Background:
- A petition was filed in January in the Supreme Court, which sought judicial intervention to direct the Election Commission to derecognise political parties who use freebies to lure voters to vote in favour of these parties.
- This issue has invited clamor and debates from various sections of society after Prime Minister mentioned Revdi culture.
Definition of freebies:
- The dictionary meaning of freebie, “something that is given to you without you having to pay for it, especially as a way of attracting your support for or interest in something”. But in terms of policy measures it is difficult to interpret and define.
- According to Former Chief Election Commissioner OP Rawat, “Except for subsidies given to promote food production, direct benefits for employability, educational attainments, sports, cultural activities, free medical care to the poor, free food to those who are destitute to sustain themselves and affirmative action for weaker sections, including women, everything else is a freebie and should be so recognised.” He adds that free power, free cell phones, free laptops etc, fall in the ambit of freebies.
Timeline of freebie debate:
Impact of freebies:
- Positive:
- The Mid-day meal scheme of Tamil Nadu had attracted a lot of opposition as it was considered a freebie but in later years it was seen that it improved enrolment, retention ratio of children and gave education a fillip as well as improved nutritional standards. This scheme was finally introduced on a national level.
- Freebies fill the gap of inadequate investment in the social and public sector and thus is an outcome rather than a cause.
- Freebies can lead to upward social and economic mobility and may serve as a protective net in depressed economic scenarios.
- Economics promotes growth but freebies may advance equity.
- Poorer states are constrained by a narrow tax base and reduced economic activity and this acquires another layer of complexity of providing welfare measures in form of freebies, as these have an element of supplementing socio-economic protection.
- For example, Tamil Nadu Government’s free bus pass for women has led to women empowerment as more women have joined the workforce due to reduced transport cost. This is an example of positive externality and has supplemented the income and has crafted a story of economic growth and development.
- Negative:
- According to the RBI report, It could potentially undermine credit culture, distort prices through cross-subsidisation eroding incentives for private investment, and dis-incentivise work at current wage rate which will lead to fall in labor participation rate and ultimately lower economic productivity.
- Free supply of electricity and water in states in the form of freebies has led to environmental degradation.
- Debt to GSDP ratio of some states has become highly unsustainable and will slow down the economy and freebies will lead to macroeconomic instability in some states.
- States owe more than Rupees 2.5 lakh crores as dues to power discoms. This will result in lower profitability and in turn force many companies to be declared as non-performing assets and in turn lower Return on assets for financial institutions.p
States spending on subsidies and freebies:
- A RBI report on “State Finances: A Risk Analysis”, 2022 mentions that rising expenditure on non – merit freebies has become a new source of risk that has emerged recently in India.
- As per the latest available data from the Comptroller and Auditor General of India , the state governments’ expenditure on subsidies has grown at 12.9 per cent and 11.2 per cent during 2020-21 and 2021-22, respectively.
- The share of subsidies in total revenue expenditure by states has also risen from 7.8 per cent in 2019-20 to 8.2 per cent in 2021-22.
- Jharkhand, Kerala, Odisha, Telangana and Uttar Pradesh are the top five states with the largest rise in subsidies over the last three years.
- States like Gujarat, Punjab and Chhattisgarh spend more than 10% of their revenue expenditure on subsidies. Subsidies, however, are known to crowd out resources from other useful purposes.
- As per RBI report, recently states have started providing subsidies as a form of freebies such as provision of free electricity, free water, free public transportation, waiver of pending utility bills and farm loan waivers are often regarded as freebies.
- Some freebies may benefit the poor if properly targeted with minimal leakages, but their advantages must be evaluated against the large fiscal costs and inefficiencies they cause by distorting prices and misallocating resources.
- The GST compensation payout came to an end in June 2022, further reducing the fiscal space available for social sector expenditure. In such a situation, a multitude of social welfare schemes in the form of freebies will not only put a heavy burden on the exchequer but will also exert upward pressures on yields if they are financed through market borrowing.
Merit Freebies vs Non-merit freebies:
A fine line exists between merit and non-merit freebies. So, it becomes important to determine freebies or welfare measures which have a long term positive impact and include several beneficiaries. For instance, the distribution of laptops for students, according to some critics, has been defined as private assets. But this private asset became a portal to public good during the time of COVID-19 when all the schools were shut down. So, a poor million students accessing better educational facilities is, essentially, a public welfare programme.
Conclusion:
Allocation of resources that bridges inequality and reduces drudgery will augur socio-economic growth. Prudent expenditure and reduced off-budget borrowings by states needs to be encouraged. Freebies are required in the form of subsidy as a welfare measure to uplift the poor and the impoverished and socially disadvantaged instead of applying the same to cultivate the vote bank that is completely against better financial prudence and anti-growth.
Recent Posts
- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)