What is the difference between a freebie and a welfare scheme and how does it affect the economy remains a moot point.
‘Freebies’ has emerged as the buzzword in the backdrop of the debate rekindled by the Bharatiya Janata Party (BJP) and ferociously contested by various Opposition parties in the country. The debate of ‘freebies vs welfare measures’ has divided the political parties vertically into two blocks; one emphatically supporting freebies and the other calling this out as the evil of state finances.
The controversy over what is called freebie in English and revdi in Hindi began with a petition filed by BJP leader Ashwini Kumar Upadhyay in the Supreme Court on January 22, 2022 before the Uttar Pradesh assembly elections when political parties in the largest state were jostling with one another to promise free electricity, water, etc.
The petitioner had contended that the recognition of the parties promising freebies to woo voters before the election should be cancelled because if it is an offence to distribute money before the election, then it is also an offence to do so after winning the election. On July 16, Prime Minister Narendra Modi stirred up the issue by saying that some parties were promoting 'Revdi culture' which is a hindrance in the economic development of the country. His remarks were termed shameful by parties like Aam Aadmi Party (AAP), Congress, TRS, YSR Congress, and DMK.
AAP said that giving free quality service to the people is not free revdi. While Congress said that waiving the loans of big corporate houses was revdi, TRS said that Modi was denigrating the free welfare schemes meant for benefit of the poor.
During the hearing of the petition, the Supreme Court observed, "We cannot prevent political parties from making promises. The question is what constitutes the right promises. Can we describe the promise of free education as a freebie? Can free drinking water, minimum essential units of power, etc. be described as freebies? Can consumer products and free electronics, be described as welfare?"
During the hearing, advocate Abhishek Manu Singhvi, appearing for AAP, said that there was a difference between freebies and welfare schemes. Solicitor General Tushar Mehta on behalf of the Union government said that social welfare does not mean distributing everything for free. The Supreme Court later referred it to a three-judge bench and it would be taken up for hearing again after four weeks.
Prior to this, in 2013, the Supreme Court had given a big decision regarding free declarations and promises in the 'Subramanian Balaji vs Tamil Nadu' case. In that case, the petitioner had challenged in the court in 2006 the promise of distributing colour TVs free of cost by the DMK after winning the Tamil Nadu assembly elections. At that time, the Supreme Court had said that the promises made in the election manifesto cannot be called 'corrupt'.
What is then the difference between a freebie and a welfare scheme and how does it affect the economy remains a moot point. Senior development economist Jayati Ghosh tells Outlook, "In most countries of the world, this will not even be seen as a question. Are free water, free education, free electricity, free food and free housing freebies? No, it is a human right because we do not want any citizen of India to go hungry and not have a roof over his head to sleep."
Economist Arun Kumar tells Outlook, "What is being called a freebie today is actually a welfare measure that brings many benefits to the economy.”
They say that till 1947, India and all the countries of South-East Asia had the same overall level of development, but by 1965 they all overtook us. The only reason for this is that in the beginning, they focused more on education and health, which we could not do.
The Reserve Bank of India (RBI) looks at welfare schemes from another angle. The RBI in its report 'State Finance: A Risk Analysis', released on June 16, said the slowdown in state revenues and rising subsidy burden have further increased the state government's debt. RBI has also considered non-merit freebies as one of the reasons.
Talking to Outlook, former Union Finance Minister P Chidambaram said, “Subsidy cannot be called a freebie. When I was the finance minister, I published a report on subsidies that differentiated between 'merit' and 'non-merit' subsidies. A merit subsidy was defined as a subsidy that has a number of indirect benefits. The Prime Minister should tell which according to him is merit subsidy and which is non-merit."
The RBI report states that 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 and is topped by states like Punjab and Chhattisgarh, which spend 10 per cent of their revenue expenditure on subsidies. According to the report, the debt-GSDP ratio is highest in Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh, and Haryana. The RBI has said that the financial health of these states should be carefully assessed as they have a greater focus on social welfare.
On how justified this concern of the RBI is, P Chidambaram said, “Fiscal health is important, but as long as a state has the capacity to borrow (which, by the way, is approved by the central government) and the capacity to service the debt, we should not worry too much about the expenditure on health, education, and other welfare measures."
Experts believe that the responsibility for increasing debt on the states lies with the Centre because when the state borrows something, it takes permission from the Centre and the RBI. Then the question arises that when so much debt was increasing on the states, why did the Union government not pay attention to it?”
Arun Kumar says that 41 per cent of the government's entire earnings should go into the hands of the states, but only 30 per cent goes. If this happens, then the states will meet their needs only by taking loans.
Kumar argues in favour of subsidies given to the poor, that until 1980, economic growth in most African countries was almost negative, to which the World Bank and International Monetary Fund (IMF) said that these countries needed a safety net. After this, the expenditure on education, health, etc. increased there and only then did they start witnessing a positive growth. He says that if the government stops or reduces subsidies, there will be a terrible social explosion and the economy will collapse.
Nobel laureate Indian economist Abhijit Banerjee has also said that the government should spend with open arms and instead of cutting corporate taxes, the government should put money in the hands of the bottom 60 per cent as it has a ripple effect on the economy.
Economists say that BJP is raising questions about free schemes but it itself is second to none in making populist promises in elections. According to data published in Bloomberg Quint, the central government's subsidy bill on food, petrol and fertilizers increased to 3 per cent of GDP in 2020-21 from 1.1 per cent in the previous year. Kumar says that the debt-GSDP ratio of Punjab is 45 per cent, which is the highest compared to other states, but at the central level, the same figure has reached 70 per cent. The question is that when the Centre does this to serve its political interests, why will the states not?
Economists also believe that the government should put money in the hands of the poor so that they can spend it and demand can increase in the market. If the government studies the report by the World Bank which states that those who came out of poverty between 2005-12, will again fall into the quagmire of poverty after just one income shock, then it will understand how much the country needs these welfare schemes at this time.
Despite this, some experts are talking to draw a 'Lakshman rekha' in this matter. They say that instead of giving everything to everyone, everything should be given to those who are below the poverty line. Due to this, the needs of the needy will be fulfilled and there will be no excessive burden on the government exchequer also.