Unleashing the Reality Behind Freebies

WHAT ARE FREEBIES?

Freebies as the name suggests, are free or subsidised goods or services namely water supply, electricity and electronic gadgets like smartphones, laptops and etc provided to a section of public by the State and Central Government through the various schemes brought by them.

The positive effects of government-provided freebies, including poverty reduction, enhanced social safety nets, increased consumption, and improved health and education outcomes, cannot be underestimated. These initiatives have the power to uplift marginalized communities, create a more equitable society, and improve overall well-being.

Freebie practices are becoming a more common political tactic used in the elections. Economists estimate that about 29.5% of the population fall below the poverty line in India. The survival of such masses are largely dependent on welfare schemes which explains the need for it.

FAULTY ROOT

The DMK (Dravida Munnetra Kazhagam) of Tamil Nadu, was the first party in the country to implement freebies by providing rice at Rs1 in its state assembly elections in 1967 and in further years promised to provide free television services and LPG connections for people living below the poverty line.

As we can see the very initiative highlights that there are two types of freebies-merit and non-merit. We can observe that LPG connections are an important necessity because of which it falls in the category of merit freebies. Television services is in no scenario a necessity and is an example of non-merit freebies and it showcases our prime issue- HOW THE MONEY OF TAXPAYERS IS WASTED AND HOW IT ADDS TO THE DEBT BURDEN OF THE STATE RESULTING IN ECONOMIC INSTABILITY.

According to data from the Comptroller and Auditor General of India (CAG), after 2019–20, state government spending on subsidies grew by 12.9 percent in 2020–21 and 11.2 percent in 2021–22.  The highest increases in subsidies over the past three years have been seen in states like Jharkhand, Telangana, Kerala , Odisha and Uttar Pradesh. More than 10% of the entire revenue spending in states like Gujarat, Punjab, and Chhattisgarh went toward subsidies. In June 2022, the RBI issued a risk alert, stating that “new sources of risks have emerged in the form of rising expenditure on non-merit freebies, expanding contingent liabilities, and the ballooning overdue of Distribution Companies.”

Given the severe circumstances, an immediate and effective response is critical. The impact of freebies should not be viewed through a political lens, but rather through an economic one. It is critical to distinguish between freebies and legitimate and specifically targeted social sector expenditures, ensuring that beneficiaries are permanently empowered to decline such benefits. Long-term, states must try to enhance the stock of productive capital, create long-term assets, generate revenue, and improve operational efficiency while regularly undertaking fiscal risk evaluations and stress-testing their debt profiles.

Freebies appear to have had a significant negative impact on state finances, including undermining the culture of credit, distorting pricing through cross-subsidization, eroding incentives for private investment, and disincentivizing employment at the existing wage rate, which leads to a decline in labour force participation. The most indebted state governments’ budgetary situations are predicted to get worse if this mindset persists since their debt loads are unsustainable and, in some circumstances, debt growth is surpassing GDP growth.

Such a financial health evaluation serves as a reminder of the crucial significance of public debt sustainability, particularly in light of the recent crisis in Sri Lanka. The major reasons behind the crisis were in a way similar:

High Debt Levels: Sri Lanka had acquired a large amount of external debt, which made it difficult to pay off those debts. The amount of debt owed by the government had risen over time, raising questions about its capacity to make repayments.

Fiscal Deficits: The government was having trouble controlling its budget deficits, which resulted from higher expenses than receipts. Due to this circumstance, the country’s total debt increased as borrowing to finance deficits increased.

CONCLUSION

A culture of dependency on the government can develop over time when people depend heavily on free things, which could hinder people from being independent and hardworking. Distributing freebies removes the motivation to work since beneficiaries of various freebies may become dissatisfied with their jobs and prefer to enjoy subsidized products and services rather than search for jobs.

An argument can also be presented as to why idle, unemployed, or underprivileged people receive the exact same good for free or at a reduced price, while the common man receives his good with additional taxes levied on top of it. 

Spending on worthless non-merit offerings that does not even provide a sustainable solution for the impoverished but only satisfy the giving and assigning parties temporarily, the government, the party which orders the allocation, gets to focus on its own personal and political goals, the common man suffers, who actually pays for it and experiences no advancement for either the infrastructure or any other benefits.

In conclusion, freebies and handouts serve as a quick way to gain voters and hide the shortcomings of the current government rather than achieving long-term development goals through the public distribution system, employment guarantee programmes, and state investment for educational and medical institutions. The amount of freebies a political party pours on people under the pretence of incentive measures for socio economic upliftment is what determines how morally reprehensible these wasteful expenditures are and how much they distract voters from making educated decisions.