Tuesday, Sep 27, 2022

On freebies: We are asking the wrong questions

Neha Shah and Atman Shah write: Measures that benefit the poor are questioned, without considering other wasteful expenses

The current debate seems to have been triggered by promises made by Delhi Chief Minister and AAP supremo Arvind Kejriwal to the people of Gujarat in the context of the upcoming state assembly elections.

A debate on freebies started after Prime Minister Narendra Modi’s critical comments on political parties promoting “revdi culture”. Come election season and every political party promises a range of services at a cheaper rate and/or for free if it comes to power. The current debate seems to have been triggered by promises made by Delhi Chief Minister and AAP supremo Arvind Kejriwal to the people of Gujarat in the context of the upcoming state assembly elections.

Any state expenditure has implications for its fiscal health. So the concern regarding freebies is valid because these are expenditures that do not positively affect production in the long run. Providing services such as education, health and electricity to the deprived sections of society cannot be considered freebies as they would have favourable effects on economic growth through their positive externalities. In fact, spending on these services is the responsibility of the government.

Under scrutiny are those gifts that are primarily promised to the poor. Many other government expenditures for the benefit of the privileged classes have escaped the purview of current debate. We are focusing only on expenditure that is either a subsidy going to the rich or is wasteful. For example, giving land to industries at highly subsidised rate, writing off loans worth crores of rupees to industrialists, continuous rise in government expenditure on self-promotion, and huge sums spent on so-called development projects or beautification projects. Several tax exemptions and tax holidays too add to the problem of dwindling fiscal health. Revenue foregone in the form of tax incentives to the corporates was estimated at Rs 99,842 crore in 2019-20, before Covid-19 struck. These expenditures and revenue forgone are seldom questioned. On the other hand, the Union government reduced the fertiliser subsidy and cut the allocation for MGNREGA in the last budget, which will hurt people at the bottom of the pyramid.

Why do freebies remain relevant even after 75 years of Independence? The answer would depend on which side of the social divide you are. Those not eligible for receiving freebies find such welfare measures to be a waste of taxpayers’ money. This segment of society narrowly relates tax only with income tax, though more than 40 per cent of government revenue is earned from indirect taxes paid by all citizens of the country. Besides paying taxes, the poor are, in fact, subsidising our luxuries by providing cheap labour and/or making natural resources, including land, available at much below-the-market prices. The real wage rates for rural agriculture workers and non-agriculture workers increased at the rate of 1.82 per cent and 0.94 per cent annually during 2016-2022, without taking into consideration the negative wage growth during 2020. Any support in terms of free electricity or rice or even a sari is a big help in keeping them afloat. The distribution of free tablets helps minimise the digital divide. Free bus rides facilitate access to the workplace by eliminating the transportation cost. Beneficiaries can look for better jobs available at a farther location. The role of free education, health and electricity in generating positive externalities in society and helping the economy grow rapidly is now known.

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Such measures have caught the imagination of all political parties, including the BJP. All parties make different electoral promises to lure voters. Voters who are otherwise without hope in the system, would vote for the party that subsidises their cost of living. The current economic system is not going to help them reach a stage where freebies would become irrelevant. Expecting the poor to pay the price of development every time is the norm of the present development paradigm. Are they destined to be poor or is it a societal or policy-made problem? These are straight questions but their solutions are hard to find. What we need to ask for from all political parties is a commitment to restructuring the economy in a way that can generate more employment opportunities and ensure decent income to all. Without that it wouldn’t be fair to question freebies, which make living easier for many.

Neha Shah is associate professor, L J Institute of Management Studies, Ahmedabad and Atman Shah is Assistant Professor, St. Xavier’s College (Autonomous) Ahmedabad

First published on: 02-09-2022 at 04:18:08 am
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