WELFARE VERSUS FREEBIES:WHAT IS THE WAY OUT?

During my childhood being a farmer's family we had not purchased any rice but kerosene from the ration shop for lighting purpose. But I had witnessed several households exclusively dependent on public distribution system to satisfy their hunger in addition to the wages paid in kind for agricultural work and harvesting. Their children were enrolled in school mainly to  avail the facility of uppuma and milk or porridge and dhal supplied in the school which in due course became mid day meal scheme which are truly a welfare scheme and takes care of both health and education of children to a great extent. When I entered the Government Service except for initial one year I had not availed the facility of public distribution system ,but for one Deepavali with much persuasion from my own PG students l also availed the freebies of a mixie and one Grinder gift offered by the Government,which subsequently I donated to more deserving people. The irony was that after  two weeks the very same items supplied by the Government were very much available in the local market for just rupees five hundred each.Such cases indicate the need for examining the case for regulating freebies and defining welfare measures. 

There are no appropriate definitions about welfare or freebies. According to the world trade organization WTO Agreement on Subsidies and Countervailing Measures (ASCM) "a subsidy shall be deemed to exist if there is a financial contribution by a government or any public body where government practice involves a direct transfer of funds ( e.g.,grants,loans  and equity  infusion), and / or government revenue that is otherwise due is forgone or not collected, and / or a government provides goods or services ..Subsidy can also be any form of income or price support granted by the Government".Welfare schemes are generally designed to alleviate poverty, promote health, education, social and economic opportunities for the people resulting in higher standard of living. On the contrary freebie refers to any  good  or service that is offered free of cost by the Government to its citizens for instance like free TV,Grinder, washing machine etc which are basically unproductive expenditure and a drain on the exchequer. It may be noted here that occasionally the distinction between welfare and freebies becomes very narrow and beyond clarification. For instance the cycle or a laptop to  a needy person or a student surely promote education or welfare.  K Kamaraj Chief Minister of Tamil Nadu in 1956 introduced mid day meal scheme first time in the country and in 1982 the scheme was  expanded by then Chief Minister M.G.Ramachandran,and further in 1995 the scheme was rolled out by the Central Government.CM N T Rama Rao of Andra Pradesh promised rice at 2 rupees per Kg which may be considered as the forerunner of National Food Programme .Similarly Rythu Bandu of Telengana and Kalia of Odhisha influenced the Kissan Samman Nidhi scheme. A good number of services provided by the Government to meet the Directive principles of the constitution towards public distribution system, free Covid19 vaccines and National Rural Employment Guarantee Scheme,inspite of marginal leakage or malpractices involved do remain as vital welfare programmes.

According to N.K.Singh there was a need to distinguish freebies from merit goods expenditure which brings economic benefits such as PDS,employment guarantee schemes, and states support for education and health. On the other hand public goods are non excludable and non rival in consumption such as national defense, flood control systems, high ways, rural ways and information on Covid19, weather etc which are difficult to be owned and operated by private individuals but can be effectively and necessarily provided by the Government. According to RBI paper Freebies include provision of free electricity, free water, free public transportation, waiver of pending utility bills and farm loan waivers etc  They potentially undermine credit culture, distort prices through cross subsidisation.This erodes incentives for private investment and disincentive to work at the current wage rate leading to a drop in labour participation rate. It has been observed that in the long run the social and economic benefits of certain schemes can far outweigh the fiscal costs they impose even if they seem cumbersome in the short run.States see it as an investment in human capital. Experts also argue that intervention should avoid giving itself a political cover,instead issue should be faced purely as a financial one  like the Fiscal Responsibility and Budget Management Act  (FRBM ) by which deficit cannot go beyond 3% of GDP and accordingly Finance Commission can look into  the problem. 

  In a democracy voter awareness is vital either to block or allow the demand for freebies. There is a need to  consensus between regulating the irrational freebies and ensuring that voters don't get swayed by irrational promises.All of this requires eternal vigilance among voters ,strengthening of co operative federalism and proper co-ordination between Centre and states to implement the national development agenda. A constructive debate and discussion in Parliament though inevitable but very sensitive since the freebie culture has an impact on each and every political party either directly or indirectly. Therefore judicial involvement is required to propose measures. Supreme Court has recently recommended creating an apex authority to provide recommendations on how to regulate gifts distributed by political parties. Other measures include strengthening of Election Commission of India, enforcing model code of conduct for guidance of political parties and candidates effectively to regulate manifestos in order to prevent the manipulation of informed voter behaviour.

Any scheme that offers significant positive social externality should not be considered as freebie. Governments announcing schemes should  be required to provide funding plan to the Parliament or state legislatures as the case may be, so as to bolster budgetary understanding and enhance their ability to act.A budgetary analysis is one way out when there is difficulty in classifying a scheme as essential or  freebie. Another remedy suggested is that Governments should be statutorily bound towards key financial indicators such as  government Debt / GDP ratio and transfers towards capital expenditure schemes which should be prioritised. Recent Reserve Bank of India's study on public debt forecasts and stress testing for all states taken together showed that the debt- GDP ratio is projected to moderate between 2021-22 and 2026-27.The moderation in the ratio is attributable to the stellar fiscal performance of a few states like Gujarat, Maharashtra, Delhi, Karnataka and Odisha.However most of the other states are likely to exceed the debt gross state domestic product GSDP ratio of 30% in 2026-27.Punjab is expected to remain in the worst position of Debt GSDP ratio of more than 45% in 2026-27.States like Rajasthan, Kerala and West Bengal are projected to exceed the debt GSDP ratio of 35% by 2026-27.

Looking at the complexity of issues involved a three Judge bench of Supreme Court is to review whether freebies may create a situation wherein the state governments cannot provide basic amenities due to lack of funds and the state is pushed towards imminent bankruptcy. Supreme Court should accord extensive hearings to all the stake holders before it and decide certain preliminary issues involved such as the scope of judicial intervention and the purpose and composition of the committee that may examine the issue. It will also adjudge the pleas to review a 2013 SC ruling that some freebies were related to the Directive Principles guiding state policies. Due to stiff opposition from political parties like AAP and DMK the bench already decided to put off the formation of an expert committee to look freebies offered by political parties. There is no doubt that the proliferation of irrational freebies must be strictly eliminated. At the same time India a fastest growing economy richly endowed with natural and human resources with self sufficiency in food grains and an exporter of food   reasonably high scientific and technological manpower, champions in exports of services and manpower,a country which transformed from "License Raj" to "Billionaires Raj", it is high time to provide basic standard of living to all people.In such a  context the deserving deprived sections of society needs to be supported not penalised at the cost of basic welfare measures in the  name of 'irrational freebies'. At the same time a better transparent system of Beneficiary identification and direct Beneficiary Transfer  of  welfare schemes within the fiscal limits of the Governments are very vital for sustaining fiscal stability.