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For a long time now, no steps were taken to find a long-term solution for the problem of freebies. It was not the top priority of policymakers, constitutional authorities, or statutory and autonomous bodies — neither the executive nor the judiciary has taken an interest to find an antidote to freebies.
However, all responsible politicians and people’s leaders, and policymakers are aware that most freebies given by national and regional political parties have led to financial disaster for the states and the country.
The list of freebies includes free electricity, bicycles, two-wheelers, education, LPG cylinders, laptops, travel in public transport, loan waivers, television sets, household appliances, etc. Further, free cash transfers and subsidies have also been announced and delivered without even assessment of financial risks and checks and balances in place. The culture of “free power, free water, free fertilizers of some kinds — all distract from environmental objectives”, Chairperson of the Fifteenth Finance Commission (latest), N.K. Singh said earlier this year.
Though, there is an argument that all freebies are not the same and some promote social welfare and inclusion, state finances are eroded in the process.
CAG and RBI reports on states have consistently documented the deleterious impact of freebies on state finances. According to the RBI report (RBI Bulletin June 2022): As per the latest available data from the CAG, the expenditure of state governments on subsidies has grown by 12.9% and 11.2% during 2020-21 and 2021-22 respectively. Similarly, the share of subsidies in total revenue expenditure by states has also risen to 8.2% in 2021-22 from 7.8% in 2019-20.
The culture of “free power, free water, free fertilizers of some kinds — all distract from environmental objectives”, Chairperson of the Fifteenth Finance Commission (latest), N.K. Singh said earlier this year
According to the RBI report, these freebies “potentially undermine credit culture, distort prices through cross-subsidisation eroding incentives for private investment, and dis-incentivise work at the current wage rates leading to a drop in labour force participation.”
Among major states in India, Punjab (2.7% GSDP), Andhra Pradesh (2.1% GSDP), Jharkhand (1.7% GSDP), Madhya Pradesh (1.6% GSDP), Rajasthan (0.6% GSDP), West Bengal (1.1% GSDP) and Bihar and Haryana (each 0.1% of GSDP) have announced freebies which are estimated to be significantly higher for the year 2022-23.
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Several public interest litigation petitions have been filed urging stringent guidelines to deregister errant political parties and freeze their election symbols. Alas, beyond a few media reports and bites for a day or two, nothing happens. The recent PIL filed in the SC says that political parties — both national and regional — violate Articles 14, 162, 266(3), and 282 of the Constitution of India by providing freebies to get votes . Further, Article 293(3) of the Constitution says that “a state may not, without the consent of the Government of India, raise any loan if there is any part still outstanding.”
So far, there is no process driven policy dialog among states and the Union government on the issue of such give-aways with any kind of committees, commissions, taskforce, detailed studies through experts, etc. Though two recent incidents show some light on the issues of irrational freebies, the conviction and to resolve the problem seem unclear.
First, while inaugurating a national highways project in Uttar Pradesh recently, Prime Minister Narendra Modi said, “Rewri (a fried sweetmeat) culture (Hindi for freebie culture) is dangerous for the development of the country. Those with rewri culture will never build new expressways, new airports, or defence corridors for you. Together we have to defeat this mentality, remove rewri culture from the politics of the country.”
It is ironic that the Prime Minister made the comment in UP. And it will be taken as literally not beyond a mere lip service because the ruling party’s government in Uttar Pradesh was giving freebies with some tweaking even through the Direct Beneficiary Transfer (DBT) schemes.
More recently, the Supreme Court observed that “God save the Election Commission of India if it’s saying that we can’t do anything when the electorates are sought to be bribed through freebies…We are suggesting that this (freebies) has to be controlled. How it is going to be done needs to be examined.”
This too would be big lip service like others because the same SC ruled in 2013 that it could not do anything to control nor permanently restrain political parties from mischievously offering voters with freebies of all kinds. Though it observed, “it shakes the root of free and fair elections to a large degree”, the Court expressed helplessness without a collective effort of all institutional stakeholders concerned.
Most states in India pay several thousands of rupees as interest on loans taken by previous governments which spent the loan amounts invariably on freebies, all in the name of social welfare
Further, the SC asking the Union government to check with the Finance Commission on the issue of states being given a carte blanche on freebies is another lacuna in the approach to the issue. The Finance Commission is constituted once every five years by the President of India to look into the tax revenue sharing between the Union government and the states/ UTs for a specified period. It’s not a permanent body to comment on freebies.
However, the Chairperson of the Fifteenth Finance Commission (latest), N.K. Singh has said that, “The economics of freebies is invariably wrong. The economics and politics of freebies are deeply flawed. It is a race to the bottom and it is not the road to efficiency or prosperity, but a quick passport to fiscal disaster.”
The present Union government holds that it’s the responsibility of the ECI to make efforts as part of the Model Code of Conduct to regulate the vulture of freebies. Perhaps, the third biggest lip service in the whole issue is the poor responses of the Election Commission of India (ECI) on the issue.
In its affidavit to the Supreme Court in the recent hearing on the PIL plea to control or prevent the political parties freebies announcements, the ECI said: “Offering/distribution of any freebies either before or after the election is a policy decision of the party concerned and whether such policies are financially viable or its adverse effect on the economic health of the state is a question that has to be considered and decided by the voters of the state.” Further, it elaborated that “the Election Commission cannot regulate state policies and decisions which may be taken by the winning party when they form the government. Such an action without enabling provisions in the law, would be an overreach of powers.”
Thus, the states and union government are enjoying unfettered freedom to devise freebies schemes irrespective of tax buoyancy and expected revenues. Most states in India pay several thousands of crores of rupees as interest on loans taken by previous governments which spent the loan amounts invariably on freebies, all in the name of social welfare. For the current financial year, the quantum of freebies announced by the states is shocking.
Not much attention is paid nor are efforts taken to increase tax revenues without borrowing thousands of crores in loans and paying interest on it for years to come. Several states (Punjab, West Bengal, Kerala, Tamil Nadu, Rajasthan, Telangana, Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Bihar, Jharkhand, etc.) are now facing a fiscal crisis in already deteriorated financial health preventing productive capital expenditures for the creation of long-term infrastructure facilities and services.
It’s time now for the Union government, top judiciary, and states to come together to frame a mechanism to weed out the freebie culture which indirectly imposes burden on the future generations and citizens leaving little on their hard-earned to improve their standard of living.
(The author is an economist and public policy expert)
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