India could end up facing a Sri Lanka-type economic crisis if it doesn’t stop the “culture of freebies” and subsidies in sectors like agriculture, NITI Aayog member Ramesh Chand has warned.

What is a Freebie?

• The term Freebies is not new; rather it is a prevalent culture in Indian politics (in the name of socialism).
• The political parties are always trying to outdo each other in luring the Indian voters with assorted freebies.
• From free water to free smartphones the Indian politicians promise everything to attract prospective voters in favour.
• This trend has gained more momentum in the recent times with the political parties being innovative in their offerings as the ‘traditional free water and electricity’ is no longer sufficient as election goodies.

Examples of freebies

1. Promise of Rs 15 lakh in our bank accounts
2. Free TV, Laptops
3. Free electricity
4. Loan waivers
5. Offering free public transport ride to all women in Delhi

Why are such policies popular among the public?

• Failure of economic policies: The answer lies in the utter failure of our economic policies to create decent livelihood for a vast majority of Indians.
• Quest for decent livelihood: The already low income had to be reoriented towards spending a disproportionately higher amount on education and health, from which, the state increasingly withdrew.
• Prevailing unemployment:  Employment surveys have shown that employment growth initially slowed down from the 1990s, and then has turned negative over the past few years.
• Increased cost of living: Real income growth of the marginal sections has actually slowed down since 1991 reforms.
• Increased consumerism: The poor today also spend on things which appear to be luxuries; cellphones and data-packs are two such examples which are shown as signs of India’s increased affluence.
• Necessity: For migrant workers, the mobile phone helps them keep in touch with their families back home, or do a quick video-call to see how their infant is learning to sit up or crawl.

Can Freebies be compared with Welfare Politics?

• These freebies are not bad. It is a part of social welfare.
• Using freebies to lure voters is not good.
• Voter’s greediness may lead to a problem in choosing a good leader.
• When we don’t have a good leader then democracy will be a mockery.

Impact of such policies

• Never ending trail: The continuity of freebies is another major disadvantage as parties keep on coming up with lucrative offers to lure more number of votes to minimize the risk of losing in the elections.
• Burden on exchequer: People forget that such benefits are been given at the cost of exchequer and from the tax paid.
• Ultimate loss of poors: The politicians and middlemen wipe away the benefits and the poor have to suffer as they are deprived from their share of benefits which was to be achieved out of the money.
• Inflationary practice: Such distribution freebie commodity largely disrupts demand-supply dynamics.
• Lethargy in population: Freebies actually have the tendency to turn the nation’s population into: Lethargy and devoid of entrepreneurship.
• Money becomes only remedy: Everyone at the slightest sign of distress starts demanding some kind of freebies from the Govt.
• Popular politics: This is psychology driving sections of the population expecting and the government promptly responds with immediate monetary relief or compensation.

What cannot be accounted to a freebie?

• MGNREGA scheme (rural employment guarantee scheme)
• Right to Education (RTE)
• Food Security through fair price shops ( under National Food Security Act)
• Prime Minister Kisan Samman Yojana (PM-KISAN)

Arguments in favour

• Social investment: Aid to the poor is seen as a wasteful expenditure. But low interest rates for corporates to get cheap loans or the ‘sop’ of cutting corporate taxes are never criticized.
• Socialistic policy: This attitude comes from decades of operating within the dominant discourse of market capitalism.
• Election manifesto: Proponents of such policies would argue that poll promises are essential for voters to know what the party would do if it comes to power and have the chance to weigh options.
• Welfare: Economists opine that as long as any State has the capacity and ability to finance freebies then its fine; if not then freebies are the burden on economy.
• Other wasteful expenditure: When the Centre gives incentives like free land to big companies and announce multi-year tax holidays, questions are not asked as to where the money will come from.

A rational analysis of freebies

• Winning election and good governance are two different things. The role of freebies to avail good governance is definitely questionable.
• The social, political and economic consequences of freebies are very short-lived in nature.
• There are many freebies and subsidies schemes available in many States but we still find starvation deaths, lack of electricity, poor education and health service.
• Hence the sorrow of the masses of India cannot be solved by freebies or by incentives.

So are not freebies meant only to attract voters and swing voters by concentrating on a preferential group or community?

Way forward

• It can be agreed that a democracy requires popular support for its rule to continue. The sops and freebies to the poor buy it the requisite votes.
• But the democratic process of election and election promises should be clear. It should not control voters thought.
• What some people term as ‘populism’ actually constitutes what real economics should be.
• If you deprive people of what they really need, you will have to throw allurements at them.
• This can only be stopped if political masters try to follow what economist EA Schumacher had conveyed through his seminal work Small is beautiful – “Treat economics as if people matter.”

Conclusion

• There is nothing wrong in having a policy-led elaborate social security programme that seeks to help the poor get out of poverty.
• But such a programme needs well thought out preparation and cannot be conjured up just before an election.

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