Economic costs be damned!

My Subsidy, Your Revadi

By Poonam I Kaushish

It is raining freebies wherein sound economic sense has been surrendered to political gamesmanship. Reckless subsidies are being given by Parties with gay abandon, on the assumption that populist hand-outs yield better electoral rewards than reasoned policies and sustainable programmes. Who cares? After all, Government money is nobody’s money!
The populism our polity indulges in would be comic were it not for its future consequences. None sees the danger of economic derailment. Tragically, in this nautanki of one-upmanship and populist bravado all expose the hollowness of their political commitment. Dismissing as nonsense the economic logic that there is no such thing as a free lunch as all merrily dole out wages of populism.
Recently, Prime Minister Modi called halt to free “revadi” culture followed by Supreme Court mooting a committee of Government, Niti Aayog, Finance Commission, RBI and Opposition to brainstorm “dispassionately and make recommendations. Succinctly, underscoring the reality, “no Party will allow taking out these freebies. We are heading towards disaster.”
Borne out by Niti Aayog’s governing council meeting attended by 23 Chief Ministers, 3 Lieutenant Governors and 2 Administrators and Union Ministers Sunday which was silent on the issue.
Raising a moot point: Where do netas get monies to fund these doles? Obviously, by taxing the people. Should our hard-earned tax money be used to boost a Parties electoral votebanks? Shouldn’t leaders or their Parties pay for it from their pockets or funds? Should loans be waived? Is freebie different from subsidy? Are they good and bad hand-outs? Who decides?
This needs to be juxtaposed with Modi’s model of “new welfarism” which involves public provision of private goods against provision of free power and water by State Governments like AAP in Delhi and Punjab, mid-day meal schemes in Rajasthan, Kerala, MP etc. Also, with many States poised at different levels of economic development what may be necessary State support for people in one State may not hold in another.
As it stands the economic situation is worsening with prices rising and high inflation notwithstanding Reserve Bank saying economic parameters are OK. Take power: As of May end, at a consolidated level, dues of State distribution companies to generating companies was Rs 1.01 lakh crores, State Government to distribution companies Rs 62,931 crores and subsidy receivable by distribution companies from State Rs 76,337 crores.
Adds RBI, a bailout in 18 large States costs these Governments about 4.3 lakh crores or 2.3% of their combined GDP, more than Union Government’s spends on education, rural development and health. According to Union Finance Ministry, between 2019-20 and 2021-22, Andhra borrowed Rs 23,899 crores, UP Rs 17,750 crores, Punjab Rs 2,879 crores and MP Rs 2,698 crores by mortgaging assets and escrowing future revenues.
Shockingly, 86% of Punjab’s expenditure is committed towards salaries, pensions and interest on past borrowings. Its capital outlay (spending for creating productive assets like roads, schools, hospitals, etc) is just 7.5% said an official. Worse is the situation in Tamil Nadu, Rajasthan and MP.
Asserts a senior Opposition leader, “Why blame us? In February 2018 Prime Minister gave Rs 25,000 to working women, covering 50% of a two-wheeler cost and PM Kisan Yojna of Rs 6,000 a year to every farmer”. Besides, “when the rich really rip off the banking system, with huge NPAs and write-offs alongside a rent-seeking bureaucratic culture, can we say the poor are too pampered with these freebies? Call it the ‘endowment effect.”
Alas, both Centre and States stand equally guilty. A classic case of the pot calling the kettle black. Two, Centre is wary of unilateral curbs on States whereby leaders would blame Prime Minister for not letting them “do good” for people and being branded anti-poor by States. A catch 22 situation. Three, these revadis come at the cost of hospitals, schools, roads, railways etc.
Certainly it is nobody case rural poverty should be ignored. Assurances of providing cheap rice, wheat or free electricity can be justified on grounds of acute poverty. Aren’t such concessions imperative in a country where 40% people live below the poverty line and over 700 million earn less than Rs 20 a day. India’s ranking in Global Hunger Index 2021 is 101 (from 94 in 2020) out of 116 countries. Is it not the duty of our jan sevaks to take care of its peoples’ welfare?
True, freebies are not a new phenomenon. Recall, this ‘catch-all’ politics reared its ugly head first in 1967 Tamil Nadu’s DMK when it guaranteed rice at Rs 1. In 1983 Andhra TDP’s NTR Rama Rao promised rice at Rs 2 per kg and emerged victorious. Then came 80’s disastrous “loan melas” followed by era of gifting colour TVs, fans, sewing and washing machines, gold jewellery etc.
Subsequently, ‘rice politics’ again took centre-stage at Rs 1 and Rs 3. BJP, Congress and regional Parties outbid each other. From 5 lakh Government jobs, monthly income of Rs 2,000 to housewives, 200 free electricity units, 33% women reservation in Government jobs, free education for girls from KG to PG.
It can be argued that Parties are obliged to be seen as populist as it would be foolish and stupid to wish away political lollipops to entice the electorate. However, political revadis in the economic sphere should not cross the prudence limits, where it starts hurting the economy as a whole.
But by providing free candies to voters, citizens have become dependent on netas resulting in no empowerment. Consequently, a populist scheme is invariably paid for either by higher taxes or increased inflation.
Who will bell the cat? Clearly, care should be taken to draw a distinction between welfarism and freebies. Welfarism takes into account needs of different sections of society as part of a large development framework. Freebies are guided not so much by social concerns but by vote banks. It essentially implies granting certain concessions which have no economic rationale and are not part of larger economic planning as enunciated by Government.
Highlighting again that free-falling gifts is the reality of grinding poverty, which continues to haunt us after 75 years of Independence. Remember, hand-outs will only provide immediate succour at the expense of the entire future. It is no remedy for neglect of education and health, faulty priorities in respect of industrialization and under-investment in rural areas, growth of corruption and a bloated bureaucracy and over population and apathy to greater productivity. A Government cannot afford to throw away money on populist whims.
Unfortunately, our policy-makers have been unable to perceive the truth of the situation. They have consistently failed to evolve a strategy of development which would take into account our pluralism and fluctuating economic disparities. Governments need to stop throwing away money on populist freedies. Time to draw a ‘lakshman rekha.’ — INFA