Not surprisingly, opposition parties slammed the Prime Minister, saying that welfare measures are not freebies and vehemently opposed BJP’s comments. They also criticised the overreach of the Election Commission and viewed the top court’s wading into the debate as ‘judicial overreach’, which undermines the democratic process. They have also sought the court’s permission to join the proceedings in the matter. (Ghosh, K., 2022) Tamilnadu (T N) Finance Minister even asserted that no political party will heed this sanctimonious intent. (Nivedita, 2022)

Politics apart, the concept of ‘freebies’ itself suffers from definitional ambiguity. It is a generic term that has no definition. (Pant, cited in Ghosh, 2022). It has no precisely defined legal framework. In common parlance, freebies are defined as goods and services offered free of cost. Any attempt to define it is fraught with contestation and anomalies. This is exemplified by a critic through three possible models (Bestin, Steuwer, 2022). 1) an investment in public goods such as education and health is justified as a welfare measure while distribution of private consumption goods are viewed as freebie. In this argument, PDS (Public Distribution System) would be regarded as a freebie though it is so essential to eliminate hunger and starvation and is also covered by a legal entitlement (NFSA). 2) expenditure on meeting ‘basic needs’ is legitimate while expenditure on luxury consumption is a freebie. Tushar Mehta, Solicitor General and some others, however, consider the offer of free water and electricity as a freebie. But access to clean drinking water and electricity is widely considered a ‘basic need’. Even goods that serve non-basic needs like phones and laptops can have high positive effects of bridging the digital divide and promoting access to education of the poor who cannot offered it. 3) While distribution of consumer products is justified, cash distribution is wrong morally and socially. But developed welfare states widely use cash transfers in the form of unemployment insurance. The Government of India itself uses cash transfers for old-age pension, scholarship and compensating farmers for hardship due to the gap between cost of production and realisation from the sale (Bastin, Steuwer, 2022). Thus no single scenario at definition of a freebie is free from dissent and controversy. The PM also did not lay down any guidelines that would term offer of certain free goods and services irrational or a freebie. Besides, any attempt to define it would depend upon what constitutes the duty of the State in a democracy. Some intellectuals have sought to define the role of the State by specifying welfare measures considered essential for the State to provide and would be distinguished from freebies. For example, Friedrich Hayek, the conservative British thinker writing in the 1940s confined the role of the state to guaranteed basic social minimum – food, shelter and clothing which is sufficient to preserve the capacity and health to work. (Ravi and Kapoor, 2022) This role is, however, too limited in the context of present-day political advancement in thinking, and a modern democratic state which is expected to expand commitment of a guaranteed social minimum to include provision of education, health, drinking water, sanitation, electricity, skill development, and other welfare measures for the poor and marginalised sections. The ‘Basic Needs’ concept has enormously enlarged and cannot be static as a one-time norm. It must evolve with the condition of economy and its impact on different sections of the population. Its conceptualization is subjective and, therefore, open to contestation. The Finance Minister herself asserted that provision of education and health and free food grains during Pandemic are not freebies. In fact, the definition one makes in respect of freebies depends upon the perspective of the person, which is influenced by which side he/she is placed in the distributional pyramid of the economy. What a privileged person may consider a freebie may be an income-enhancing measure to the poor for their survival (Khera, cited in Perumal, 2022). Clarity is also lacking on the distinction between a freebie and a subsidy. Freebies are distinguished from subsidies as the latter are specially targeted benefits considered necessary arising out of the adverse impact of the economy on certain sections of the people. On this basis, the offer of various consumer products or cash transfer would be justified as a welfare subsidy and so is distribution of cycles to girls for facilitating their access to schools, or laptops and smart phones to needy poor students to promote access to education. Provision of free bus rides in public buses for women is widely regarded as the most contentious and considered by many as a freebie. But free bus rides for poor women enable them to reach their work place and help in increasing their labour participation. Even distribution of grinders to poor households is defended as it reduces the drudgery of women’s work at home and empowers women to utilise their time for generating income and enhancing their social and economic status. Loan waivers in respect of small and marginal farmers are offered to reduce the indebtedness which has caused farmers’ suicides. Expenditure in respect of health, education, and creation of employment are in any case considered ‘Public Goods’ that are necessary for promoting economic growth and enhancement of labour productively. Subsidies on power, seeds and fertilisers have all along been viewed as necessary for expanding agriculture production and bridging the gap between inputs costs and return from output. This blurs the distinction between a subsidy and a freebie. Despite this, some experts draw a demarcation line between good subsidies and bad subsidies. The latter are freebies. Ashok Gulati, on the most conservative side, not only welcomes withdrawal of PMGKAY (Prime Minister’s Garib Kalyan Yojna) under which additional an 5 kg of food grains free of cost was distributed during Covid but argues that even the existing allocation of food grains to more than 800 million people at subsidised rates under NFSA (National Food Security Act) needs to be reviewed and suggests that only the poorest 20% of the population should be provided food grains free of cost and pre-NFSA provision of different level of subsidies to Antodya, Below Poverty Line (BPL) families and Above Poverty Line (APL) families introduced during Vajpayee’s term should be reverted to (Gulati, 2023 Gulati and Juneja, 2022). C. Rangarajan, a former Governor of RBI and a member of the Prime Minister’s Economic Advisory Committee, taking a more balanced position, argues that the definition of a freebie should depend upon the nature of the commodity or service distributed and the social objectives to be achieved. The distribution of commodities considered essential include subsidised food grains, which has helped reduce poverty, merit goods where significant positive externalities are associated with their consumption, such as health and education including nutritional programmes of breakfast for children and midday meals for school students. But he considers the extension of the subsidization to include such items as TV sets, free power up to 300 units as freebies. Besides, schemes involving subsidisation should be carefully designed to avoid their misuse and minimise their costs such as free power to farmers. In the case of production-related incentives such as tax concessions to corporates, waivers of NPAS (non-productive loans) to business and industry and provision of land etc. for setting up industries, there have been no convincing studies to show that their stated objectives were achieved in line with large budgetary costs. Therefore, greater care is required for determining the quantum of support as well as specific forms of such support. He also suggests that even in respect of justifiable subsidised essential merit good, fiscal support should be less than 10% of the total expenditure of the central and state governments until their revenue GDP or GSDP ratios are sustainably increased (Rangarajan, 2022). Another economist has provided a normative yardstick for defining a freebie (Bhanumurthy, cited in Perumal, 2022) according to which any public-policy intervention that does not support medium-term to long-term production and productivity is a freebie. This argument rests on the premise that compared to the provision of freebies, public spending on infrastructure boosts the productive capacity of the economy. It is more rational and has long-term benefits and greater positive impact on the people as it creates development which provides income to people to get their needs fulfilled. This argument is in line with the thinking of neo-liberal economists who view all subsidised expenditure on targeted beneficiaries as wasteful and only public expenditure on infrastructure over welfare is productive as it creates facilities which would spur growth, the benefits of which would be shared by all. But this mythology of the superiority of public expenditure on infrastructure has long been proved wrong. Despite increased expenditure on Capex in the successive budgets post pandemic, there has been no visible impact on employment creation and has also not led to increased private investment. This is because expenditure on infrastructure is capital intensive. It does not create much employment and that too for the unskilled workers who need it most. Infrastructure investment has a long gestation period and does not promote employment in the short term. The only investment for employment creation for the unskilled workers is on labour-intensive programmers such as MNREGA, the budget provision for which has been reduced because it is negatively viewed by the ruling establishment and neo-liberal economists. While all these positions have been contested, the long and short of these suggestions is that they oppose targeted benefits of consumer products and services to the poor and restrict subsidised merit goods to education and health generally. This stance is close to the BJPs position and PM’s statement.

The debate involves several dimensions. One dimension is economic which is embedded in the sustainability of public expenditure rooted in the obligation of fiscal responsibility and prudence. Freebies or even subsidies have a bearing on the level of public debt and outstanding liability. When a state spends beyond the limit prescribed in the FRBM (Fiscal Responsibility and Budget Management Act), it has an adverse impact on the State’s fiscal situation, its capacity to meet the debt burden and the lack of fiscal space for it to undertake essential governance and development responsibilities unless the gap is bridged by higher taxation. It also burdens the future generations because they are deprived of the development expenditure which is diverted to meeting past liability. Expenditure on freebies would raise this burden further. (CAG cited in Chauhan & Jafferlot, 2022) But the pertinent point is why states have had a revenue deficit. It is not due to freebies but to the centre’s fiscal policies. This status has resulted from the centralisation of fiscal management. While the centre has expanded its revenue base through indirect taxes – cesses and surcharges, this luxury is not available to the States. The amount realised from these cesses and surcharges is not shared with the States, leading to their dependence on the centre. The end of the centre’s obligation to pay compensation to States for meeting the loss of revenue as a result of Goods Service Tax (GST) has further reduced the fiscal space for states to undertake social development expenditure. With the GST gone, States are left with little scope to raise taxes. The burden of the slowdown of the economy due to the pandemic has also been passed on to the States. Further, the transfer from the tax collections has also been reduced. The centre has also used considerable tax collections (from GST compensation cess) to repay the GST Council for loans given to the States during the pandemic. It is also scaling back its transfers to states for various centrally sponsored schemes from 60:40 to almost 50:50. Now they have also directed that even in the centrally-sponsored schemes, the States should roll out pilots using their funds. (Manoj, G.G., 2023) As a result, on the revenue side states will receive just 31% of gross tax revenue next fiscal year as against 42% (41% + 1% for Jammu and Kashmir (J&K)) recommended by the 15th Finance Commission and compared with 37% in 2018-19. This would result in a re-distribution of resources from the States to the Centre and either force the states to reduce their public expenditure or increase their borrowings. (Subramanian and Feldman, 2023) In fact, the centre’s own fiscal performance is no better. Its structural deficit is larger than the States and its consolidated deficit is running at -10% of GDP and debt –Gross Domestic Product (GDP) ratio at -85%. The centre itself spends more than 40% of its revenue on servicing debt burden which is way higher than the average of 10% across emerging markets. (Singh and Mishra, 2023) Several economists have argued that debt by itself is not bad but what is crucial is the nature of spending. Social sector expenditure provides a safety net for the vulnerable groups which would help them move forward as also it would help economic growth. (Ghosh, 2022) The track record of the States is much better in this respect than that of the Central Government.

The other economic dimension is that freebies distort resource allocation and impose a large indirect cost because expenditure on freebies would lead to reduced expenditure on other sectors of economy, thus affecting balanced economic growth (Goyal, 2022). The overall economic cost of freebies in one sector would be higher than the benefit to the subsidised group. There would be little room for an incentive to industry and services. Citing the case of Punjab, it is argued that free electricity for irrigation led to neglect of industry, and industries started shifting away from Punjab and relocating outside the state, a decline of per capita income and reduced growth besides ecological harm (Ravi et al, 2022).

As the freebies are never free, the cost is incurred in reduced expenditure on other needs. While it is open to question whether ‘neglect’ of industry in Punjab can be attributed to free electricity to farmers, the larger question of responsibility for balanced growth should be viewed in its political perspective. The States are democratic entities and responsible not only for fiscal stability but also the well-being of the poor who have been negatively impacted by the economy. This balance is carefully crafted in their annual budget, which is presented to the legislature for approval. The legislature is the right forum to ensure a harmonious balance between fiscal responsibility as well as welfare of the poor. It is for the legislature to question how the expenditure incurred on providing ‘freebies’ is to be managed within the limits of the states’ resources and how the balance in the public expenditure on different needs is to be achieved. Besides, the so-called freebies are justified in the interest of economic growth as well and not merely social welfare. Manufacturing suffers from a lack of demand and high inventory, leading to the reluctance of industry to invest in capacity expansion despite the tax incentives offered. A free supply of certain goods such as free cycles, sewing machines and grinders also boosts the sale of the corresponding industry and contributes to its expansion capacity. The one-time supply of a commodity will create demand for it in the future and would break the bottleneck at least in that particular industry segment. They are also required to increase the productive capacity of the workforce and, therefore, have high positive externality.

The crucial flaw in the entire discussion is that it does not bother to look into the political, economic and institutional context in which freebies have become a feature of electoral politics. (Iyer, Y., 2022) It is the failure of economic policy to eliminate poverty, under-employment and low intergenerational mobility resulting in deep inequalities and to build a welfare state to ensure the dignified survival of the poor and invest in building human capital that eliminates the rationale for freebie and voters exerting pressure on the governments to provide them. The freebies are offered to compensate citizens for what economic growth has failed to do. The manner in which the debate is framed effectively delegitimises a democratically forged political bargain between the government and the voter (Iyer, Y., 2022). Besides, the stance of the ruling establishment, particularly the PM who framed the terms of the discourse, is heavily tilted in favour of the rich and does not highlight policies that give huge tax concessions to the corporates without the intended social objective being realised. The amount of tax forgone as a result is far higher than the subsidies given to the poor. The social justice aspect in this discourse cannot be lost sight of. The sharp attack on freebies also shows an elitist bias against the poor, whose vulnerabilities which are caused by iniquitous growth are not taken into account. The answer to the negativities highlighted in the discourse lies in crafting a new democratic understanding on the model of economic growth which caters to the needs of different sections of society and seeks to ensure equitable distribution of benefits across different sections. The distinction between what is a good freebie and what is a bad freebie is akin to the distinction between a good policy and a bad policy and is a political decision. Elections are the appropriate mechanism for people to express their view on this. Voters have to decide which policies are in their interest and also promote public good. While political choices can and must be questioned and debated in a democracy, it is the voters who should determine the choice. There should be no attempt to seek to limit the option for democratic contestation.

The debate is sanctimonious hypocrisy of the ruling establishment, as all political parties including the ruling BJP have resorted to it. The distribution of gas cylinders, housing, free rations, cash transfers to farmers are not considered freebies while attacking opposition-led governments. In fact, the NDA government’s extension of benefits of a non-financial nature to its vote bank, such as providing reservations to economically poor but socially advanced groups is the greatest freebie (Kundu, 2022) and that too by creating eligibility limit of Rs. 8 lakh per annum, which is 11 times the limit of the most recent rural and urban poverty lines. (Deshpande, 2022)

The third dimension of debate is the morality of the policy. At a vertical level it is argued that the supply of freebies distorts the informed decision-making of the voter. It is analogous to bribing them and legitimising corrupt practices (Pandita, 2022). Only the form of corruption has changed from the earlier practice of bribing the voter with cash or liquor. Incentives before elections is not a good practice. Government should focus on long term policy-making and better policy reach. (Manisha Priyam cited in Anand and Babu, 2019) It is a short-term measure that shows a lack of vision. This argument commodities’ the electoral process, deprives voters of their agency, considers them passive receivers of doles and strikes at the core of the political bargain which has been arrived at between the voters and their elected representatives. (Iyer, Y., 2020) The second moral aspect is its economic justification. Since the economy has a poor track record in creating jobs, enhancing per capita income and reducing inequality and normal development projects have not delivered. Besides, the poor subsidise industry by providing cheap labour. Real wage rates have stagnated, increasing at the rate of 1.82% and 0.94% annually for agricultural and non-agriculture workers during 2016-2022. Any support by way of cheap rice or even a saree for a poor woman keeps them afloat and makes living less difficult. (Chaudhery, cited in Anand and Babu, 2022) The assumption that poor voters are swayed by such freebies is not entirely correct. Political parties have lost elections even after promise of freebies. Aam Admi Party (AAP’s) defeat in Gujarat, Himachal Pradesh (HP) is the recent example. Sometimes, freebies have worked while at other times they have not worked. Freebies provide people with hope that life would be better. In Odisha, Chhattisgarh and Tamil Nadu (TN), it made some difference in elections. (Chaudhary, cited in Anand and Babu, 2022) It works only if the people trust the government to deliver what has been promised. (Sanjay Kumar, 2022 cited in Anand and Babu, 2019). Even the CJI (Chief Justice of India) asserted that people are not looking for freebies but for a dignified opportunity to earn like MNREGA. (Ghosh, 2022) The corruption-inducing propensity of freebies has been effectively rejected by the Supreme Court itself. In Subramannan B. vs Government of Tamil Nadu (2013), it upheld the distribution of TV sets or other consumer goods on the ground that such schemes target women, farmers and the poor and were in furtherance of the Directive Principles. As long as funds were spent based on an appropriation cleared by the legislature, they could neither be declared illegal nor could the promise of such items be termed as corrupt practice. (Hindu, editorial, 2022; Cited in Anand and Babu, 2019).

The third moral dimension is the rich and poor divide and bias in the establishment towards small benefits going to the poor by way of freebies, while ignoring the huge material benefits extended to the corporate without question and debate. (Nivedita, 2022) No PIL is filed against such production incentives for the corporates or the rich. (Steuwer, 2022) Also not questioned is the huge expenditure incurred by the government on self-promotion. (Shah and Shah, 2022) The world inequality report has found that the ratio of private wealth to national income jumped from 290% in 1980 to 555% in 2020. The top 10% of the country’s population hold 57% of the national income. The income-tax base is stagnant. No attempt is made to increase the tax base by using many tax instruments – wealth tax, estate tax, inheritance tax, enhanced property tax, etc. The tax exemption limit keeps rising year after year. (Khera, cited in Perumal, 2022) There has to be some redistribution. It is the core function of government to do this redistribution. The supply of freebies is one mechanism of achieving this. Besides, freebies are policies which further the constitutional vision as laid down in Art 36 and Art 39 of Directive Principles. The former exhorts the state to secure a just social order and the latter mandates the state to reduce the concentration of wealth and promote public good. Thus, by offering certain consumer products or supplying free services, the concerned governments are performing their constitutional duty to reduce the inequalities and economic hardships of the poor, as argued by Aam Admi Party (AAP) and Dravida Munnetra Khadgam (DMK). While doing so, the distinction, however, should be made between public spending on basic needs and luxury consumption goods. Free water and electricity are now considered basic needs. Even goods that provide non-basic needs like scooter, cycles, TV sets serve the needs of mobility and communication and help in accessing more durable and sustained income earning opportunities to a target group. While the privileged oppose freebies as a waste of taxpayers’ money, their hypocrisy lies in their unwillingness to give up when they are the beneficiaries of such freebies, which shows acceptance and appeal to it at both the demand and supply side of the equation, though for different reasons. (Bakshi, 2022) The demand for and offer of freebies would be reduced with greater social and economic wellbeing and with more political awareness. (Abhilash, cited in Ghosh, 2022)

This is not to say that the realities that RBI has highlighted should be ignored. The answer does not lie in criticising states but in building a new democratic consensus on the model of economic growth and to recognise that freebies are not a symptom of poor politics and seduction of voters with such promises but about limited economic imagination and vulnerable livelihoods. (V. Iyer, 2022) Besides, even while supporting the rationale for freebies given the economic context, there is a need to effectively target them at the right audience and judiciously demand base without any leakages and with effective delivery so as to eliminate its wrong targeting. An example of this was cited by one critic in the framework of Delhi’s electricity subsidy, which is neither a function of household income nor of state’s finances and is elite targeted at the most undeserving. (Bakshi, 2022) But it is rightly asserted by a wide-ranging section of political parties and civil society that there is no case for regulating political parties about poll promises as Election Commission (EC) seems to have done and SC seems to have hinted at, though retreating from it as a prescriptible advice or policy engineering. ‘Manifestos are not Initial Public Offers (IPOS). Curbing states’ political and economic imagination by subjecting them to regulatory scrutiny in a democracy where entry barriers are already high is akin to a political IPO’. (V. Iyar, 2022) Is it even possible for the Election Commission of India (ECI) to specify parameters for promises which do not have a financial cost such as reservation in jobs and education?

Yet another thorny issue in this discourse that has emerged relates to the promise by some opposition-ruled states to revert to the old pension scheme (OPS) for government employees. In fact, Rajasthan, Chhattisgarh, Jharkhand and Punjab have already restored OPS. The latest example of such a shift is HP which won 40 of the 68 seats in the recent assembly poll. While the victory in the election in HP cannot be attributed to this since government employees constitute a miniscule section of the voters, the media has, however, highlighted it as a serious draw on States’ finances as the cumulative pension Bill of State has jumped to Rs 3,86,001 cr in 2020 from Rs. 3,133 cr in 1990-91. (Sharma, 2022) The New Pension Scheme (NPS) was introduced in 2003 by the NDA government based on the recommendation of an Expert Committee, which had pointed out that pension pay-out had risen from 2.1% of total revenue receipts in 1980-81 to 11% by 2001-02 and were projected to hit 20% by 2020-21. The scheme was continued during the UPA government, the primary reason for which was sustainability as the Union Budget provided for pension every year but future liability remained unfunded. Overall, pension payments by States take away a quarter of their tax revenue. The pension liability will keep rising. (Modi, 2022) Old pension scheme required the State to pay ½ the last pay drawn by a government employee post retirement. Given better healthcare facilities, the people’s life span has risen and will rise further, putting pressure on the exchequer in the future. The New Pension Scheme (NPS) required employees to contribute 10% of their basic pay and dearness allowance while the state contributes a matching amount, which is deposited into a pension fund managed by a statutory authority. The immediate benefit to the government employees in reverting to the old scheme would be that they would not set aside their 10% contribution and the government would also absolve itself of making a 10% contribution. This would imply that the state would be required to contribute the entire pension after retirement, which would create a permanent liability. It would be a committed expenditure and shrink the available resources of the States to manage their finances in the future and burden the taxpayers. ‘It is sinful, unprincipled and quite unethical to create liabilities that don’t apply to the present government but to a government in the future’. (Modi, 2022) Montek Singh Ahluwalia, former Deputy Chairman of the Planning Commission, termed restoration of old pension scheme as the greatest ‘revdi’ as the decision benefits only the government employees who constitute a tiny section of the total population and cannot be considered as a welfare measure which benefits the poor or a larger section of the population. It is thus a decision which would please these employees at the cost of the larger population and cannot thus be defended on ground of basic need or equity (Sharma, 2022). However, the demand for restoration to Old Pension Scheme lies in the insecurity of government employees about a guaranteed pension after retirement, since their contribution along with that of the government is invested, subject to market risk and dependant on stock market uncertainties. Chief Minister Rajasthan, who has resorted the OPS, succinctly pointed out that the OPS provides security to the employees. If the employees remain insecure about their future, it will also lead to corruption. With the OPS, employees are assured that the government will be with them and won’t indulge in corruption. (Manoj, 2023) Those defending the NPS are only protecting the interests of the Government at the cost of employees who have loyally served them. In fact, Andhra Pradesh has proposed a new model which seeks to combine the benefits of OPS and NPS, in which employees will get a defined pension with a defined contribution. (Indian Express, 2023) Whatever model is adopted, there is a hint that the central government is looking into AP’s proposal to make NPS more acceptable. (Indian Express, 2023)

Overall, the discourse on freebies is a misdirected debate (Shah and Shah, 2022) meant as a distraction from the real conditions faced by the people (People’s Democracy, 2022) and motivated by the desire to regulate the politics of opposition-ruled states, curb their political choices and denigrating them for swaying the voters in their favour in election. If the intention was to raise the issue for better policy-making, neither the context nor the manner in which the debate is framed were appropriate. The debate is all the more meaningless as the current government’s social sector expenditure is very low. (Peoples’ Democracy, 2022) The proper way would have been to engage with states in a nonpartisan and non-adversarial mode, not at the election time, on building a democratic understanding on how to deal with the adverse externalities of economic growth, reduce the vulnerabilities of the poor, help the States by ensuring transfer of their mandated share from the central pool and increase their resource base in the spirit of cooperative federalism. Till such an understanding is reached, the Government should concentrate on providing basic needs – health, education, social security, drinking water, sanitation and employment. But the ruling party is least interested in this exercise and is solely interested in winning elections by attacking the profligacy of opposition-ruled states, curb their political choices and dragging constitutional and statutory independent bodies into this debate to its political view point. This would only sharpen the faultlines in centre-state relations and would fail to sensitise them and the people to the generic concern involved in the issues raised.

Reference:

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2. Bakshi, Ishan (2022), ‘The irrationality of revdis’, Indian Express, December 1, 2022.

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