Baba’s Explainer – Freebies

• Welfare Schemes: Freebies not only include unviable pre-election promises but also a number of services that the government provides to meet its constitutional obligations (DPSPs) towards citizens like PDS, Free Covid Vaccine and MGNREGA.

Examples include

• The ‘Mid-day Meal Scheme’ was first introduced in 1956 by Tamil Nadu’s Chief Minister K. Kamaraj and then it was adopted as a national programme a decade later.
• NT Rama Rao’s promise of rice at Rs. 2 per kg in Andhra Pradesh is the original avatar of the current day National Food Security Programme.
• Rythu Bandhu of Telangana and Kalia of Odisha were forerunners of what is now Kisan Samman Nidhi.

• Upliftment of Lower Class: As the states with comparatively lower levels of development have a greater percentage of their population living in poverty, such freebies become more useful for upliftment of lower strata in these states.
• Essential for Fulfilling Expectations: In a country like India where the states have (or don’t have) a certain level of development, upon the emergence of the elections, there are expectations from the part of people which are met by such promises of freebies.

• Creates Private Benefits:Freebies violate the constitutional mandate of extending benefits for public purpose and instead create private benefits. The main beneficiaries of the freebies provided by government were the ruling party’s core supporters and swing voters who could be influenced easily.

• Depoliticises Poor: Freebies will not only depoliticise the poor and marginalised communities but also indirectly deny them their due share of state resources.
• Erases Rational Thinking: Freebie encourage personality cults in a democratic polity. Populism encourages mediocre political critics and erases critical and rational thinking, which are important to raise questions to people in power.
• Patron-Client Syndrome: Unsolicited freebies cultivate a patron-client syndrome. Providing freebies is to treat people like subjects, whereas citizens are entitled to constitutional guarantees.
  • Clientelism is a political or social system based on the relation of client to patron with the client giving political support to a patron (as in the form of votes) in exchange for some special privilege or benefit (freebies).
• Against Welfare Politics: Welfare initiatives are an embodiment of civil rights, whereas unsolicited freebies show benevolence at best and apathy at worst towards the poor by the ruling parties.
• Doesn’t enhance Productivity: It was observed that distributing free laptops does not serve the purpose of increasing the quality of education. Also, free electricity, free water, farm loan waivers, etc. have not contributed to increased productivity.
• Fiscal Burden: Freebies imposes burden on the state’s financial status contributing to huge fiscal debt.
• Vulnerable to Corruption: Freebies culture paves way to corrupt practice because of the involvement of middle man.
• Not Sustainable in Long Run: The social, political and economic consequences of freebies are very short-lived in nature. Also, they cannot be provided free forever, at some point these goods have to be rationalised.

View on Freebies: The Supreme Court gave a ruling in favour of offering of freebies stating that freebies are not corrupt practice as it is mentioned in election manifesto.

• In S. Subramaniam Balaji v. Govt. of Tamil Nadu (2013), the court said that “Although, promises in the election manifesto cannot be construed as ‘corrupt practice’ under Section 123 of Representation of People Act, the distribution of freebies influences the people shaking the root of free and fair elections.”
• In 2021, The Madras High Court expressed its strong displeasure over the way in which political parties were competing with each other to garner votes by offering freebies.

But to ensure checks: The Supreme Court has taken a decision to form a body of stakeholders to examine ‘the distribution or promise of ‘freebies’ ahead of elections’ issue. But this move raises the question of whether the legislature can be bypassed on such a far-reaching exercise.

• The Court is not going to issue guidelines, but only ensure that suggestions are taken from stakeholders such as the NITI Aayog, Finance Commission, Law Commission, RBI and political parties. All these institutions can submit a report to the Election Commission of India (ECI) and the Government.
• A suggestion that Parliament could discuss this issue was met with scepticism by the Bench, which felt that no party would want a debate on this, as all of them support such sops.
• The Bench also disfavoured the ECI preparing a ‘model manifesto’ as it would be an empty formality.
• The Court’s concern over populist measures seems to resonate with the Government too, as the Solicitor-General submitted that these distorted the voter’s informed decision-making; and that unregulated populism may lead to an economic disaster.

But the Supreme Court, too, should stick to its normal posture of not getting embroiled in political thickets. The court may, at best, nudge all stakeholders into a new model code of conduct which defines freebies and regulates their use in elections. The existing model code was also adopted with the assent of all political parties, and there is no reason to suppose that political parties cannot formulate a similar agreement on the usage of freebies in elections.

A June RBI paper said that the provision of free electricity, free water, free public transportation, waiver of pending utility bills and farm loan waivers are often regarded as freebies, which potentially undermine credit culture, distort prices through cross-subsidisation. This erodes incentives for private investment and disincentivise work at the current wage rate leading to a drop in labour force participation.

Who can regulate: It is not the Parliament’s business to regulate freebies. States are free under the Constitution to make laws on such topics.

• The problem arises when states dole out freebies, merit or non-merit, beyond their fiscal capabilities.
• As a percentage of GSDP, revenue receipts and own tax revenue, Punjab’s freebies in Budget FY23 is among the highest in India
• The debate on freebies also needs to be looked at from the perspective of income of states.
  • As the Centre imposed more cesses, the share of tax revenue that the Centre gives them has dropped.
  • The end of Centre’s GST compensation payout has further reduced the headroom available with states for social sector expenditure.

Arguments in Favour of Freebies

• Given that in the last 30 years there has been rising inequality, some kind of relief to the population in the form of subsidies/freebies is justified. It may actually be necessary for the economy to continue on its growth path.
• It is the prerogative of the political executive to offer freebies who is well aware of its impact on fiscal stability. Also, since 2005, surveys from RBI has shown that states have adhered to the limit in terms of their gross fiscal deficit. Therefore, the argument of fiscal impact of freebies is an inflated one
• Freebies which improve the productive capacity of its receivers will be useful for strengthening the social security net and enabling conditions for higher growth in future. One such example is freebies in education sector.
• Schemes like providing free bicycles, grants to students belonging to weaker sections of society, free bus passes to all students, have undoubtedly contributed to the increased level of education. Therefore, in this case, freebies are not wasteful expenditure but investment in the future.

Drawing a Line Between Welfare and Freebie:

• Freebies must be understood from an economic perspective and connected to taxpayers’ money.
• Differences between subsidy and freebie are also essential since subsidies are justified and specially targeted benefits meant to meet specific demands.

Clear Rationale and Indication of Funds:

• Programs must provide a clear rationale for investing more in basic amenities and have a clear indication of the funds to sustain the state’s economic health.

Voter Awareness:

• In a democracy, the power to block or allow the march of freebies rests with the voters.
• There is a need for consensus between regulating the irrational freebies and making sure voters don’t get swayed by the irrational promises.

Judicial Intervention:

• A constructive debate and discussion in parliament is difficult since the freebie culture has an impact on every political party, whether directly or indirectly. Therefore, judicial involvement is required in order to propose measures.
• The Supreme Court has recently recommended creating an apex authority to provide recommendations on how to regulate gifts given out by political parties.

Amendment of FRBM Act

• Under the current FRBM provisions, governments are mandated to disclose their contingent liabilities, but that disclosure is restricted to liabilities for which they have extended an explicit guarantee
• The provision should be expanded to cover all liabilities whose servicing obligation falls on the Budget, or could potentially fall on the Budget, regardless of any guarantee

Strict Monitoring by the centre

• Under the Constitution, States are required to take the Centre’s permission when they borrow.
• The Centre should not hesitate to impose conditionalities on wayward States when it accords such permission.

Use of Financial Emergency Provision

• Constitution of India allows the President to declare financial emergency in any State if s/he is satisfied that financial stability is threatened.
• It is therefore important to ensure that the prospect of a financial emergency in case of gross and continuing fiscal irresponsibility is not just an abstract threat but a realistic one.

Focus on Skill Development Rather than Freebies:

• It is always better to provide useful skills to the people than to give them freebies.