Freebies ahead of polls

Why in the News?

A PIL has been filed at the Supreme Court alleging that tax payers’ money are misused by the governments of Rajasthan and Madhya Pradesh to lure voters which amounts to bribery under the law, ahead of the state elections.

• Distribution of irrational freebies is analogous to the offences of bribery and undue influence under Section 171B and 171C of the Indian Penal Code.

What is a freebie?

Freebies refers to transfer of goods or services to people without any payment and may contain an element of allurement of voters for electoral benefits or/and acts as a positive step towards inclusive economic growth.

Status of Freebie culture in India:

1. The expenditure of State Governments on subsidies has grown from 11.2% to 12.9% during 2020-21 and 2021-22.

2. RBI (2022): The top five states with the largest rise in subsidies over the last three years includes Jharkhand, Kerala, Odisha, Telangana and Uttar Pradesh
3. Punjab, Madhya Pradesh and Andhra Pradesh have announced the maximum freebies as a percentage of revenue receipts in the financial year 2023.
4. Freebies have exceeded 2% of Gross State Domestic Product (GSDP) for the highly indebted states of Andhra Pradesh and Punjab.

What are the benefits associated with freebies?

1. It acts as a redistributive mechanism in which governments provide welfare measures to its citizens for their socio-economic upliftment.
2. It majorly benefits the poor upon targeted implementation of subsidies with minimal leakages involved.
3. Many crucial welfare schemes today were once started out as so-called freebies.

For instance, the Tamil Nadu government scheme of free mid-day meals to children in government schools was a change-maker in increasing the enrolment of children at schools. This was later expanded to other states and finally pan-India after seeing its success.

Why is there a lot of opposition for freebies?

1. The Freebie culture amounts to bribing voters using public money solely for gaining advantage in electoral politics.
2. RBI says that ‘provision of free’ for electricity, water, public transportation, waiver of pending utility bills and farm loan waivers are freebies which causes:
   1. Destabilize credit culture
   2. Distort prices through cross-subsidisation eroding incentives for private investment
   3. Disincentivise work at the current wage rate leading to a drop in labour force participation
3. Freebies “Crowd out resources” that can otherwise be used for developmental activities of the country.
4. Large fiscal costs and inefficiencies can lead to distortion of prices and misallocation of resources.
5. The provisions of free electricity and water can
   1. Accelerate environmental degradation
   2. Deplete the water tables.
   3. Lead to irrational use and wastage of resources.
6. Multitude of social welfare schemes at the face of Centre’s GST compensation payout that ended in June 2022, large social sector expenditure in the form of subsidies can put a heavy burden on the exchequer and also exert upward pressures on yields if they are financed through market borrowing.
7. Freebies are likely to expand contingent liabilities, and the ballooning overdue of DISCOMs.
8. Freebies an also lead to
   1. abetment to corruption and erosion in governance ethics
   2. undermining of ‘equity’ and ‘fairness’
   3. Devastating effect on the financial health of the state.
9. Can lead to inequitable consequences
   1. For instance, in free bus ride, women falling in high income bracket who can afford to pay also travel. This leads to inequitable element in the distribution of subsidies.
   2. This can also cause non-compliance amongst tax payers and eventually lead to lower revenue to the government.

Rules governing freebies in India:

1. Providing voters with incentives before or after voting is not illegal in India
2. SC (2014) Direction: The Election Commission added a new chapter to its Model Code of Conduct which authorized the commission to censure a party if,
   1. its manifesto failed to give a rationale for a particular promise
   2. it failed to explain how the resources would be mobilised for it.

Challenges that remain:

1. Distinction between which are legitimate welfare measures and which are freebies is a difficult task.

• Distributing bicycles may seem to be an electoral temptingness but for millions of young girls in India's rural hinterland, where public transport is a huge problem, it could be a vital means of attending school or college.

2. Freebies are neither a recognised policy/custom nor it is sanctioned in a court of law. There are also no legislation or Election commission’s stringent protocol in place to check the ‘Freebie culture’. This poses barrier to its regulation.

How should governments strike a balance between fiscal deficit and welfare spending?

1. The state governments should reprioritise its expenditure to achieve optimum long-term welfare advantage of empowered of beneficiaries permanently and forego such benefits.
2. There shall be a “sunset clause” for each social sector scheme devised the state governments.
3. Targeting beneficiaries shall help to reducing the quantum of subsidies by ensuring that remaining resources can be invested in areas of health, education, agriculture, R&D and rural infrastructure, that has large potential to create more jobs and reduce poverty on a sustainable basis
4. The Supreme Court recommendation: To constitute an apex body for suggestions on how to control freebies by political parties during election campaigns can act as a beam light for regulating the “subsidies culture’ in India.
5. It is necessary to distinguish them from public/merit goods, expenditure on which brings economic benefits, such as the public distribution system, employment guarantee schemes, states’ support for education and health