lunch hour is just about to begin at the Amma Unavagam (Amma Canteen) in Manapakkam, in south-west Chennai. But the outlet is not exactly buzzing. Instead of the mad rush that one would expect, there are only about 20 patrons in the canteen.

Not so long ago, construction workers, painters and rickshaw driver would be queuing up for their daily meals. The food is cheap with an idli coming for a rupee and curd rice for ₹3. But the canteen seems to have lost some of its patronage.

“In the beginning, construction workers frequented at the canteen – but not anymore” says Premkumar, who paints hoardings. “Rice grains are thicker (and therefore not palatable),” he says, while having a mouthful of sambar rice. “ My colleagues stopped coming, fed up with the same food menu. I am away from my family and have no other option.”

Poongothai (name changed on request), the supervisor at the Amma canteen, acknowledges the trend – “number of visitors are not what it used to be. In the beginning, we used to make 2,000 kg of idli batter in a day. Now it is around 1,500 kg.”

Nearly 550 Amma Canteens, introduced by Chief Minister J Jayalalithaa who is called amma, or mother by her supporters, dot Tamil Nadu’s cities and municipal areas. With a rapid rise in migration of rural population to urban areas for employment, Amma Canteens were meant to provide healthy and clean food to the poor – besides building a vote-bank.

Jayalalithaa, who is now seeking another term at the helm, understands the importance of freebies, or as in the case of the canteens, near freebies. She was chastened in the 2006 elections when the DMK promised free colour televisions for the poor and pipped her AIADMK to the post. In 2011, Jayalalithaa made sure that she outdid her rival, and promised a long list of freebies and low-cost schemes that included free laptops and cycles, and the canteen, which turned out to be among the most popular.

The quality issue apart, the problem of subsidy schemes such as Amma Canteen is not so in its redistributive intent– but in its poor targeting. A 2013 survey by academicians S Thangamani and M Maragathamof visitors to Amma Canteens in Salem municipal corporation showed that 58 per cent of them were in the monthly income bracket of ₹5,001-10,000. The rest, were from the urban middle-class. “Lot of youngsters, bachelors working in IT parks frequent our canteen in the morning,” agrees Poongothai of the Amma Canteen in Manapakkam. With the government losing ₹5 lakh a day running Amma Unavagams in Chennai itself, the bigger question is – could these resources have been invested productively elsewhere and reduced poverty?

The free culture

Soon after coming to power in 2011, the AIADMK government introduced free rice for its 1.91 crore rice cardholders, and also opened the Amma Canteens. But the Chief Minister didn’t stop with that. Her government went on a subsidy-giving spree rolling-out mineral water, salt and cement - all under the Amma brand - targeting the poor.

It distributed free electric fans and induction stoves; dhotis and sarees; and laptops, cycles and milch cows, goats and sheep to benefit students and the rural poor.

The focus on subsidies has led to poor capital formation and is now beginning to have its bearings on growth potential of the State’s economy. “It is better to generate employment in the economy by way of capacity creation and investment into infrastructure,” says IDFC’s chief economist Indranil Pan. This in turn would boost income and pull people out of poverty.

To be fair, Tamil Nadu has had an impeccable track record in reducing poverty levels. From 28.9 per cent in 2004-05, households below the poverty line dropped to 11.3 percent in 2011-12. This is much below the national average of 21.9 percent. Even in social indicators – be it literacy, education or health, the State has been ahead of its peers. In the 2013 book An Uncertain Glory: India and Its Contradictions, welfare economists Amartya Sen and Jean Dreze attributed this success to Tamil Nadu’s efficient public services. Perhaps that’s the reason the leakages of its public distribution services is lower at just 6 per cent, as compared to 40-50 per cent for the rest of the country.

Higher fiscal deficit

But the freebies are taking a toll. Tamil Nadu’s fiscal deficit to GDP ratio has been steadily increasing since 2012-13, rising from 2.2 percent of GDP to 2.9 per cent in 2015-16. This might be still a tad lower than the recommended upper limit of 3 per cent. But things could get worse, according to Nomura Securities, when the Seventh Pay Commission recommendations will be implemented by the State from 2017-18, which would lead to massive salary hikes. The increasing expenditure along with continuance of freebies, could handicap the government’s spend on public infrastructure and human capital.

Then, there is the winner’s curse. Better economic and human development indicators will also have a bearing on Tamil Nadu’s share in the central government’s revenues that are transferred to states. This is because the methodology is structured to favour poorer states, and Tamil Nadu is among the top when it comes to per capita income.

This in turn means that the Tamil Nadu government would have to rely on its own resources and also simultaneously make the critical capital investments. The fiscal situation leaves it vulnerable to changing economic conditions. In one-and-a-half years, the State lost ₹4,000 crore worth taxes as prices of petrol and diesel fell.

Vision and the scorecard

In 2012, soon after being elected to power, Jayalalithaa came up with Vision 2023. Her aspiration was to catapult the State into the league of developed regions. To achieve the lofty goals, the government aimed at high economic growth rate of 11 per cent (about 20 per cent more than national rates), eradication of poverty, skilling 20 million people and achieving energy security. The last was to be accomplished by building 20,000 MW of power generation capacity.

Economy

Four years on – some of that vision statement has remained a pipe dream. Tamil Nadu’s economy grew by an average rate of 6.3 per cent in the five years ending 2015-16. It underperformed its peers – Gujarat and Haryana and clocked slightly more than Maharashtra. The State also lagged behind the national average when it came to industrial growth. Adding to the woes is the perception among industries that actual project implementation at the ground level is lagging. Major initiatives such as ultra mega projects have not been announced and employment generation has suffered.

However, boosted by the growth in the services sector, it managed to edge past Uttar Pradesh a year back to become the second largest state economy in the country.

Job creation

The Tamil Nadu government might have fared better than its peers in generating jobs. As of July 2014, 10.8 million jobs were outside agriculture; which was 8.5 per cent of overall jobs in the country. But is this enough (see Polls bring little hope for one of TN's most backward districts). As per 2013-14 figures, Tamil Nadu didn’t figure among the top five states as measured by job growth (in percentage terms).

Power

Under Jayalalithaa, the State has become power surplus. While the government added 4,300 MW in capacity, there is a requirement for 12,000 -14,000 MW in the state. “PPA (power purchase agreement) agreements did the trick,” says an official with a solar-power generation company in Chennai.

But many question the cost of this power security. In June 2014, the government bought power from Jindal Power at a rate of ₹4.6-4.7 per unit. However, if it had resorted to generate its own thermal power, the cost would have been much lower at ₹2.3-2.5 per unit, says the official cited above. However, the State had not relented to the power sector revival package– UDAY scheme – as it would entail systematic increase in tariff costs. The higher purchase cost still forced the State to hike power tariff by 37 per cent in 2013, and by a further 15 per cent in 2014, as per market sources.

Method in madness?

Tamil Nadu is known to devising innovative schemes – which has later been picked up by the Centre. Mid-day meals (for encouraging children to come to school) and floatation of centralised procurement agency for medical services are two such examples.

Also, there is some method in this madness. “Cycles give incentive to rural students to travel long-distances and attend school, ” says an ex-official of rural development bank. Moreover, goats and sheep provide stability of income for rural farmers.

However, everyone is not benefiting. Dhanapal, a fisherman from Nochikuppam, an urban slum in Chennai, says “My son got a laptop while pursuing 12th and is now a graduate”. However, he is currently unemployed. “He worked for a credit card company but left it in three months – due to odd shift hours. Dhanapal, now doesn’t want his son to get into fishing; however, getting relevant jobs is becoming a challenge, highlighting the need for relevant skilling.

As May 16 nears, Jayalalithaa and her counterparts in the DMK have tried to upstage each other by promising several freebies including free power, handsets and subsidy for buying mopeds. One of them might emerge the winner, but will the State survive?

With inputs from R Balaji

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Published on May 09, 2016
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