Instrument of inclusion

Now that the General Elections for Lok Sabha and elections for a few states in India are announced, political parties will be busy fine-tuning their strategies to win the blessings of the voters by rolling out attractive manifestoes with alluring promises. Unlike the election campaigns in the last century, wherein ideological issues and welfare schemes had mostly dominated the manifestoes, the last two decades of the 21st century have witnessed a difference in the approach of parties to elections. The focus now is more on promises of immediate material gains free of cost—‘freebies’—to the marginalised sections, women, farmers, unemployed young people, etc. These include direct cash transfers, free distribution of food grains, free electricity, water, public transportation, waiver of farm loans, free laptops, cell phones, cycles, motorbikes, etc. As a quid pro quo deal, it is an implied civil contract between voters and political parties, to be honoured by the respective political party if elected to power. Eventually, the voters are the ultimate beneficiaries no matter whom they vote for or whichever party is elected to power because the freebies will be delivered to all voters without discrimination.

Though the ‘freebies’ have ignited a debate vis-a-vis concerns such as the long-term health of the economy, fiscal deficit, and Debt-to-GDP ratio, today all political parties seem to be united in favour, while economists and columnists are divided.

Freebies or entitlements to targeted sections of people are not exclusive to Indian democracy. Even in the US, funds are approved by the Congress for mandatory spending on social security, on schemes like Medicare, and Medicaid. Paul A Volcker and Peter G Peterson (New York Times, Oct 22, 2016) have estimated that 70 per cent of the increase in entitlement expenditure in the US between 2016-2046 will be on healthcare alone. Freebies are also extended in the US to spur the post-pandemic economic recovery. According to Michael Austin of the Kansas Policy Institute, President Biden and Governor Kelly of Kansas have proposed a lot of “free stuff” including mortgage and rent intervention, free tuition, free healthcare through Obamacare expansion, and Medicare for all. The US has roughly USD 30 trillion in debt or over USD 84,000 per person. He argues that “spending funds the government doesn’t have will do little to ease racial inequality”.

According to RBI, freebies such as free electricity, water, public transportation, farm loan waivers “potentially undermine credit culture, distort prices through cross-subsidisation, erode incentives for private investment, and disincentivise work at the current wage rate leading to a drop in LFPR”. The apprehension appears to be more academic in nature since a correlation between freebies and the decline of credit culture or downtrend in investment is yet to be established conclusively. On the contrary, a study by Akshi Chawla and Kulvinder Singh (Ashoka University, November 15, 2023) shows that five states had the highest percentage of LFPR, viz, Chhattisgarh (67.6), Telangana (63.6), Mizoram (61.8), MP (60.1), and Rajasthan (59.1) as compared to the all-India average. Barring Mizoram, all the four states are known for a lavish roll out of freebies in the last five years.

According to the State of State Finances (2023-24) report by PRS Legislative Research, capital expenditure is restrained in many states due to accumulated debt, including that incurred on loan waivers. RBI’s ‘State Finances: a Study of Budgets of 2023-24’ says that the debt-to-GDP ratio of States is estimated at 27.6 percent in FY 2024. Nevertheless, the report also adds that despite the debt-to-GDP ratio exceeding 25 percent by the end of March 2024 (BE) for 25 states and union territories, the overall fiscal outlook for the states will remain favourable in 2023-24. Arguably, freebies are not the exclusive reason for the increase in the debt-to-GDP ratio or the fall in capital expenditure. Likewise, fiscal deficit can occur not necessarily by a rise in government spending but also due to factors like economic downturn, tax cuts, subsidies, or inefficient revenue collections. According to C Rangarajan, former governor of RBI, if the fiscal deficit rules are enforced strictly, we can find a way by which freebies can be kept under control. As a matter of fact, States always spend under the permissible fiscal deficit limits since RBI doesn’t allow borrowing beyond stipulated limits and norms. Moreover, the Centre’s approval for state’s borrowing is a rider in the federal financial system.

The term ‘freebie’ over time acquired a pejorative connotation as goods or services gifted away to people freely as bribes to secure electoral gains. Critics argue that freebies lead to competitive populism among parties, destroying the spirit of free and fair elections in democracy. But true to the spirit of egalitarianism which the Constitution of India upholds, we need to appreciate that freebies are direct material benefits to people to help bridge the socioeconomic gaps in society; and as such, they should be called instruments of inclusion. Thereby, they are a constitutional obligation as well under the Directive Principles. Even if the political agenda behind freebies is to garner votes, it is perfectly democratic as it provides a level playing field to all parties alike. Secondly, to say the least, it is an acceptable and better alternative to the undemocratic use of money and muscle power in elections which the EC and its observers battle against day and night.

The relief through freebies is immediate and tangible compared to the protracted gestation periods of poverty alleviation schemes, helping reinforce people’s faith in elected governments. For example, MGR’s free Mid-day meal scheme in Tamil Nadu and NTR’s 1 kilo rice for just two rupees in Andhra Pradesh made history in freebie welfare schemes, providing relief from hunger to millions of people and increasing enrollment rates in schools phenomenally. The provision of freebies empowers voters from marginalised classes and women, who incidentally constitute the majority in any constituency, to choose a government which assures them immediate material benefits; it is simpler than evaluating the parties on ideological merits, a task educated higher-income sections may spare time for. That said, it is also undeniable that freebies need to be qualified in the interest of financial prudence and credibility of political institutions. The Supreme Court, in a PIL by Ashwini Upadhyay, has observed that it is necessary to distinguish welfare schemes from irrational freebies that strain the budgets of states. The EC is reportedly devising a system to regulate freebie announcements by mandating parties to list out freebies, target groups, and their financial implications.

Strictly speaking, the line between subsidies, tax cuts, and freebies is thin as they all are free in character and ‘not earned’; only it is called freebies with reference to underprivileged classes or women beneficiaries while glorified as subsidies or tax deductions in the case of businesses and industries. Antagonists of freebies may well appreciate that if such revenue losses are prevented, fiscal deficits attributed to so-called freebies can be diligently managed. While continuing freebies rationally, we must also endeavour to save huge unproductive expenditure on extravagance, cost overruns, superfluous bodies, and authorities in governance and delivery mechanisms, and strive to increase revenues by widening the tax base.

The writer is a former Addl. Chief Secretary of Chhattisgarh. Views expressed are personal