Regular income through steady work, not dole payments, will help people stay on their feet
Updated: Wed, 3/29/23 at 12:30pm
Sira Suba Rao
Hyderabad: The term has become the latest flashpoint after the Supreme Court recently sought input from all stakeholders to define what constitutes a “freebie.” It’s a question of great significance at a time when the global economy is in turmoil and countries’ fiscal positions are in jeopardy. Many political parties, present and past, have been accused at one point or another of handing out dole payments to secure the votes of the people.
Ten years ago, the Supreme Court, in dealing with some petitions concerning freebies, ruled that while the distribution of freebies affects people and destabilizes the very roots of free and fair elections, the promise or distribution of such freebies cannot be considered bribery and Courts cannot tell the government how to spend public money. Additionally, these commitments are statewide in nature. From the perspective of policy decisions, it is presumed that the prospective government will implement them if it wins the election. There is no stopping parties from making promises covering everything from universal health care to subsidized drinking water and electricity.
Response from the Reserve Bank of India
Following a contraction in 2019-20, state government subsidy spending rose by 12.9% in 2020-21 and 11.2% in 2021-22, according to the latest data from the Computing and Auditor-General (CAG) of India. Correspondingly, the subsidy’s share of total state revenue expenditure also rises from 7.8% in 2019-20 to 8.2% in 2021-22. Five states, Jharkhand, Kerala, Odisha, Telangana and Uttar Pradesh, have seen the highest increases in subsidies over the past three years. Subsidies and giveaways as a percentage of GDP are surprisingly high in almost all states.
In its report (June 2022) “National Finances: An Analysis of Risks”, the Reserve Bank of India stated that apart from the macroeconomic shocks facing states, including rising prices, the outbreak of the Covid-19 pandemic and the war between Russia and Ukraine, their financial risks also From their own decline in tax revenue, an increase in overdue loss disputes and increased payouts due to the distribution of freebies, etc. Therefore, it is considered necessary to distinguish them from public/merit goods. Freebies undermine credit culture, distort prices through cross-subsidization, misallocate resources and discourage private investment.
thin line
The distinction between welfare programs and freebies becomes complicated, with one a necessity and the other a waste of public money. Over time, both the center and the states rolled out a series of benefit programs. Some examples are lunches, job guarantee schemes, targeted public distribution systems and subsidized electricity. Analysts stress that value goods such as free or subsidized food, education, shelter and healthcare are critical to accelerating human development.
However, mass distribution of non-value goods such as wet mills, laptops, televisions and fans could drain government revenue. Therefore, a list of goods and services and the ideal delivery method need to be determined. Furthermore, prudent fiscal limits for funding such incentives need to be determined based on central and state GDP or GSDP ratios respectively.
Policymakers use budget resources to provide support to low-income households to increase their consumption of essential goods and services, and to provide incentives to support specific categories of investors and producers. The economic goals of the two categories are quite different. The first category includes free or subsidized provision of food and services, such as health and education. The second category includes budgetary support that incentivizes investment or production through tax breaks and production-related incentives for various sectors.
While subsidizing or providing free essential and valuable goods to meet social goals can be justified, serious doubts arise when the list of goods expands to include items such as televisions and free power for up to 300 units . Therefore, it is recommended to limit the distribution of goods and services with high subsidy levels to essential and valuable goods. Any distribution outside of these two categories must be considered a “freebie”.
Supply and demand dynamics
The Election Commission of India (ECI), citing the rampant practice of freebies to voters, has asked political parties to provide truthful information to the public to assess the financial viability of their voting promises. The ECI has also put forward a proposal to add a standardized form to the model code of conduct through amendments to clarify the reporting process.
Continuity of freebies is not a healthy practice. It is often forgotten that these benefits come at the expense of the state coffers. Moreover, the distribution of such commodity freebies disrupts the supply and demand dynamics of the market to a great extent.
Certain laws were enacted and enforced for fiscal prudence, but not strictly followed. For example, regulations/rules specify that “borrowing shall not be used for income expenditure, including free gifts”. It is necessary to follow the same. Legislative mechanisms coupled with increased public awareness of the need for a long-term productive welfare agenda may be more helpful in the long run.
No doubt, there are legitimate concerns about the long-term negative effects of an out-of-control freebie culture. At the same time, the solutions are not easy to defuse the situation, especially in a contested democracy. That’s largely because of the loopholes in the entitlement program and its growing appeal to voters. In a country with a large poor population and a lack of formal social protection, welfare goods, including non-performance freebies, serve multiple needs.
global outlook
Countries such as Canada, Brazil and Australia have opposed the policy of forgiving farm loans entirely, resorting instead to loan rescheduling and deferment. Turkmenistan, the world’s fourth-largest nature reserve, has asked its officials to stop subsidies in response to free electricity and gas supplies for its citizens. Certain global prospects also need to be replicated to some extent in our economy.
It would be prudent to limit overall fiscal support for entitlement programs to less than 8% of total central and state government spending until their GDP or GDP growth, respectively, continues to grow.
Moreover, both the center and the states must take responsibility. A political consensus must be built between the center and the states to stop the abuse of subsidy/benefit schemes and their adverse impact on the state’s financial position. The need of the hour is not a dole, but a regular income through a stable job so that people can support themselves.
