THE CONTEXT: Fifteenth Finance Commission Chairperson NK Singh on 19 April 2022 delivered a lecture at the Delhi School of Economics and warned about how the politics of freebies could lead to fiscal disasters. Over the years the politics of freebies has become an integral part of the electoral battles in India and the scenario was no different in the recently held assembly polls in five states, Uttar Pradesh, Uttarakhand, Goa, Punjab, and Manipur. This article analyzes the socio-economic costs of freebies by distinguishing them from the concept of “expenditure on the public good, having overall benefits.”
THE IDEA OF FREEBIES:
- The literal meaning of freebie is something that is given free of charge or cost.
- Political parties are outdoing each other in promising free electricity and water supply, laptops, cycles, electronic appliances, etc. These are called ‘freebies’ and are characterized as unwise for long-term fiscal stability.
- However, during the pandemic, governments (both Union and states), as well as the RBI, took several measures to mitigate pandemic effects. This included expansion of the food security scheme for two full years; cash transfer schemes for farmers, expansion of the jobs scheme, etc.
THE COMPLEX ISSUE OF FREEBIES:
- There is great ambiguity in what “freebies” mean.
- Merit goods Vs. Public goods: We need to distinguish between the concept of merit goods and public goods on which expenditure outlays have overall benefits such as the strengthening and deepening of the public distribution system, employment guarantee schemes, support for education and enhanced outlays for health, particularly during the pandemic.
- Around the world, these are considered to be desirable expenditures.
- It is important to analyse, not how cheap the freebies are but how expensive they are for the economy, life quality, and social cohesion in the long run.
Merit goods: are those public goods that result in interference with consumer choices. Here the government will be providing the goods (merit) to a specific section of the society because of their backward status, poverty, etc (depending on their merit, like the Sarva Shiksha Abhiyan).
Public goods: refer to those goods which satisfy public wants. The main attribute of a public good is that they are supplied by the government jointly for the entire public. Examples of public goods are defense services, pollution control, streetlight, etc.
REASONS FOR THE RISE OF FREEBIE CULTURE DURING ELECTIONS
CONSTITUTIONAL MANDATE FOR THE WELFARE OF THE CITIZENS:
- It is based on the principles of equality and is keen to provide equal opportunity to all. It also aims to ensure equitable distribution of wealth. The 4th century BC treatise on the art of statecraft laid out a framework for good governance and welfare, however in present times it is imperative to draw a line between dole or a handout and spending on the public good having greater benefits.
POLITICAL MANDATE:
- Political parties contesting the polls release their manifesto stating their aims and plans for every section of the society albeit having much of the focus on announcing schemes for their largest chunk of the vote bank i.e. the lower strata of the society.
- Freebies are often used as a tool to conceal the poor performance of the incumbent government on the socio-economic parameters and provide an opportunity to alter the voter’s mindset from real issues to short-term gains.
HISTORICAL BAGGAGE:
- Since independence, parties have been promising some form of freebies to attract voters.
- Even if a new party comes to power, then also it can’t rationalize or outrightly abolish the freebie commitments of prior governments.
- For e.g., Several State Governments have been forced to continue power and irrigation subsidies due to political pressure. Governments fear that discontinuance will antagonize their voter base.
COMPETITIVE POLITICS AND DOMINO EFFECT:
- The rise in coalition era politics since the 1990s has witnessed a rise of new political parties. These small and new parties have to offer more freebies than larger parties to lure the voters. Moreover the increase in competition among the parties to seek the votes, each party tries to outdo the others in terms of populist promises.
ARGUMENTS IN SUPPORT OF FREEBIES
WELFARE STATE:
- The Constitution places an obligation on the State to take proactive measures for the welfare of the poor and downtrodden.
- For instance, Art. 39(b) of The Constitution of India calls for resource distribution for achieving a common good.
GLARING INEQUALITY IN THE SOCIETY:
- In India, there is a wide inequality between the rich and the poor in terms of income and wealth. The OXFAM report 2021 showed that the income of 84% of households in the country declined in 2021, but at the same time the number of Indian billionaires grew from 102 to 142.
STRUCTURAL HURDLES AND MAKING THE BENEFITS OF GROWTH REACH THE LOWEST LEVEL:
- They gave up land for cities, roads, factories, and dams. However, they largely became landless workers and slum dwellers. Several economists argue that the gains of development have hardly trickled down to the most marginalized section of the society, especially after 1991. The cost of freebies offered is a fraction of what the poor lose.
- The World Bank recognized in the 1980’s that the prevalent policies marginalize the poor and a ‘safety net’ (freebies) is needed.
ECONOMIC PUSH:
- They help increase the demand that prevents the rate of growth from declining further. Free education and health are anyway justified because they are cases of ‘merit wants’ and increase the productivity of labour.
SOCIAL STABILITY:
- Freebies enable the government to release the growing discontent in the marginalized section. They keep a lid on societal disruption which would be far more expensive.
INCENTIVES FOR THE RICH:
- The well-off and businesses get ‘freebies’ that are euphemistically called ‘incentives’. Since 2006, the Union Budget estimates these to be between Rs 4-6 lakh crore each year. If the well-off who don’t really need freebies can get so much, why can’t the marginalized (especially women and youth) get a fraction of it?
CUSHION DURING EMERGENCIES:
- COVID-19 has been one of the biggest health emergencies in the world for over a century. Such extreme events warrant state support to prevent chaos and disruption in society e.g., the free COVID-19 vaccination for every individual in India led to more prudent management of the pandemic.
ARGUMENTS AGAINST FREEBIES
UNDERMINES THE SPIRIT OF DEMOCRACY:
- This is the primary concern as many people tend to vote for parties based on the free incentives offered by them. They fail to judge them on their performance and don’t utilize their franchise as per merit. Even the Supreme Court has observed that freebies shake the root of free and fair elections.
FALL IN PRODUCTIVITY:
- Freebies create a feeling in the masses that they can live with minimal effort. This decreases their productivity towards work e.g., a trend has been created that whoever avail loan from banks does not repay them, expecting a waiver of loans during the election. This gives rise to moral hazard and an incentive to default.
FISCAL STRESS:
- Freebies generally form part of revenue expenditure. Excess allocation towards them leaves little to spend on capital expenditure which is a prerequisite for achieving long-term growth.
- A case in point is the states which have been rolling out freebies in keeping with poll promises and ended up increased public debt with unsustainable fiscal conditions.
DISCOURAGES THE HONEST TAXPAYER:
- It creates a sense of discontentment in the mind of an honest taxpayer whose money is used to fund the freebie expenditure. This feeling is more dominant especially when the State is unable to improve the public services due to freebie commitments.
SECTORAL COLLAPSE:
- The populist measures of loan waivers have put significant pressure on the banking sector.
- Similarly, rising power subsidies have enhanced pressures on Discoms who are failing to sustain themselves.
WASTAGE OF RESOURCES:
- Promises of free water and electricity create severe stress on the water table and lead to over-exploitation as seen in the states of Punjab and Haryana.
- NITI Aayog has cautioned that 21 major cities of India are on the verge of running out of groundwater in a few years.
ALLEGED INFRINGEMENT OF CONSTITUTIONAL PROVISIONS:
- Promise/distribution of irrational freebies from the public fund before election unduly influences the voters, shakes the roots of the free-fair election, disturbs level playing field, vitiates the purity of the election process, and also allegedly violates Articles 14, 162, 266(3) and 282.
LANGUOR AMONG THE MASSES:
- Recurring the nature of the freebies in the Indian socio-political scenario also makes the masses develop the habit of acting irresponsibly and dampen their spirit to work hard.
THE ANALYSIS OF THE ISSUE
- India could face the prospect of sub-national bankruptcies if States continued to dole out freebies to influence the electorate, Fifteenth Finance Commission Chairperson NK Singh cautioned, terming the political competition over such sops a “quick passport to fiscal disaster”.
- We must strive instead, for a race to efficiency through laboratories of democracy and sanguine federalism where states use their authority to harness innovative ideas and solutions to common problems which other states can emulate.
- If the political parties go for effective economic policies where the welfare policies or government schemes have good reach without any leakages or corruption and it is targeted at the right audience, then infrastructure and development will take care of themselves and the people will not require such kinds of freebies.
- Central government’s debt-to-GDP ratio is supposed to be 40% but now it has crossed 90%of the GDP, while the states have managed to keep their debt-to-GDP ratio at almost 27% in FY 2020. Hence the problem of financial stability is more pressing at the level of the centre.
- Political parties shall also provide the road map for achieving the targets mentioned in the manifesto and also the rationale behind enlisting such targets.
- Certain freebies are important to cushion or safeguard the socio-economic fabric such as the basic healthcare facilities, school education, subsidized ration, etc. Such interventions by the government, guide the economy in the long term growth by strengthening the human capital.
- Freebies during the crises situation also help in sustaining the economic cycle through demand pull growth such as in COVID times.
- Qualified freebies such as the ascribed conditions of creating public assets through MGNREGA also contribute in more than one way in economic growth by increasing the productive capacity of the population.
THE WAY FORWARD:
- There should be a strengthening of internal party democracy so that promises of development and not freebies are made in the elections. This would also reduce the magnitude of the criminalization of politics.
- The Election Commission should be given greater powers like the power to deregister a political party, power of contempt, etc. This would curtail the distribution of liquor and other goods during elections and ensure expenditure as per the desired limit.
- The Government should use the money spent on freebies towards job creation and infrastructure development as advised by Madras HC in 2021. This will lead to social upliftment and progression of the State.
- The focus should now be tilted on improving the efficiency of public expenditure. This requires focusing on outcomes and not merely outlays. One good example is the Pradhan Mantri UjjwalaYojana:
- Arresting the health hazards associated with cooking based on fossil fuels thereby reducing the out of the pocket expenditure on health.
- Employment for rural youth in the supply chain of cooking gas.
- Improving India’s performance on Sustainable Development Goals-SDG 3 (Good Health and Well-being) and SDG 5 (gender equality) and especially SDG 7, which aims to ensure access to affordable, reliable, sustainable, and modern energy for all.
- Distribution of LPG subsidy through direct benefit transfer (DBT) also led to a decline in the subsidy bill.
- In the long run, eradication of unnecessary freebie culture requires an attitudinal change in the masses. It is high time that the ruling government should be made accountable for using tax revenue because freebies always prove to be a burden on taxpayers.
- The idea rendered by Vice President M Venkaiah Naidu has called for a wider debate on the freebies promised during polls and the possibility of making election manifestos legally binding. This will restrict the poll parties from making extravagant promises.
THE CONCLUSION: India has experienced the politics of freebies for a long time and the outcome of those policies has been sub-optimal, inefficient, and unsustainable. Therefore rather than doling out money, the focus should be on spending it efficiently. It is high time the discourse on improving public expenditure efficiency should take center stage while discussing the role of fiscal policy in India. However, until that is achieved, reliance on acceptable freebies like health, education, etc. can’t be completely stopped.
MAINS PRACTICE QUESTIONS:
- ‘Instead of announcing freebies on the eve of elections, political parties need to come out with a clear road map with definitive time frames to solve the problems being faced by people for years.’ Elaborate.
- ‘Irrational freebies in an under-tax country like India are not economically viable in the long run.’ Critically evaluate.
