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Special Report

Published on: Aug. 24, 2022, 4:41 p.m.
Free-for-all over freebies
  • Modi: slamming the revdi culture

By Rakesh Joshi. Executive Editor, Business India

When the Gujarat government presented a Rs2,43,965 crore surplus budget for 2022-23 in March this year -- an increase of Rs16,936 crore over the previous year -- Kanu Desai, the state’s finance minister, invoked the name of Prime Minister Narendra Modi over a dozen times in his speech. It was the last budget for the ruling party, as the state is gearing up for assembly polls later this year. The budget had its share of freebies, which weren’t as wide-ranging as freebies normally are, these days.

They included free Wi-Fi in 4,000 villages, free monthly supply of 1 kg dal, 2 kg gram and 1 kg edible oil to pregnant women and lactating mothers for 1,000 days, one drum and two plastic baskets free of cost to farmers for multi-purpose uses and free textbooks to students of all castes studying in government schools.

Some freebies were aimed at the welfare of the bovine population. But they were freebies nevertheless. For instance, freebies for cattle by implication are meant to benefit their owners. 

But that was five months ago. Had the Bharatiya Janata Party, which has been ruling Gujarat for three decades now, known that freebies would become such a big issue in the upcoming election, its state government would have perhaps loosened the budgetary purse strings further on this score. The Aam Aadmi Party (AAP), which could emerge as a serious player in the Gujarat election, is aggressively promoting its ‘free health and education model’ as a major plank. The campaign is reportedly resonating among a section of the electorate.

Revdis galore

While addressing a function in Uttar Pradesh, Modi used the Hindi heartland metaphor of revdi (a winter candy) to slam the culture of freebies being distributed before an election to garner votes. This has now triggered a nationwide debate. Since then, a host of BJP leaders led by Finance Minister Nirmala Sitharaman, have spoken out against the AAP, its chief Arvind Kejriwal, and the ‘politics of freebies’ being promoted by them.

The development coincides with the Supreme Court hearing a petition filed by Ashwini Upadhyay, a Delhi BJP leader, who wants action against parties offering ‘irrational freebies’ before elections. Kejriwal, in turn, has retaliated by saying that “providing free healthcare and bus travel, education are not freebies but waiving loans of friends is.”

Mahua Moitra, the articulate Trinamool Congress MP, has also waded into the strife. Referring to Modi’s remark in the run-up to the 2014 election that, if all the black money stashed abroad is brought back, each Indian could get Rs15 lakh, she told Sitharaman: "Err...Madam..I'll bet you Rs15 lakh you couldn't tell Modiji this to his face." 

SC intervention

The top court has observed that freebies are a serious issue, because the economy is losing money due to them. The court has also asked a body of stakeholders such as the NITI Aayog, Finance Commission, Law Commission, RBI and political parties to examine the issues. But this has raised the larger question whether the legislature can be bypassed on such a far-reaching exercise.

While a general concern about freebies pushing the economy to ruin seems reasonable, few will disagree that what constitutes freebies and what are legitimate measures to protect the vulnerable sections are essentially political questions for which a court of law may have no answer. There are suggestions as such that a solution should emerge from Parliament, the legislatures and political parties themselves.

Ashima Goyal, economist and member, RBI monetary policy committee, feels that, when parties offer schemes, they must be required to make the financing and such trade-offs clear to voters. This would reduce the temptation towards competitive populism.

  • None

    Bringing health and education to the discussion is a 'perverse twist', as no Indian government since Independence ever denied them

    Nirmala Sitharaman, Finance Minister

However, most political observers believe that it is unlikely that any political party will bother to explain the trade-offs involved in freebies. Indeed, even the former Chief Justice of India, N.V. Ramana, heading the bench hearing the petition filed in public interest against the distribution or promise of ‘freebies’ ahead of elections, made it clear that the court is not going to issue guidelines, but only ensure that suggestions are taken from stakeholders.

All these institutions, he said, can submit a report to the Election Commission of India (ECI) and the government. It also asked the ECI to frame guidelines. But the ECI has washed its hands of the issue, arguing that, in the absence of a law, it cannot regulate promises by political parties to give out freebies if elected to power.

In any case, what is going on is an exercise in repetition. The Supreme Court, in S. Subramaniam Balaji vs the government of Tamil Nadu (2013) has already addressed these questions of policy and law comprehensively. Further, it upheld the distribution of television sets or consumer goods on the ground that schemes targeted at women, farmers and the poorer sections were in furtherance of Directive Principles; and, as long as public funds were spent based on appropriations cleared by the legislature, they could neither be declared illegal, nor the promise of such items be termed a ‘corrupt practice’. It had, however, directed the ECI to frame guidelines to regulate the content of manifestos.

The ECI subsequently included in its Model Code of Conduct a stipulation that parties should avoid promises “that vitiate the purity of the election process or exert undue influence on the voters”. It added that only promises which were possible to be fulfilled should be made and that manifestos should contain the rationale for a promised welfare measure and indicate the means of funding it.

Any further step, such as distinguishing welfare measures from populist sops and pre-election inducements, or adding to the obligations of fiscal responsibility and fiscal prudence ought to come from the legislature. 

Freebies battle in Gujarat

However, the court’s concern over populist measures seems to resonate with the government too, as the solicitor-general submitted that these distorted the voter’s informed decision-making; and that unregulated populism may lead to an economic disaster.

The real action is unfolding in Gujarat, where Kejriwal is on a spree to promise freebies, ahead of the state election due in December. Reactions from the BJP in Gujarat to these announcements betray a certain unease, if not overt nervousness. Gujarat BJP chief C.R. Patil has said people should not be misguided by freebies that could turn the state and eventually India into Sri Lanka, which has hurtled into an almost irreparable economic mess, due to sweeping tax cuts and irrationally free goods and services, from the government to its people, among other factors.

The AAP freebies include a monthly allowance of Rs1,000 for all women above 18. It has also offered a waiver on pending electricity bills issued before 31 December 2021, free power for agriculture and Rs3,000 monthly unemployment allowance to jobless youth.

  • Freebies are never free... specially harmful are subsidies that distort prices

    Ashima Goyal, Economist

Electoral dividends

But, while the BJP, from its Central leadership to top leaders in Gujarat, is speaking against freebies, the BJP is rightly worried because the AAP has milked rich electoral dividends from its freebies journey right from 2015, when Kejriwal first came to power (for 49 days) in Delhi. In the 2013 Delhi polls, the AAP’s campaign’s focus was to provide free (up to certain limits) electricity and water.

The move resonated with the people. It resonated in 2015 too, when the AAP again swept to power. The party repeated its performance in Delhi in 2020 and went on to storm Punjab this year on the same planks. 

Some would argue Gujarat has a high per capita income and is a richly industrialised state and freebies may not have much appeal. But, then, Delhi and Punjab are also not Bihar either. Besides, Gujarat has its quotient of the poor and unemployed. 

AAP’s emergence

It’s also not that the AAP will be jumping into Gujarat’s fray without experience. The AAP fought the 2021 civic polls in Gujarat and gained at the Congress’s expense. In Gandhinagar, Surat and Rajkot, the AAP got 21 per cent, 28 per cent and 17 per cent of votes, respectively. The AAP also took a similar civic poll route -- it contested and won the Chandigarh municipal election in 2021 -- before wresting Punjab from the Congress. 

Worries are already building up within the state government. For instance, soon after Kejriwal assured Gujarat policemen agitating for pay revision that his party will revise their pay grade, if AAP comes to power, Harsh Sanghvi, the state home minister, said “an announcement on police pay grade will be made soon.” 

The Congress, which is the main Opposition in Gujarat, has also been put on the defensive. It has started rolling out promises, starting with a waiver on farm loans of up to Rs3 lakh, if voted to power. “The party will provide free electricity to farmers for 10 hours. Congress will come up with a law to protect the farmers’ right to minimum support price even in the open market. Even when prices of agricultural produce crash in the open market and go below the MSP level, we’ll keep up the loan waiver,” said Jagdish Thakor, Gujarat Congress chief.

Congress also promised to give an MSP bonus to farmers. “They will get Rs5 per litre for contributing in milk production in co-operative dairies,” said Thakor. The party also promised employment to the educated unemployed youth.

The AAP is the only party, after the BJP and the Congress, to have a majority government of its own in more than one state. This is thanks to its ability to rapidly eat into Congress votes. The AAP is only one state away from being recognised as a national party by the election commission.

All this explains, in part, why the AAP has been aggressive in Gujarat. A good show, even if not a win, will help Kejriwal project himself as PM Modi's alternative, though he says he has no such ambitions. A string of state polls will come before 2024.

  • Experts broadly agree that states should be free to decide on freebies, if it has the money. The problem arises when states dole out freebies, merit or non-merit, beyond their fiscal capabilities

Battle hotting up

The dates for Gujarat’s election have not been announced, but the AAP has started naming its candidates. Party leaders say the candidates for all 182 seats will be announced before the elections are announced.

Few state elections are as important as the one in Gujarat from where Modi hails. Not only that, Amit Shah, the second most powerful person in the Central government, is also from Gujarat. The BJP has ruled Gujarat for almost three decades, minus a brief break.

The last election did not prove as easy because of a quota agitation but its spearhead, Hardik Patel, is now with the BJP. And, Modi has been visiting his home state frequently, often inaugurating big-ticket infra projects, further popularising his Gujarat growth story. The BJP relies heavily on Modi’s personal charisma, the party’s Hindutva and nationalism appeal and an effective delivery of government schemes to their beneficiaries.

Kejriwal claims the BJP is rattled by the AAP’s ‘rapid growth’ in Gujarat and wondered if it is planning to declare Amit Shah as its chief ministerial candidate. This, at best, might be the usual political hyperbole. On its part, the BJP has dismissed the AAP as a non-serious contender for power. But the BJP was equally dismissive of the AAP during the Delhi Assembly polls in 2020 too. But, irrespective of what happens in Gujarat, one thing is for sure: freebies are fast altering the political narrative.

Freebies vs welfare schemes 

It is happening elsewhere too. M.K. Stalin, chief minister, Tamil Nadu, recently declared the expenditure incurred by any state government on education and health cannot be construed as freebies and stated that such measures were being extended to the poor and those living in the fringes only. He also took an apparent swipe at Modi for opposing freebies but said that he did not want to talk much about it as ‘it will become politics’.

In fact, the Supreme Court has said freebies and welfare schemes were different. “The expenditure on education and health cannot be freebies,” Stalin asserted in an event in his Kolathur constituency. “Education is about knowledge, while medicine relates to health. This state government wants to implement adequate welfare schemes in both these sectors,” he added.

His state has now filed a petition in the Supreme Court in the ongoing case about ‘freebies’, contending that the scope of the term is wide and ‘there are a lot of aspects which need to be considered’. Tamil Nadu is one of the states where the use of freebies at election time has been traditional, cutting across party lines. Sometimes, even before the elections, clothes, food and household items have been distributed among the people, in violation of model code.

After elections, successive governments have provided heavy subsidies on food and other items. AIADMK's late Chief Minister J. Jayalalithaa was known for her ‘Amma canteens’, where a full meal can be had for a few rupees. Stalin's DMK, too, has introduced various welfare schemes for the people of Tamil Nadu, including rice at Re1 a kg, free distribution of colour television sets to poor households and free bus passes to women.

  • Stalin: expenditure on education and health cannot be freebies

In its petition, DMK has argued that a welfare scheme introduced by a state government cannot be judged to be classified as a freebie. "The ruling government at the Centre giving tax holidays to foreign companies, waiver of bad loans of influential industrialists, granting crucial contracts to favoured conglomerates, etc, also have to be considered and cannot be left untouched," the petition read.

The petition also said that, in a welfare scheme, free services are introduced with intent to secure social order and economic justice under the Constitution's Article 38, ‘to minimise the inequalities in income, status, facilities and opportunities’. AAP’s petition filed in the court has arguments similar to the DMK.

No definition

The problem is that the existing legal or policy framework does not provide a precise definition for the term freebie. In simple terms, it refers to a public welfare measure – any good or service – that is offered free of cost by the government to its citizens. However, in the current context, it is being used as a political term by the Centre to express disapproval of certain state-level schemes.

Indian voters have been beneficiaries of free colour TVs, grinders, food grains, laptops, cycles, gold, washing machine, cows, sheep, cash transfers to farmers, health insurance and fertiliser subsidies. But it is hard to define which of these are vote-catching freebies and which are legitimate welfare measures. Tamil Nadu, home to the two big Dravidian parties, the DMK and the AIADMK, leads the pack of states, where freebies have come to stay. 

In 1982, when M.G. Ramachandran or MGR, the then chief minister, expanded the mid-day meal scheme for schoolchildren that was pioneered by K. Kamaraj in the late 1950s, he faced opposition from all quarters. The scheme drastically improved enrolment and attendance, while reducing absenteeism. About a decade later in 1995, it was rolled out nationwide by the Centre. 

Similarly, the Centre’s highly-popular PM KISAN scheme is modelled on the lines of Telangana’s Rythu Bandhu scheme. These are just two of the many examples, where state-level welfare schemes once derided as freebies served as a template for the Central government to emulate.

Given the ambiguity, N.K. Singh, chairman, 15th Finance Commission, in a recent column said that there was a need to distinguish freebies from merit goods, expenditure which brings economic benefits, such as the public distribution system, employment guarantee schemes and states’ support for education and health. Experts broadly agree that states should be free to decide on freebies, if it has the money. The problem arises when states dole out freebies, merit or non-merit, beyond their fiscal capabilities.

  • None

    Whether our children should get free/good education, whether every Indian should get good medical treatment for free or outstanding loan of those looting the bank be waived -- the country should consider this

    Arvind Kejriwal, CM, Delhi

The freebie-land

Punjab, which spends over 13 per cent of its revenue expenditure on subsidies, is a classic case. As a percentage of GSDP, revenue receipts and own tax revenue, the outgo on Punjab’s freebies in Budget 2022-23 is among the highest in India. But it happens to be among the most indebted states and its own tax revenue has been declining over time. Yet, the ruling AAP recently fulfilled its poll promise of providing free electricity to every household up to 300 units.

There are other issues as well. N.R. Bhanumurthy, vice-chancellor, Dr B.R. Ambedkar School of Economics, says that many states' policies are creating long-term debt sustainability issues. Perhaps an organisation like inter-state fiscal council is needed to monitor spending. There needs to be more discussion around public debt to GDP ratio. States and the Centre should bring out a debt paper every six months, he says.

Indeed, the debate on freebies also needs to be looked at from the perspective of income of states. With the Centre imposing more and more cesses, the share of tax revenue that the Centre gives to the states has dropped. The end of Centre’s GST compensation payout has further reduced the headroom available with states for social sector expenditure. It isn’t going to be easy to bell the freebies cat, either for the Centre or the states.

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