Freebies best left for government and voters to negotiate

Prescriptive judgements on good versus bad expenditure by an unelected RBI to elected state governments will be countered and opposed vehemently and justifiably.

Published: 10th September 2022 12:09 AM  |   Last Updated: 10th September 2022 04:55 PM   |  A+A-

Illustartion: Sourav Roy

‘Are we beggars for these politicians to hand out sarees and dhotis? Let us ask for jobs, not sarees,’ says ‘Superstar’ Rajinikanth in the 1993 Tamil film Valli, as Siddarth Muralidharan pointed out in an article for The Print. Three decades later, the nation is still debating ‘freebies’ versus ‘welfare’. As always with the ‘Superstar’, several profound political and policy questions are raised by this seemingly innocuous ‘filmi dialogue’.

Is sari a ‘freebie’? Is the government’s role only to provide jobs and not saris? Are voters vulnerable to such ‘freebie’ promises of political parties during elections? Are providing jobs and saris mutually exclusive? Should an elected state government be free to decide how to spend the state’s money? The average Tamilian earns ₹2.25 lakh while the average Bihari earns just one-fifth, ₹45,000. Does that imply free saris are a wasteful ‘freebie’ in Tamil Nadu while it may be an essential ‘welfare’ in poorer Bihar? If yes, who decides this, and can there be a rules-based order in determining ‘freebies’? This is a far more complex debate than what Rajinikanth thinks are ‘freebies’ or ‘welfare’!

Economists use terms such as public goods versus private goods and merit goods versus non-merit goods to make a distinction. But even the most ardent ‘limited government’ economists agree that these distinctions are fungible and are no ‘Lakshman Rekhas’. A laptop may be considered a wasteful freebie, but as the pandemic revealed, they were essential public goods for education.

So, what may be deemed a ‘freebie’ today may be a required ‘welfare’ tomorrow, such as, say, free internet. Or good quality saris that may be deemed as a wasteful expense in a rich state like TN may be a necessity in a poor state like Bihar to protect the right to dignity of poor women. Some argue that governments should provide people cash rather than saris, medicines or laptops, which will give them the freedom to spend on whatever they need. Ironically, the same economists who lament about government ‘freebies’ also argue that providing cash to people will make them lazy and lure them into spending it on alcohol or other wasteful things, rendering the labour force unproductive for the economy. They neither trust the government nor the individual to spend money wisely.

It is futile to devise a rules-based order to prescribe a list of freebies and welfare for state governments to spend their money on. What should an elected state government spend its money on is best left to be negotiated between the government and its voters. If enough voters feel that the government is wasting their tax resources, the opposition parties will make it a big issue, and the voters will eventually express it on the EVM.

The other important question that Rajinikanth raises, not directly but implicitly, is—do voters get fooled and swayed by symbolic delivery of ‘freebies’ rather than more important needs such as jobs? There is no evidence to show that voters get overly influenced by such promises of ‘freebies’ and vote accordingly. Tamil Nadu, often hailed as the epitome of election freebies culture, has voted against the incumbent party in every election from 1991 to 2011 despite such promises. All parties make poll promises, and there is no evidence that voters choose the one with the most extravagant promises.

While it is true that a party such as the Aam Aadmi Party (AAP) promised free electricity to voters in Punjab, it is wrong to attribute it to their victory. Had AAP not promised free electricity or even made more realistic promises of eliminating free power for rich farmers who can afford to pay for it, they would have still won a handsome victory in Punjab. It is essential not to conflate such electoral promises with electoral outcomes and impute strong correlations between them.

The current ‘freebies’ debate has dwindled into debates like ‘freebies’ versus ‘welfare’, who has the right to dictate expenditure or ‘my freebies are better than yours’, which masks more serious underlying issues. The fountainhead of this debate is the Reserve Bank of India (RBI) report claiming state finances are in terrible shape due to state governments’ profligacy on ‘freebies’. Add to this, an earlier 2011 petition in the Supreme Court challenged the ability of state governments to use taxes collected from a few to pay for ‘freebies’ for all. These two questions deserve more serious discussion and analysis than the current ‘freebies’ versus ‘welfare’ fight.

It is true that state government finances are in a perilous state due to excessive debt and run the risk of impacting the sovereign rating of the country overall. But the RBI’s role is limited to restricting excessive borrowings of states rather than dictating how to spend their money. The RBI can impose harsh conditions and penalties for deeply indebted state governments to borrow more either by denying them credit or raising their borrowing rate steeply. Prescriptive judgements on good versus bad expenditure by an unelected RBI to elected state governments will be countered and opposed vehemently and justifiably.

The argument about using taxes of a few to pay for freebies for all is a slippery argument. First, everyone pays taxes in the country, albeit some more than others. Second, redistribution is the very essence of democracy, and it is unreasonable for the ‘givers’ to prescribe what should be given to the ‘takers’. If individual ‘givers’ want to dictate the type of expenditure incurred for the individual ‘takers’, then what is to stop richer states like Maharashtra and Gujarat from saying that the Centre should not use their money to fund programs such as say, farm loan waivers and instead only use for say, hospitals, in poorer states of Bihar or Uttar Pradesh? This is a slippery slope that can shake the foundations of fiscal federalism and the unity of the nation at large. But the ‘givers’ have every right to protest using non-violent methods such as a ‘tax satyagraha’ or ‘tax avoidance’ to air their grievances and demand greater accountability and transparency from their state governments.

Praveen Chakravarty

Political economist and senior office-bearer of Congress


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