Daily Editorial Analysis

Should there be limits on ‘freebies’? (GS Paper 2, Governance)

Context:

• While hearing a petition demanding the de-recognition of political parties that promise “irrational freebies” to voters, the Supreme Court recently drew attention to the substantial fiscal cost of freebies.
• The court noted that a legislation banning freebies is not advisable, but at the same time called for a balance between welfare measures and loss to the public exchequer.
• The Supreme Court’s observation comes in the backdrop of the clash between the Bharatiya Janata Party and the AamAadmi Party on the issue of wasteful spending on freebies.
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What is the issue?

• Many parties also promise what have come to be known as freebies such as television sets, laptops with the internet, bicycles, scooters, monthly petrol quotas, cell phones, and even ghee. If the promises are sincere, the winning party or coalition goes on to distribute these items among the people.
• There are sharply divided opinions for and against the practice for years. One view is, it’s bribery. And the freebies, anyway, come only from taxpayers’ money. It’s not private spending. The other view is that parties are free to make and keep promises “for the welfare of the people.”

 

Welfare vs freebies:

• There are certain services such as health, education, water, sewerage, electricity and transport that people cannot organise for themselves. That’s why they elect governments. These are all welfare measures.
• How much of these services should be free depends on the government’s fiscal space. If your expenditure-revenue situation is robust, give free services as much as you want. But the reality is, all states are often short of cash.
• The dictionary meaning of the word freebie is something that you’re given free. But the actual meaning depends on who you are asking.
• Distinguishing between a freebie and an essential service will need the proper context of time and place. For example, the mid-day meal scheme has gone national but when it was started in the early 1980s down south, many in the north could not digest the idea.

 

Subjective interpretations:

• The Election Commission has told the Supreme Court that both "irrational" and "freebies" were terms open to subjective interpretation and have no precise legal definitions.
• During a natural disaster or a pandemic, providing life-saving medicines, food or funds may save lives but in regular times, they can be termed freebies.
• According to a Reserve Bank of India (RBI) report, freebies are not merit goods or expenditures (such as public distribution system, employment guarantee schemes, and states’ support for education and health facilities). The document says freebies are provisions for free electricity, water or transportation, besides waiver of pending utility bills and loans, and other such benefits.
• The Directives Principles of State Policy in Part IV of the Constitution says the state government should promote the welfare of people who are Below the Poverty Line (BPL) or cannot progress without support. But election manifestos often do not honour such distinctions.

 

Where do we draw the line between welfare and freebies?

• This is not an easy question to answer because it depends on your perspective and where you sit on the income distribution pyramid.
• If we limit ourselves to the economic and public policy perspective, a freebie is any public policy intervention that will have a long-term impact on production as well as productivity. Any public policy intervention that doesn’t support medium-term to long-term production and productivity may be termed as a freebie.
• Many States and even the Central government follow some policies that don’t really support production and productivity.

 

Origin and mainstreaming:

• In the 1990s, J Jayalalithaa of the AIADMK promised and distributed free sarees, pressure cookers, television sets, and washing machines in Tamil Nadu. Around the same time, the Akalis in Punjab pioneered a free-power regime.
• The root of the freebie culture’s expansion elsewhere also lies in how the Janata Dal (whose VP Singh became prime minister in 1989) kept giving birth to regional parties in the years to come.
• The leaders of these parties had more or less the same ideology but competition among them was increasing. And freebies were an easy shortcut.
• In many cases, parties resorted to the freebie culture to cover up their governments' failure in providing adequate jobs or skilling or ensuring decent livelihood for the people through appropriate economic policies.
• In 2015, the AamAadmi Party in Delhi surpassed even the wildest of expectations and swept to power on the promise of free (up to certain limits) electricity and water.

 

Costs of freebies:

• Experts believe that too much emphasis on freebies disrupts state finances and throws governments into a debt spiral. The RBI report mentioned earlier in the piece says freebies undermine credit culture, distort prices through cross-subsidisation, erode incentives for private investment, and disincentivise work at the current wage rate leading to a drop in labour force participation.
• For example, Punjab’s electricity subsidy and its rising cost to the state exchequer is over 16 per cent of total revenues. Bailouts effectively mean money transfers from one state to another, and resentment.
• PM Modi has asked states to clear subsidies worth hundreds of crores of rupees to discoms. According to a report by analytical firm CRISIL, most states are in precarious debt situations, which will constrain their ability to spend on more significant public welfare measures.

 

RBI on freebies:

• In its report prepared against the backdrop of Sri Lanka’s debt crisis, the RBI has linked the dire condition of state finances to “freebies”, particularly power subsidies that have ballooned the dues to discoms.
• The Sri Lankan government had gone for massive tax cuts and provided several free goods and services. The economy collapsed and the heavily indebted country defaulted on its payback commitments.
• Another example is the South American oil-rich country of Venezuela that was prosperous till 1980. Successive governments then chose to offer their people almost everything free. Corruption became well-entrenched. Loan waivers further damaged the economy. The country is yet to recover fully.

 

What has been done to address the issue of freebies in India?

SC’s 2013 intervention

• Under Article 324 of the Constitution, the Election Commission is mandated to conduct free and fair elections. The commission can suspend or withdraw the recognition of a recognised political party for its failure to observe the Model Code of Conduct (MCC). But the commission has seldom exercised this power.
• Against this backdrop, the Supreme Court, while hearing a case in 2013, said, “Budgets for freebies are going above regular budgets. This disturbs the level playing field. Freebies, undoubtedly, influence all people. It shakes the root of free and fair elections to a large degree.” The Supreme Court asked the Election Commission to frame guidelines in consultation with political parties.

 

EC’S 2014 Guidelines:

In 2014, the Election Commission issued its guidelines that were made part of the MCC. They essentially said

1. Parties won’t make promises that may influence voters.
2. Manifestos should also reflect the rationale for the promises and broadly indicate the ways and means to meet the financial requirements.
3. Trust of voters should be sought only on promises which are possible to be fulfilled. In 2015, the commission asked parties to provide a copy of their manifestos.

 

What’s next?

• The Election Commission has said the issue of freebies should be left to voters as it cannot regulate state policies and decisions which may be taken by the winning party when they form the government. Such an action, without enabling provisions in the law, would be an overreach of powers.
• In response to this submission, the court has proposed to set up a committee with representation from the NitiAayog, the Finance Commission, the Election Commission, the RBI and political parties to study the issue.
• The Election Commission has welcomed the court's proposal but said being a constitutional authority, it cannot be part of the committee. The commission, however, said it would give the recommendations of the expert committee its highest consideration.