The debate over ‘freebies’ begins with the term itself. Some describe them as welfare measures, direct benefit transfers or financial interventions. Others dismiss them as reckless spending of taxpayers’ money or mere vote-bank politics.
Those who use the term negatively may be fewer, but they are louder. Some of them even approach the judiciary seeking to stop such expenditures. They argue that their taxes are being diverted unproductively. The fact that all consumers pay indirect taxes, which means that even the beneficiaries of welfare measures participate in financing public spending, is overlooked. Consider that the tax-GDP ratio, which was 6.03 percent in 1950-51, rose to 13.26 percent in 1980-81 and stood at 19.6 percent in 2024-25, with the share of indirect taxes rising.
A second layer of the debate concerns classification. What qualifies as a freebie and what is a welfare measure? There is broad acceptance today of initiatives such as free schooling and the public distribution system. However, even these were not immediately accepted or extended. So, instead of setting aside schemes not widely considered genuine welfare measures today, we need to take a closer look before concluding either way.
Public finance experts argue that capital expenditure is preferable because it generates long-term economic returns, whereas revenue expenditure, particularly on direct benefit schemes, is less productive. Questions are also raised about fiscal sustainability, especially when such programmes are financed through debt.
Fiscal sustainability is indeed a cardinal concern. Yet, one needs to consider that revex is equally essential as it ensures adequate returns on capex. Infrastructure without operational expenditure—like a school without teachers or a dam without maintenance—can become redundant. Revex helps ensure higher efficiency of capital. It also helps build the human capital needed to operate and use the infrastructure.
Another concern frequently raised is that of poor targeting. Critics argue that welfare schemes often extend benefits to the affluent as well. While this does merit careful attention, it is also true that the concern is partly addressed through unintended consequences of public goods. Studies show that for non-monetary measures, the relatively modest quality of goods and services often acts as a natural filter for the upwardly mobile. As a result, many such schemes overwhelmingly serve those who genuinely depend on them.
One attack on direct benefit transfers is that they make recipients lethargic. The allegation is insulting to those who depend on them. Several studies including ones by Nobel laureate Abhijit Banerjee found no evidence of reduced urge to work. A meta study evaluating 72 unconditional cash transfer programmes in 34 low- and middle-income countries co-authored by Dean Karlan of Northwestern University pointed to their long-term impact in increased consumption, labour supply and entrepreneurial activity.
In the 1980s, Tamil Nadu introduced free electricity to huts, restricting usage to a single 60-watt bulb. Today, most of them are concrete houses and pay for electricity, though a few of them may be paying at a subsidised rate. Most families who availed of free public education send their children to private schools today.
Let’s keep aside the criticisms for a moment and look at the impact of ‘freebies’. They stimulate the economy by boosting consumption and building human capital. In some ways, they operate like free samples distributed by private companies to familiarise consumers with products. For instance, free tooth powder was briefly distributed in the 1980s at Tamil Nadu schools when the product was largely unknown in villages; today, toothpaste use is commonplace in those places. Spend on household consumer durables given for free to families once returns to the exchequer through indirect taxes on subsequent consumption.
There are other substantive indirect effects. Kitchen goods that reduce manual labour can empower women to improve employability and increase their workforce participation. Tamil Nadu’s comparatively high female workforce participation is partly attributed to such measures. A 2009 study published in The Quarterly Journal of Economics highlighted the positive impact of television—given for free in many states—on women through increased autonomy, lower fertility rates and decreased acceptance of domestic violence.
Programmes like the public distribution system and rural employment guarantee scheme have altered social power structures, enhancing the bargaining power of disadvantaged groups. A 2022 study published in the Journal of Development Effectiveness found that the rural jobs scheme reduced outstanding debts among vulnerable households.
In a stratified society structured by caste and resource disparities, benefits may take considerable time to reach the most vulnerable, if they reach them at all. Direct benefit schemes, therefore, are a useful tool for welfare delivery. However, research on these schemes’ outcomes remains limited, allowing critics’ voices to dominate. The answer should be more rigorous research.
Instead of calling for an end to direct benefit welfare schemes, states should be required to clearly justify their introduction through detailed project reports the way it is done for infrastructure projects—outlining the need, cost and expected benefit, conducting pre-implementation assessments and post-implementation evaluations to measure their impact. After all, fairness needs to be established for all.
Sankarganesh Karuppiah | Indian Revenue Service officer
(Views are personal)