Do Freebies commitments economically viable?
9th Sep, 2022
A debate on freebies started after the Prime Minister’s critical comments on political parties promoting “revdi culture”.
- Recently, the Supreme Courtalso asked the central government whether distributing irrational freebies during election campaigns is “financially viable or not”.
What are freebies?
- Freebies can be defined as something without charge or cost. It is a very well-known and widespread practice during election.
- Freebies that are usually distributed include goods like bicycles, smart phones, TVs, Laptops and waivers on bills (water, electricity, etc.)
Merit good vs public goods
- There is need to distinguish between the concept of merit goods and public goods on which expenditure outlays have overall benefits.
- Public goods are provided to the entire society. Merit goods are provided to targeted individuals. Hence in the case of merit goods, there is exclusion. On the other goods, there is no exclusion under public goods.
- Direct implication of State’s fiscal health: Any state expenditure has implications for its fiscal health. So the concern regarding freebies is valid because these are expenditures that do not positively affect production in the long run.
Is spending on education, health is also a concern?
- Providing services such as education, health and electricity to the deprived sections of society cannot be considered freebies as they would have favourable effects on economic growth through their positive externalities.
- In fact, spending on these services is the responsibility of the government.
Are freebies and subsidies needed for developing nations like India?
Despite several impacts on the fiscal management of the government, it becomes very important for the developing nation to incentivize such subsidies and freebies because of various reasons:
- Food security:To ensure proper Food Security and the Right to Food as a fundamental right under Article 21 of the constitution it becomes mandatory for the government to implement schemes for subsidized food.
- Better Demography: Ensuring nutritious food to the citizens can create healthy and productive demography and help in the creation of Human Capital.
- SDG goals:Sustainable Development Goals have objectives to eradicate hunger (SDG-2) and good health and wellbeing (SDG-3) which can be achieved by the subsidized food schemes in developing nations.
- Farmers Welfare:India faces severe cases of farmers' distress; to improve the condition of the rural economy government needs to ensure schemes and freebies.
- Social Welfare and security: The welfare principle of the state encourages the states to introduce such schemes to promote social welfare and reduce inequality in society.
- Reducing social inequality: Providing food for all can reduce the prevailing social inequalities on various grounds.
- Gender Equality (SDG-5): To reduce gender inequality and provide a secure social status and recognize all the gender and their sexual orientation it becomes a compulsory step for the government to take such steps.
- Induce demand: During the slowdown and low demand phase these subsidies and freebies can induce demand in the market that can bring up the growth at a certain level.
- The distribution of free tablets helps minimise the digital divide
- Facilitate access to the workplace by eliminating the transportation cost
- The role of free education, health and electricity is helping the economy grow rapidly.
- Freebies assist in mitigating the income gap between the rich and the poor in the same manner the methods like ‘progressive taxation’ do.
- Waste of taxpayers’ money
- False promises for political benefits
- Increasing burden on economy of the state
- Freebies can be used for converting government’s black money.
- Can promote Communalism benefiting a particular caste or religion in a region
- Not ‘actually’ free: Freebies are not free i.e. be it today or tomorrow ultimately tax payers have to bear the brunt.
Is government obliged to provide freebies? (Obligation of state)
- Government in general is not obliged however; it creates a ground of involvement with the local population and the government.
- In India, every citizen has a divine right to produce children and Government has the unlimited duty and responsibility to feed, educate, and provide education, health, and employment to each of the children.
- Realizing Economic Impacts of Freebies: It is not about how cheap the freebies are but how expensive they are for the economy, life quality, and social cohesion in the long run.
- Instead states should use their authority to harness innovative ideas and solutions to common problems which other states can emulate.
- Differentiating Subsidies and Freebies: It is also essential to distinguish between subsidies and freebies as subsidies are the justified and specifically targeted benefits that arise out of demands.
Culture of freebies is neither sustainable nor beneficial for the society at large. However, certain leverages and economic assistance are always welcomed for the upliftment of the marginalized section of the society and the people living below poverty line. It can be done through the schemes like MANERGA, direct benefit transfers; PDS so on and so forth.
Government should use the money spent on freebies in employment generation and infrastructural development as advised by Madras HC which will lead to fiscal stimulus and capacity building of masses.