Opinion: Freebies are no welfare schemes
By Dr Oruganty Prasada Rao
Over the years, ‘freebies’ have become an integral part of politics for parties to either win elections or stay in power by offering them as ‘bait’ to woo the voters. Political parties vie with each other to provide freebies and add new ones to the list with each election.
These freebies are in the form of free electricity and water; monthly allowance; gadgets like laptops, smartphones, televisions, mixer grinders, pressure cookers, sewing machines and washing machines;sarees;rice; food kits; free internet connection; cycle and scooty; free travel for women in metro and state-run buses; salary to housewife; free gas cylinders; 2-BHK flat; a cow; etc.
State of Affairs
The three parameters relevant for taking a decision on freebies are debt as percentage of gross State domestic product (GSDP), interest payment as percentage of revenue receipts and gross fiscal deficit as percentage of GSDP.
As per the Fiscal Responsibility and Budget Management (FRBM) Act, the debt to GSDP ratio should be 20% for the States. Except for Maharashtra and Odisha, all other States have more than 20%.Punjab is the most debt-laden State with 53.3%. Seven other States have above 30%. The Fiscal Responsibility Legislation binds the fiscal discipline of all States at 3% of GSDP. It can be seen from table 1 that only Haryana, Jharkhand and Maharashtra are within the limit of 3%.Bihar has the highest value of 11.3%. (See table 1 for 14 States)
The State governments have announced welfare schemes (freebies) worth more than Rs 1 lakhcrore for 2022-23. See Table 2 for their effect on the economy. According to the Comptroller and Auditor General (CAG), the expenditure on freebies climbed from 11.2% in 2020-21 to 12.9% in FY22. Further, the subsidies increased from 7.8% in 2019-20 to 8.2% in 2021-22.
Adverse Impacts
Freebies cut into the funds for the development of the State. They make people lazy and irresponsible and increase free cash with them leading to inflation. Freebies are a misuse of taxpayers’ money by politicians for personal gains. Free electricity and water lead to their wastage and limits the growth of these sectors affecting the overall economy due to lack of adequate funds and also degrade the environment.
The freebie culture gives rise to corrupt practices. Involvement of middlemen to get those freebies cannot be avoided. The beneficiaries also do not mind bribing as they get freebies without investment.
The governments, both the States and the Centre, have been providing freebies to farmers in various forms but the production of rice per hectare in India is only 3.38 tonnes compared to the world average of 4.25 tonnes and yield of 7.94 tonnes in the US, 6.54 tonnes in Japan and 6.49 tonnes in China. This shows that freebies are not sustainable solutions in the agriculture sector. (yourarticlelibrary.com/essay/rice-production).
The unpaid dues to power sector entities, both generation and distribution companies, is a whopping Rs 2.5 lakhcrore, average AT&C (Aggregate Technical & Commercial Losses) is around 21% and the gap between ACS and ARR (difference between the average cost of supply and average revenue realised per unit of power) is 36 paise, which is a loss. These three figures are enough to indicate the deplorable situation of the power sector in the country.
NK Singh, chairperson of the 15th Finance Commission, warned about how the race to provide freebies to voters could be a “quick path to fiscal disaster”. He also noted that freebies could be harmful to the long-term economic growth of the country and emphasised the need to distinguish between productive and unproductive forms of welfare spending.
Mixing Up
A clear distinction is lacking between welfare schemes and freebies due to which governments are justifying the latter in the guise of the former. Both the terms have to be defined clearly without ambiguity and without giving any scope for manipulation.
Fiscal indicators such as outstanding debt, new borrowings, interest payments and fiscal deficit present the economic situation of a State which can be a basis while announcing freebies. For example, Punjab is the most debt-laden State as shown in table 1. The State has announced 2.7% of GDP as freebies in 2022-23, which could put its economy in peril.
The total outstanding liabilities of the States as of March, 2021, stood at Rs 61.49 lakhcrore(31% of SGDP) and interest payment at Rs 4.39 lakhcrore during 2021-22. The Budgets of all the States show only interest payments on outstanding debt but not on repayment of the principal amount. This can lead to a default and giving freebies in such a situation is completely unjustified.
The Supreme Court has said irrational freebies offered to induce voters during elections would not be effectively debated in Parliament since no political party would like to take away freebies.
The Chief Justice emphasised, “this is a serious issue and the Election Commission and the Central government cannot say that they cannot do anything in the matter”. The top court suggested the constitution of a committee to look at the issue and suggest measures. Political parties can make suggestions on the composition of such a body. The comments and suggestions of the Supreme Court must be seriously considered by all politicians for the good of the country.
The Prime Minister has shown concern about freebies calling it “revadiculture”. He must take a personal interest to stop its proliferation in the country.
Freebies that affect the economic growth of the country should not be given. Freebies in a country of 135 crore people is a suicidal policy that can lead to economic disaster. If freebies are inevitable, then how much is too much?
(The author is a retired scientist, CSIR; and adjunct faculty, ICFAI University)
