Freebies v/s Welfare | 05 Aug 2022

This editorial is based on “Sop or welfare debate: On freebies” which was published in The Hindu on 05/08/2022. It talks about the political dialogue that is built around freebies and related issues.

For Prelims: Elections, Directive Principles of State Policy, Fiscal Deficit, Cooperative federalism, Model Code of Conduct For Guidance of Political Parties and Candidates, Election Commission of India

For Mains: Impacts of Freebie Culture, Measures to Regulated Irrational Freebies

The political parties in India try to outdo each other in luring the Indian voters with assorted goodies called freebies. This trend has gained more momentum in 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.

The political dialogue built around freebies is fraught with danger as it shakes the root of free and fair elections to a large degree.

The unviable pre-election promises adversely affect the informed decision-making by voters. This calls for fixing the gaps in design, execution and accountability of freebie culture.

What is the Positive Side of Freebies in India?

What are the Negative Impacts of Freebies?

  • Drain on Public Spending: Most of the times, freebies ultimately lead to an excessive and unnecessary drain on public spending, and adds economic burden on states as most Indian states suffer from a poor financial condition and have limited revenue resources.
  • Revdi (Freebies) for One, Disaster for Other: As a result of reducing prices for consumers beneficiaries, the government overcharge industrial and commercial contracts in order to maintain the internal fiscal balance. Subsequently the competitiveness of growing industries is reduced, which results in slower industrial growth and commercial price hike.
    • Therefore, it is not how cheap the freebies are for the beneficiaries, but how expensive they are for the economy, life quality and social cohesion in the long run.
  • Increased Fiscal Deficit: Subsidies and freebies creates pressure on government revenues, leading to an increased fiscal deficit and increased interest payments.
  • Distort Informed Decision Making of Voters: Unregulated populism by offering and distributing 'irrational freebies' during election campaigns often create bias in the minds of voters, specially the unprivileged class as they are easily swayed by freebies and impact the informed decision making to choose their representative.
  • Temporary Nature: Freebies sometimes suffer negative transitions from universal, then optional, then a halfway house through surcharges, these promises are only valid till incumbents face fiscal constraints and are forced to withdraw benefits.
  • Private Goods- Based Freebies: Freebies on Private goods and services do not lead to a tangible social benefit.
    • For example, free distribution of electricity does not provide any collective social benefits thus can be contemplated as Private Goods.

Public Goods v/s Merit Goods v/s Private Goods

In Economics the products or services are of three types:

  • Public Goods: These are non-excludable and non-rival in consumption like national defense, food control system, railways, highway and information on Covid etc.
    • Such services are difficult to be owned by the individuals even if they are willing to pay for these and are necessarily to be provided by the governments.
  • Merit Goods: In contrast to pure public goods, merit goods are, provided through the market, but not necessarily in sufficient quantities to maximize social welfare like education, health care, welfare services, housing, fire-protection, refuse collection and public parks.
    • These can be acquired by the individuals at a personal level and can provide certain benefits to the larger society.
    • For example, an individual can buy a mask which would prevent Covid from infecting others and promote social good. Therefore, the government is justified in undertaking free distribution of masks.
  • Private Goods: A product or service produced by a privately owned business and purchased to increase the utility, or satisfaction, of the buyer.
    • The majority of the goods and services consumed in a market economy are private goods and their prices are determined to some degree by the market forces of supply and demand.
      • These can be acquired at the individual level and also provide most benefits to the individual and do not lead to a tangible social benefit.
  • The distinction between merit and private goods is laid bare by comparing the sanitization movement in the country with the free or subsidized distribution of electricity.

What Should be the Way Forward?

  • Drawing a Line Between Welfare and Freebie: Freebies must be understood from an economic perspective and connected to taxpayers' money.
    • Differences between subsidy and freebie are also essential since subsidies are justified and specially targeted benefits meant to meet specific demands. The freebies, on the other hand, are quite different.
  • Clear Rationale and Indication of Funds: Governments and states should have the capacity to create subsidy programs to assist the needy, but such programs must provide a clear rationale for investing more in basic amenities and have a clear indication of the funds to sustain the state's economic health.
  • Voter Awareness: In a democracy, the power to block or allow the march of freebies rests with the voters. There is a need for consensus between regulating the irrational freebies and making sure voters don't get swayed by the irrational promises.
    • All of this requires eternal vigilance on the part of the voting class.
  • Strengthening Cooperative Federalism: Cooperative federalism will facilitate the coordination between the Center and States to look forward to the National Development Agenda between the Center and States can reduce the need for glorifying and irrational political agendas to some extent and lead to collective growth of the nation as a whole.
  • Judicial Intervention: A constructive debate and discussion in parliament is difficult since the freebie culture has an impact on every political party, whether directly or indirectly. Therefore, judicial involvement is required in order to propose measures.
    • The Supreme Court has recently recommended creating an apex authority to provide recommendations on how to regulate gifts given out by political parties.
  • Strengthening ECI Model Code of Conduct: The Election Commission of India can anticipate enforcing the Model Code of Conduct For Guidance of Political Parties and Candidates effectively to regulate election manifestos in order to prevent the manipulation of informed voter behavior.
  • Focus on Skill Development Rather than Freebies: Give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime. It is always better to provide useful skills to the people than to give them freebies.
    • The subsidies in basic necessities such as giving free education to younger children and offering free meals at schools are rather positive approaches.
    • If the political parties go for effective economic policies where the welfare schemes have good reach to the targeted population, then infrastructure and development will take care of itself and the people will not require such kinds of freebies.

Drishti Mains Question

“Freebie culture is not a road to prosperity, but a quick passport to fiscal disaster.” Comment.