Perils of Freebies

 

On July 16, 2022, Prime Minister Modi spoke first time about revdi (freebies) culture and called it dangerous for the country’s development while inaugurating an expressway in UP. 

Again, on October 23 the same year he said in Bhopal that “thousands of taxpayers write to me, and I am happy that a major section of the country is gearing up to free the country of the revdi culture.”

Ever since the debates on ‘revdi culture’ or ‘culture of freebies’, are raging in political circles as well as in media and many sections of the society.  

Opposition parties taunted PM for hypocrisy and double standard when BJP announced slew of pre-poll promises in several states which went to elections after that assertion by PM.  But those who know Modi’s style of working know that he took that stand on freebies fully knowing it would be difficult for all political parties, including BJP, to resist from resorting to politics of populism for electoral gains.  But he has set the ball rolling as a long-term objective to put an end to unjustifiable handouts that are so devoid of fiscal prudence and has little, if any, impact on the well-being of the society, and surely detrimental to economy. This may be is in his to-do list after the 2024 general election. 

The idea is on the table, and it is worth deliberating.

The debate on freebies is complex but crucial nonetheless. Complex because there are diverse views on what constitutes freebies and what constitutes social welfare.  And crucial because it is important to distinguish kind of handouts that not only detrimental to fiscal health but, more importantly, the beneficiaries develop a kind of dependency and lethargy that keep them where they are. 

As for definition of freebies, here is what RBI in its December 2, 2023 report on State Finances: A Risk Analysis has to say - While there is no precise definition of freebies, it is necessary to distinguish them from public/merit goods, expenditure on which brings economic benefits, such as the public distribution system, employment guarantee schemes, states’ support for education and health (Singh, 2022). On the other hand, provision of free electricity, free water, free public transportation, waiver of pending utility bills and farm loan waivers are often regarded as freebies, which potentially undermine credit culture, distort prices through cross-subsidisation eroding incentives for private investment, and disincentivise work at the current wage rate leading to a drop in labour force participation.

My definition of freebies is very clear.  Any handout which has no basis in policy or offered in perpetuity is a freebie. Free electricity and free water, for example.  Any handout offered by political parties in run up to an election is a freebie. Free sarees, pressure cookers, television, washing machines, free ride in public transport, cash transfers to graduates, to farmers, loan waivers, free this and free that.  No policy vision behind it except luring electorates for votes.  At cost of public money.  Any subsidy not going to right people but cornered by better-off is a freebie. 

Such freebies hurt because they crowd out resources from other useful purposes, like education, healthcare, rural roads, other infrastructure projects that contribute to growth.  Such freebies also hurt those for whom it targeted.  Soon people develop a mindset where they begin to look at such subsidies or handouts as entitlement, their right. This is detrimental to any nation as the human capital remain lethargic, devoid of any aspirations or enterprise or hard work because they get used to ‘free’ everything, including cash doles.  This results into decrease in productivity, wastage of human capital that would ultimately impede or stall growth. 

A nation in such a situation of alarming proportions of freebie culture could face bankruptcy.  Venezuela, a socialist country and once a rich economy, has now completely collapsed as its people stopped working because they were getting all or most of their needs free from government. Cuba is another example.  Socialist ecosystem breeds culture of freebies and bleeds economy.  China became what is today because it adopted capitalist economic model. Before that it was the country of abject poverty.

That explains why in India the culture of freebies has taken roots.  For decades after independence, it followed socialist policies with economy growing at abysmal growth of 3 percent, which kept the poor in perpetual poverty and brought the nation to the brink of bankruptcy.  It was only after the post-1991 era of reforms that liberalised economy the growth accelerated, and poverty began to decline rapidly, and at the same time recorded impressive improvements in most human development outcomes.  Thus, it is the high growth which is a better way of ensuring social wellbeing and better life and livelihood. 

In his recent book, Modi: The Challenge of 2024- The Battle for India, the author Minhaz Merchant writes, quote “Poverty and socialism went hand-in-hand. While the GDP of countries in the rest of Asia—from Malaysia to Thailand—grew at over 7 per cent a year through the 1960s and 1970s, India crawled at the Nehruvian growth rate (wrongly dubbed the “Hindu growth rate”) of under 3 per cent a year. Had India’s GDP growth matched that of other Asian countries in that 20-year period, India’s economy would today be double its size at $7.5 trillion, not $3.75 trillion. Per capita income would be nearer $5,000 than $2,500 and poverty levels below 5 per cent, not today’s 10 per cent. In short, 150 million more Indians would have been lifted out of the poverty they live in today.” Unquote.

The recent assembly election outcome in Telangana has demonstrated that offering doles don’t always win elections.  The incumbent BRS party government led by Chief Minister K Chandrashekhar Rao was tipped to win again on the back unprecedented welfare schemes rolled out by them that covered all sections, genders and ages of the state population.  If we take out welfare schemes that could be considered productive, the rest still cost the state the whopping 52000 crore rupees annually.  They still lost. Point to ponder for all political parties that there is a limit to fool people with handouts. 

The recent Bollywood movie 12^th fail has beautifully captured aspiration of youth, even in remote rural area.  All that the protagonist from a very poor family aspiring to become an IPS or IAS wanted was uninterrupted and affordable electricity so that he could work during the day to support the family and could read at night to prepare for exams, water on tap so that the family did not have to trudge miles to get water and good schools with quality education   He rejected summarily all offers of cash or help in kind. 

Prime Minister Modi understands this. He won three terms as chief minister of Gujarat on the back of his growth-oriented policies.  The BJP led by Modi won election after election in states and at the centre since 2014 was because of the strong focus on growth and social transformational schemes that improved life and livelihood of masses.  Sadly, the same BJP too succumbed to populism in recently concluded assembly elections.  The hopes are still not lost to free India of competitive populism that strain finances. The prime minister’s assertion that the freebie culture is dangerous for the country’s development is a silver lining.  Because he believes in delivering that he firmly thinks is in national interest. 

Another hope is from the Supreme Court which recently waded into freebie debate when it sought responses from the Union government and the Election Commission of India (ECI) on the continued practice of freebies being promised by political parties before elections, with an observation that the promise of freebies was a serious issue. 

If the BJP comes back to power, as almost certainly predicted to win comfortable majority in the 2024 general election, the PM Modi must act on his vision to rid the country’s polity from the scourge of indulging in rampant freebie politics by being catalyst in encouraging national debate on freebie politics and come up with some kind of binding legislations to enforce rationality of freebies and accountability that would make all political parties declare how they are going to fund the welfare measures and ensure public expenditure efficiency. 

The nation is hoping on Modi Ki Guarantee to get rid of politics of competitive freebies which are perils to nation’s economy and its people. 

Views are personal