Politics of Freebies

September 11, 2023

GS Paper II Indian Polity and Governance

Context:

The Prime Minister recently remarked that state-provided freebies may yield political results in the short term, but it will lead to a great social and economic price in the long term with the poor paying a heavy price.

More about the news:

Webinar against freebies: A webinar titled ‘Freebies Culture and its Impact on Indian Politics & Democracy’ was organised by the Association for Democratic Reforms (ADR) in view of a public interest litigation (PIL) challenging freebies.

National Pension System (NPS) vs Old Pension System (OPS):

Under the OPS:Retired government employees get 50% of their last-drawn salary as a monthly pension.The amount keeps rising with hikes in the dearness allowance rates.
In contrast, NPS is a defined contribution scheme wherein the subscriber contributes to his account, there is no defined benefit that would be available at the time of exit from the system

- ADR is a non-partisan, non-governmental organization that aims to improve governance and strengthen democracy in the area of electoral and political reforms.
OPS as a populist move: The choice of certain states to revert to the old pension scheme (OPS) has been criticised as a populist measure to attract government employees.
- Five states – Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh have decided to go back to the OPS.
Rise of Populist policies: Political parties in states preparing for assembly elections have begun pledging freebies, which include cash transfers and supplementary income initiatives.
- Assembly elections are scheduled to be held in Telangana, Rajasthan, Madhya Pradesh, Chhattisgarh, and Mizoram in late November and early December.

Freebies:

The Reserve Bank of India (RBI) in a bulletin in June 2022 defined ‘freebies’ as “a public welfare measure that is provided free of charge.
- It includes provisions like free electricity, water, public transportation, the waiver of outstanding utility bills, and farm loan waivers.

Welfare Measures:

It is a public policy intervention deriving sanctity from directive principles of the Constitution having long-term impacts on production and productivity.
- Welfare schemes like mid-day meals, PDS, MGNREGA, health insurance schemes have played a crucial role in the improvement of lives of both the rural and urban poor in the country

Difference between freebies and welfare measures:

Welfare Measures	Freebies
These are essential for maintaining the basic dignity of life-healthcare, education, social protection. These are crucial for accelerating human development and in turn contribute to the country’s growth.	The mass distribution of non-merit goods can drain government revenue. They undermine the credit culture, distort pricing through cross-subsidization, and reduce incentives for work at prevailing wage rates.
Example: Public distribution system, State support for education and health	Example: Distribution of laptops, two-wheelers, etc.

Concerns associated with excessive use of freebies:

Heavy Tax Burden on States: Many states are burdened with substantial debts, limiting their capacity to invest in more significant welfare programs.
- Punjab’s electricity subsidy constitutes over 16 percent of its total revenues.
- State Finance: A Risk Analysis’, a report released by the RBI in June 2022, stated that the slowdown in state revenues and increasing subsidy burden have added to the state government’s debt.
- New sources of risks have emerged in the form of rising expenditure on non-merit freebies, expanding contingent liabilities, and the ballooning overdue of DISCOMs.
Against Constitutional Principles: Making promises when the states lack money to guarantee fundamental rights and implement directive principles is against constitutional principles.
Shrinkage of fiscal space: The subsidy burden needs to be to be funded through debt, which will result in mounting deficits.
- It will lead to breach of Fiscal Responsibility and Budget Management (FRBM) rules and the states ending up in a debt trap.
- The report also reveals that the debt-GSDP ratio is the highest in Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh, and Haryana.
- Debt-to-gross state domestic product ratio(Debt-GSDP): It is a measure of how much the liabilities are as a proportion of the size of the state’s economy.
Violation of the principle of a level-playing field: Freebies gives the political parties undue advantage by making promises to provide private goods for only a section of voters.
- For instance, promising cycles for girl students or laptops for college students, or grinders for housewives, etc.
Opportunity Cost: States offering loan waivers often have to cut spending on crucial infrastructure such as roadways development and skill development.
Social Impact: Despite receiving more resources, the RBI’s study reveals a decline in social sector spending by states, particularly in vital areas like health and education.
- The share of subsidies in the total revenue expenditure of states has increased from 7.8 per cent in 2019-20 to 8.2 per cent in 2021-22.
- States like Punjab and Chhattisgarh are on top as they spend 10 percent of their revenue expenditure on subsidies.
Environmental concerns: States offer free electricity to farmers, leading to overuse of groundwater and the continuation of traditional crop patterns.
- In Punjab and Haryana, the ground water extraction stands at 161 % and 134 % against the national average of 61 % due to highly subsidised electricity.

Role of ECI:

Article 324 of the Constitution empowers the Election Commission of India (ECI)to oversee free and fair elections.
It possesses the authority to suspend or withdraw the recognition of a recognized political party in cases of non-compliance with the Model Code of Conduct (MCC).
EC does not have power to deregister a political party, except on three grounds, which were outlined by the top court in case of Indian National Congress Vs Institute of Social Welfare and others (2002).
The grounds are : registration obtained on fraud and forgery, party ceased to have faith and allegiance to the Constitution, and any other alike ground.

Challenges in curtailing Freebie Culture:

Lack of regulatory powers with ECI: The Election Commission of India (ECI) has stated that it lacks the authority to regulate or penalize political parties for making electoral promises.
- According to the ECI, the offering or distribution of freebies, either before or after an election, falls under the jurisdiction of the respective party.
No assessment of financial viability of populist policies: Political parties often fail to clarify the funding sources for the promises made in the form of freebies.
Lack of Information to the Voters: They don’t delve into the financial aspects of freebies, prompting political parties to compete for promising freebies.

Supreme Court response on Freebies:

The Supreme Court Bench in a recent judgment proposed the constitution of an apex body, to address the issue of freebies and poll promises.
It will comprise several stakeholders like the Niti Aayog, Law Commission, Finance Commission, Reserve Bank of India and members of ruling party and opposition parties,
The reference is a shift from the court’s own stand in the S. Subramaniam Balaji vs Tamil Nadu judgment of 2013.

S. Subramaniam Balaji vs Tamil Nadu judgment of 2013.

The court had held that making promises in election manifestos does not amount to a ‘corrupt practice’ under Section 123 of the Representation of People Act (RP).

Way Forward:

Responsibility of voters: Voters need to be vigilant and inquire about the financial implications of the populist policies.
Empowering the ECI with greater authority: Statutory provisions as a backup or warnings on the use of funds are needed.
Model Manifesto: The ECI needs to prepare a Model Manifesto to be followed by all political parties.
- ECI could bring in certain measures under the MCC to introduce a responsible way of making promises to the public.
- Voters need to decide whether an election campaign is credible and whether the promises and the freebies are in their interest.
Fixing limit of welfare schemes: Fixing spending of 1% of GSDP or 1% of state own tax collections or state revenue expenditure would help to implement welfare schemes properly.
Distinction between freebies and welfare measures: There has to be a distinction between the offer of ornaments, television sets, consumer electronics free of cost and real welfarist offers.
Tracking social sector budgetary allocations: Prioritizing higher resource allocation to welfare schemes is needed.
- India’s spending on health and education, at 4.7%, lags behind that of other developing countries, such as sub-Saharan Africa, which spends 7%.
Role of Finance Commission: It should consider the state’s debt burden during state allocations, and assess whether the state’s economy can sustain the financial impact of freebies over the long term.
- A committee should be formed comprising constitutional bodies, such as the Law Commission of India, to put down a proposal on how to deal with the issue.