The Prime Minister delivered a speech on the last day of the year. The circumstances were unusual (Demonetisation), so the speech had to be oddly timed. Soon after the speech, twitter was bursting with how the next few elections were going to be won by the BJP. I think it is a little premature to conclude that.
I will focus my attention on the key segments that would benefit from these announcements (source NDTV
- Home loans: For loans up to 2 lakh - 3 per cent interest relief; 9 lakh - 4 per cent interest relief; 12 lakh - 3 per cent interest relief will be given
My liberal estimate at the upper end is that about 3.1 lakh voters will straight away benefit from this (estimates basis of lending data). This could be much higher but unpredictable at this moment. Voters will get a minimum benefit of Rs 6000 to a maximum of Rs 36000 at the upper end. Budget impact will not exceed Rs 376 crores
- Government will take care of interest for 60 days for farmers who had taken loans from district coop, central bank.
If we assume that all farmers take a loan. The current average loan outstanding is Rs 76000. This translates a net benefit of Rs 2660 per farmer and will benefit about 118m farmers. Budget impact at the max would be Rs 31388 crores
- 20,000 crore in NABARD fund to give loans to farmers
- In 3 months, 3 crore Kisan Credit Cards will be transformed to RuPay credit cards
- For small entrepreneurs, credit guarantee raised from 1 crore to 2 crore. he government has also said for small businesses, cash credit limit raised to 25 per cent from 20 per cent.
Impact unclear (due to unavilability of statistics)
- A few days ago the government gave huge tax relief to small entrepreneurs, On digital transactions, their tax will be calculated at 6 per cent, not
Impact unclear (due to unavilability of statistics)
- For pregnant women, a national scheme is being launched, Pregnant women will get Rs. 6,000 for their delivery, vaccination, for nutritious meals. This will be transferred straight to their account
There are 21 million pregnant women (approxomate) every year. This translates to a budget impact of 12600 crores
- When banks get large deposits, they reduce interest rates on deposits, Senior citizens will be assured 8 per cent interest on their deposits up to Rs. 7.5 lakh.
This is likely to benefit about 90 m people. This translates to a net benefit of Rs 3750 per individual and a budget impact of about Rs 33750 cr at the max.
Overall, at the outer limit, about 250m voters (about 30% of all voters) are likely to benefit from the Prime Ministers doles announced last night. The maximum outflow is likely to be about Rs 76000 crores each year. In reality, the number could be much lower.
The main goals of these announcements is -
a. To increase the gap with the opposition in rural India. In Urban India, BJP enjoys a massive gap against every party but not so in rural India. Our calculations show that even a 5% swing against BJP in rural India could damage the BJP significantly. Please read this article of mine to understand the political ramifications of Modi's rural focus
b. The second group that Modi is targetting is women. Almost all surveys show that the BJP struggles with female voters. Please read this article to understand the BJP disadvantage amongst women
c. The last group that Modi is targetting is senior citizens. BJP did not do well amongst these voters in 2014 and low interest rate regime may not be helping much. An example is the key battleground State of Bihar. It shows how BJP struggled against MGB much more amongst older voters
The main challenges I see is that the Farmer loans are too loaded at the top end any therefore any waiver does not add much to those farmers. Interest discount schemes have always existed and donot necessarily deliver election results on account of other ground realities (caste for example). Only full loan waivers work very well. Secondly, loans are not an annual event, so the voter impact itself could be limited. Lastly, a many of these loans are also taken through MFIs and local lenders. These are not covered (atleast I did not see MFIs being mentioned).
The pregnancy scheme holds promise but given that it is a low frequency event, unclear how it would influence voting farther away from pregnancy. Our experience for a Government in a State shows it does not impact as we go further away from the event. Also, other factors will play a critical role as usual.
On senior citizens, interest rates have already come down quite a bit, 8% may not be enough for most senior citizens given increased cost of living and medical expenses. The one group that will definitely benefit from the scheme are poor who take home loans. At this moment, these numbers are not large. However, it could spur others to take loans and buy homes. This group should definitely be thankful to the PM on election day.
The speech on NYE was crafted by number crunchers for political reasons with an eye on all the forthcoming elections. They target BJP weak areas and therefore attempt to bolster the PM's credibility with these groups. Whether these will deliver numbers or not, time will tell but the opposition should realise that they are dealing with one of the greatest politician of our times. The sooner they offer a viable alternate vision, the better off they are, else they could be decimated in 2019.