Context

The newly elected Punjab government’s announcement of providing up to 300 units of free power to every household has again raised questions—whether freebies are ‘good or bad’ for the economy.

Background

• The freebie culture was started by the Tamil Nadu state government, where the government promised free sarees, pressure cookers, television, washing machines and more.
• The Amma Canteen was also a huge success. 
• In the north, it all started from Delhi, where the government promised free electricity, water, bus travel.

Analysis

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 goodslike 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.

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.

Obligation on State In India, every citizen has a divine right to produce children and Government has the unlimited duty and responsibility to feed, educate, provide education, health, employment to each of the children. The sole responsibility for bringing the population to this passe lies with the politicians.

Arguments in support of freebies

• Ensuring basics: The very basic argument in favor of freebies is that it the prime duty of the government to ensure basic needs like food, electricity, water etc. of the citizens, specially the underprivileged section.
• Helping the marginal section: Freebies enable the government to address the concerns of marginalized sections of the society.
• Revival of economy: Freebies, at times, have the potential to boost consumption and ultimately help in reviving the economy.
• Mitigation of income gaps; reducing inequality: Freebies assist in mitigating the income gap between the rich and the poor in the same manner the methods like ‘progressive taxation’ do.

Arguments in against of freebies; the dangerous nature of freebies

• Distorted expenditure priorities: Freebies undercut the basic framework of macroeconomic stability. The politics of freebies distorts expenditure priorities.
• Fiscal deficit: Freebies accounts for the economic burden on public exchequer and may lead to fiscal deficit.
• Not ‘actually’ free: Freebies are not free i.e. be it today or tomorrow ultimately tax payers have to bear the brunt
• Tax avoidance: People are generally become motivated to conceal their income in order to get freebies, also tax avoidance will happen that ultimately lead to revenue loss for the state.
• Exploitation of resources: Resources, provided for free are generally not valued as precious and won’t be exploited optimally.
• Inefficiency and corruption: Freebies are accused of bringing down the productivity of masses and make them inefficient and reduce them to put minimal effort. At times lead to corruption in government offices.

Can the Election Commission regulate freebies?

• Offering freebies either before or after elections is a policy decision of a political party, and it cannot regulate state policies and decisions taken by the parties.

Way forward

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.

PRACTICE QUESTION: Q1) What do you understand by the term ‘freebies’?  Discuss the major impact of freebies on the politics and economy. Q2) India has experienced the politics of freebies for a long time. In this context, discuss the pros and cons of Freebies? Do you think criminalization of politics is one of the outcome of these freebies.