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.

• • 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: 

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.

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. 

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.

News Source: Business Standard