Note4Students

From UPSC perspective, the following things are important :

Prelims level: FRBM Act

Mains level: Paper 2- Freebies and related issues

In a recent address, the prime minister shared his anguish on what he called the “revdi” or the freebies culture.

What are freebies? N K Singh defined freebies as “something that is given to you without having to pay for them, especially as a way of attracting your support for or interest in something.”
A recent report of the RBI on states’ finances highlighted the perilous condition of states’ finances and enhanced debt stress on account of flawed policies.
Nothing undercuts more irresponsibly India’s abiding international and national commitments than the perils of this reckless populism.

The initiatives undertaken at COP21 in Paris, the International Solar Alliance and subsequently at the COP26 in Glasgow represent India’s national consensus to forge a path of growth geared towards intergenerational equity and to exponentially increase development.
Our ability to adhere to this commitment depends on two other commitments.
1] An increase in the percentage of renewable energy in our energy consumption.
While subsidies are being promised in one form or the other by way of free electricity, the deteriorating health of state distribution companies seriously undercuts their financial viability.
Lowering the price for some consumers, offset through overcharging industrial and commercial contracts, reduces competitiveness, ushers slower growth both in incomes and employment.
2] The inability of discoms to actively encourage solar power is stymied by their financial condition and the inability to evolve tariff structures.
Regulatory capture, a fixation on unrealistic tariffs and cross-subsidy in energy utilisation prevent a credible coal plan, which is central to our energy planning.

The government seeks to address the challenge of inequity by ensuring access to a wide range of basic facilities.
These include banking, electricity, housing, insurance, water and clean cooking fuel, to mention a few.
Removing this inequity to access helps boost the productivity of our population.

Benefits under various welfare schemes such as PM Awas Yojana, Swachh Bharat Mission and Jal Jeevan Mission have eliminated the biggest barrier for citizens — the exorbitant upfront cost of access.
Moreover, they are leading to irreversible empowerment and self-reliance.
For instance, a house built under the PM Awas Yojana is a lifelong asset for the beneficiary household that cannot be taken back by any government.

Identification of beneficiaries through the SECC and prioritisation based on deprivation criteria has enabled the government to assist those who need it the most.
Governments that end up taking the shortcut of universal subsidies or freebies often end up ignoring the poor and transferring public resources to the affluent.

The next issue that needs to be considered is of expenditure prioritisation being distorted away from growth-enhancing items, leading to intergenerational inequity.
Investors, both domestic and foreign, and credit rating agencies look to macro stability in terms of sustainable levels of debt and fiscal deficit.
After years of fiscal profligacy, we returned to the path of fiscal rectitude in 2014.
The last time such an effort was made was by enacting the first FRBM Act on August 26, 2003.

The next factor that need to be considered is the debilitating effect of freebies on the future of manufacturing and employment.
Freebies lower the quality and competitiveness of the manufacturing sector by detracting from efficient and competitive infrastructure.
They stymie growth and, therefore, gainful employment because there is no substitute for growth if we wish to increase employment.

The poor state finance position should serve as a timely reminder to those promising fiscally imprudent and unsustainable subsidies.

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