India is the seventh largest country by area; most populous country as per June 2023 reports and since its independence from the centuries old colonial rule and declaration of the country being republic, the worlds largest democracy also. Spread into 28 states and 8 union territories the country also holds the title of being the 5th largest economy in the world in terms of nominal GDP and 3rd largest in terms of GDP based on Purchasing Power Parity. India, therefore, stands at an exceptional moment in its history. At a time when countries around the world are facing massive ambiguity and unpredictable economic circumstances, India stands out as an island of pliability and solidity.
The rise of the country from the poster child of poverty during the 1940s to the bright spot on the otherwise dark horizon in a span of seven and a half decade is nothing but jaw dropping. As of August 2023, India’s GDP stands at 7.8% a little down by 20 bps from RBI expectation but it stands tall among other major economies around the globe. Followed by the announcement of India’s GDP, Moody’s, one of the pioneer rating agencies in the world, raised India’s GDP forecast to 6.7% from 5.5% considering the robust underlying economic momentum backed by the unimaginable speed at which the infrastructural reforms happening in the country.
During the year 2023 and 2024, the country is about to go through another fierce battle season of elections. Major states like Chhattisgarh, Madhya Pradesh, Rajasthan and Telangana will go for election in the running year and Andra Pradesh, Arunachal Pradesh, Sikkim and Odisha will hit the poll booth in the beginning of 2024 followed by the General Election in 2024. Almost all political parties are planning to bag the votes and to come into power. To woo the voters to their camp almost all the political parties have started making promises in cash, kind and services, otherwise known as Freebies.
The concept of Freebies has always been a hot topic even before the Revdi jab by the PM in an election rally in 2022. The comment resulted in a fresh debate on the topic among the public with people on each side supporting and opposing the concept of freebies. Freebies or electoral promises or gifts offered by politicians in the view of getting votes and being elected into power is creating a big threat to the hopes and aspirations of the Indian citizens as well as the economy of the country.
In a recent interaction by a news channel with the incumbent deputy CM and Minister of Water Resources and Bengaluru Development and Town Planning, the honorable minister made a shocking yet unsurprising comment, that, “We had to set aside Rs. 40,000 crores this year (for the 5 guarantees). This year we can’t provide development.”
Our country, India, is planning to become the 3rd Largest economy in terms of Nominal GDP within half a decade of time, the country is prospecting to be a $ 5 trillion economy by then, without development how it is possible? The Infrastructural boost along with new businesses being set up is what paving way towards the 5 trillion-dollar economy of our country. How can we postpone the development for mere electoral gains? How can the economy survive without development? The freebie culture is spreading over the country in a relatively high pace is creating hindrance to the Indian aspirations, Indian hopes, and dreams of every Indian.
In order to have a clear understanding of how the freebie culture is creating an economic inequality, one needs to know deep about freebies and how it is different from what one call as welfare schemes. Distributing goods or offering services at free of cost is becoming an indispensable part of Indian electoral politics now-a-days. Offering TVs, Laptops, Bicycles, Free transportation, Free electricity or Gas connection makes it more necessary to draw a line differentiating the freebies and the Welfare Schemes. While these freebies may look like a great encouragement to vote for a certain party, they are often unjustifiable in the long run for the reason that, the price of these freebies are borne by the taxpayers, and ultimately, it is the people of the country who suffer.
The former chief election commissioner of India, Shri. O. P. Rawat, gives a fair and square definition for what freebies are. According to him “except for subsidies given to promote food production, direct benefit transfer for employability, educational attainment, sports, cultural activities, medical care to the poor, free food for those who are destitute to sustain themselves and affirmative actions for weaker sections, including women, everything else should be recognized as freebies.” The definition gives us a bird’s eye view with respect to what constitutes freebies and what not. Decoding the words of Mr. Rawat, it is very much understandable that what ever provided with an intention of wooing the voters to secure the chair having no or minimal impact in the development of the economy as a whole can be termed as freebies. However, it is saddening to see that all political parties now a days are guided by the charm of votes that they can gain through the electoral promises and widening the scope of freebies being offered each time they go for seeking the votes of Indian citizen. Every political party rather than focusing on development as a key issue, is competing with each other to see who can offer better promises and who can gain more votes.
The upliftment of poor, downtrodden and financially weaker section of the society to the main stream of economy is the key objective of every policy being formulated or implemented time to time by every government in power. Welfare schemes such as food grains provided at no cost or at a subsidized rate through the PDS, free or concessional education, medical benefits including making medicines available at a lower price, fixing floor price for various agricultural outputs, all ensures the same intention of bringing the poor and marginalized into the main stream of economy. However, freebies, as it is called, such as free electricity for household, free gas cylinders for the household, free travel and free Goods or services provided is not only putting holes in the states economy but also creating instances of inflation due to increased cash outflow than what is normal.
How freebies impact the inflation? Do they have a direct connection? The answer will be no. Nevertheless, freebies and its after effects can cause an indirect impact on the economy and can lead the economy into inflation. Inflation can be defined as the rate of increase in prices over a given period of time. But the underlying reason for the increase in the price of commodities in the market is the decrease or decline in the purchasing power of money. It is evident that today’s one rupee worth more than tomorrows due to the time value of money which is higher today compared to tomorrow as a discounting factor will be applied over time. But in some cases, the value of money may diminish so quickly that it will create an imbalance in the economy which in turn result in the increase in price of commodities. Inflation happens when the public is having more money than what they should be having.
The economy of a country is defined by 3 major principles; Human wants are unlimited, resources to satisfy these wants are limited and resources have alternative applicability. Money is the major resource in today’s world which has the capacity to satisfy almost all the human wants. When people have more money with them their demands also start to increase which results in the increase of the price of the commodities and ultimately inflation. With every freebie announced people are becoming more and more demanding and political parties are getting more and more greedy to woo them to their side. Freebies often generate a sense of privilege among the people, which can be disadvantageous to the overall growth of a country. With the announcement of more and more freebies, people start expecting further freebies from the government and ultimately stop taking accountability for their own lives leading to a culture of dependency, which is not beneficial to the growth and development of any country.
The supporters of the electoral freebies, including various politicians and common citizens, are of the opinion that the freebies or electoral promises offered by political parties are helping the public to reduce unwanted spending and the same money saved is being put to use in other areas thereby helping the economy to grow. Some are of the opinion that; if benefits such as free electricity, subsidized land, reduced restrictions, and many other benefits provided to corporates are not freebies then how come it is when provided to common citizens? Some even goes to the extent that; this is public money on which the public have right and therefore there is no problem in giving out freebies.
It is therefore necessary to have a detailed observation with respect to the comments made by the people who are supporting the concept of freebies so as to give us an understanding as to how little one knows the functioning of the economy.
One must know that no organization in the world can run without profit. Profit is the ultimate aim for which any organization is working. Through populist schemes like Free Transportation to women, nearly zero payment for electricity and gas, the government is putting burden on the organizations. The question one need to ask is whether it is necessary. Subsidy to the poor and marginalized is one thing, to provide subsidy to almost all of the society is an extreme act which calls for inflation like situation. Statements and news reports from various parts of the country points out how states which are running such populist schemes are facing severe financial difficulties and how deep the states are in the debt trap. Many states are taking huge loans from the central as well as international bodies to meet many of their financial obligations. Now, some may say that this money given by the Central government is not any charity but our right. While completely agreeing to the same one must also look into whether the money on which one have the right is being utilized for the betterment of the society or not. The states of Rajasthan, Punjab and UT of Delhi are few examples of how populist schemes are creating a debt trap to the residents. The Debt to GSDP ratio of these states during FY ’22 stands alarmingly high at 53.30% for Punjab and 39.80% for Rajasthan. Punjab’s debt or outstanding liability as a percentage of GSDP during FY ’22 exceeds what was 20 years back.
The comparison of benefits provided to corporates and that to individuals is nothing but a gimmick but the political parties to achieve their goal. Loans or benefits provided can be classified into 2 categories. Profitable and Non-Profitable. While Profitable benefits create wealth in the nation, non-profitable benefits provided will lead to disastrous outcomes in the future. When benefits such as free electricity, subsidized land, reduced restrictions are provided to companies or organizations, new products or services, better employment opportunity, better infrastructure, better international relations etc. can be achieved, which will result in the economic development and upliftment of the country. On the other hand, promises like free gas connection, free transportation, free bicycles, free mobile phones, free electricity, etc. provided to individual citizens only result in a temporary or immediate benefits to the received. In fact, such promises have short life span and creates financial, economic and social instability in the future. What are the benefits of the same to the nation? The answer will be a big zero. Organizations producing the goods/ rendering the services will go into losses due to lack of profitability, people tend to have more money in hand which results in gradual inflation, to fill gap of revenue deficits taxes will be raised causing additional burden to the commoners, infrastructural developments will be affected due to lack of financial assistance and ultimately country will dip into recession. The impact of freebies or electoral promises in the long run is evidently disastrous.
To all those who are say that whatever the government has is public money; ultimate beneficiaries of the same shall be the public. Therefore, there is nothing wrong in such populist schemes and government organizations, being public entities, can work even without profits since government is meant for providing service to the citizens; the answer is already given by former Prime Minister of the United Kingdom, Margaret Hilda Thatcher, in her words; “Let us never forget this fundamental truth: The state has no source of money other than money which people earn themselves. If the state wishes to spend more, it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay – that ‘someone else’ is you. There is no such thing as public money; there is only taxpayers’ money.
Freebies have both a positive and a negative influence on the economic development of a nation. If a government is allocating freebies among its citizens, then they are spending an enormous sum of money from the government funds. Without enough fund to support, no government can carry on with such populist schemes. As stated by the chairman of 15th finance commission of India, Shri. N. K. Singh, “The growing tendency of states to make demands on the Centre for extra funds is undermining our fiscal federalism framework”. Freebies are only helpful if they can create equal revenue for the government in return. Different varieties of freebies are often seen provided to the people in India. But Freebies are not the right way aid citizens, as they add an additional burden on the state as well as the taxpayers. A line needs to be drawn between welfare schemes which focuses on the basic needs of citizens and freebies which primarily focuses to woo the voters for better economic as well as social development of a country.
