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How Freebie Culture is a Passport to Economic Disaster — and Solution Has to be Political

By: Ravi Shanker Kapoor

Last Updated: August 09, 2022, 10:55 IST

New Delhi, India

India has already suffered a great deal of damage because of freebies. (Shutterstock)

India has already suffered a great deal of damage because of freebies. (Shutterstock)

Freebies are not just fiscally ruinous, but also have other baneful consequences. Punjab, for instance, has not just emptied the state exchequer but also harmed soil because excessive groundwater is drawn using electric tube-wells

Prime Minister Narendra Modi’s displeasure over freebies has triggered a new and meaningful debate, for it brings a phenomenon under scrutiny which hitherto escaped the attention of political and thought leaders. The freebie culture was accepted as a fact of political life, whose expediency could be discussed but whose raison d’etre could not be questioned. Politicians often derisively dismissed the concerns raised by the votaries of economic reforms over mindless populism as nitpicking.

The Prime Minister used the Hindi word ‘revdis’ (a kind of sweetmeat) for freebies. He correctly said on July 16, “If attention is not paid now [to the revdi culture], it can cause a lot of damage to the youth of India and today’s generation… Nowadays, every effort is being made in our country to introduce the culture of collecting votes by distributing freebies.”

In fact, the country has already suffered a great deal of damage because of freebies. Unfortunately, all parties, including the Bharatiya Janata Party (BJP), indulge in irresponsible populism and mad welfarism. While there can be justification for free education and healthcare, there can’t be none for the distribution of grinders, washing machines, television sets, laptops, subsidised pilgrimage, free electricity, farm loan waivers, and so on.

States in particular are guilty of ignoring a basic principle: you can’t spend more than you earn. This is an eternal truth which, when lost sight of, has consequences for everyone and everything — be it an individual, a company, any other organisation, a state, or a nation. Sri Lanka is a recent example of the last one.

It is not that nobody earlier warned against the consequences of populism. In May 2019, a few days before the results of the general elections were declared, RBI Governor Shaktikanta Das had underlined the problems with state finances. A November 2021 RBI report also flagged farm loan waivers as a major concern.

A few months ago, 15th Finance Commission chairman NK Singh strongly berated the economics and politics of freebies and populism. It is a “race to the bottom” and “a quick passport to fiscal disaster”.

Were these warnings heeded to? Doesn’t look like it. According to a recent report, freebies worth more than Rs 1 lakh crore have already been announced by various states in the current fiscal. Andhra Pradesh, Madhya Pradesh, and West Bengal are the leading states in the list, accounting for welfare schemes worth over Rs 67,000 crore.

The results are for all to see. A recent RBI study said, “We can identify a core subset of highly stressed states from among the 10 states identified by the necessary condition i.e., the debt/GSDP ratio. The highly stressed states are Bihar, Kerala, Punjab, Rajasthan and West Bengal.” GSDP is state GDP.

The debt-GSDP ratio of Punjab is the worst — and worsening. It is projected to exceed 45% in 2026-27. So, what does the Aam Aadmi Party (AAP) government in the state do? Instead of taking corrective measures, it has announced that around 51 lakh households won’t pay any electricity bill from September. This is in accordance with the AAP’s election promise of 600 units of free power per billing cycle starting from 1 July.

Unbridled populism is clearly damaging the nation; and, sadly, political parties, including the PM’s own, have no compunctions about playing the game of competitive populism.

Worse, even as PM Modi himself showed urgency to check the menace, cantankerous politicking began soon after. Delhi Chief Minister Arvind Kejriwal, for instance, was quick to respond to Modi’s call with a retort: “Allegations are being levelled against me but I want to ask what my mistake is. There are 18 lakh students studying in Delhi government schools. We are providing them with free, quality education. Am I committing a crime by giving them free, good education?”

Equating free education in government schools with egregious freebies is a disingenuous equivalence.

Freebies are not just fiscally ruinous; they have other baneful consequences as well. For example, free power in Punjab has not just emptied the state exchequer but also harmed soil because excessive groundwater is drawn using electric tube-wells.

Similarly, farm loan waivers are not just morally inexcusable and fiscally dangerous but also bad for the farmers in the middle to long run. A 2019 RBI report highlighted “a deceleration in agricultural credit outstanding and decline in agricultural credit disbursements in the years of loan waiver programmes”.

The problem of freebies is a political one; the way out is simple: all parties sit down together and draw a list of don’ts, a negative list of things that none of them would do. But a BJP leader has moved the Supreme Court requesting it to end the practice of “irrational freebies” before elections. It may not be possible for the judiciary to address all political issues.

It is time political parties clean up the freebie mess they themselves have created. They should learn from the recent happenings in Sri Lanka.

The author is a freelance journalist. The views in this article are those of the author and do not represent the stand of this publication.

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first published:August 08, 2022, 16:37 IST
last updated:August 09, 2022, 10:55 IST