1 Freebie
Politics UPSC
1.1 What
is Freebie?
In a Reserve Bank of India report in 2022, freebies have
been defined as “a public welfare measure that is provided free of charge”. It
adds that freebies are different from public/merit goods such health and
education, expenditure on which has wider and long-term benefits.
A merit good or service is something that adds to the
welfare and well-being of society when it is produced and consumed. Merit goods
are those that have positive externalities instead of private benefit motives.
Merit goods such as education, health care, and subsidies to curb poverty have
a positive impact on society as well as on the economy. Merit goods are also
known as the superior goods. Government wants to encourage the consumption of
the non-merit goods.
Demerit goods or services, in contrast, are those known to
cause clear harm when produced and consumed. Government wants to check the
consumption of the non-merit goods.
1.2 Difference
between Freebie & Welfare Measures
Freebies are goods and services given free without any
charge to the users.
|
Welfare Measures |
Freebies |
|
benefiting the targeted population in the long term. |
benefiting the targeted population in the short term. |
|
They are well thought-after plans that aim to benefit the
target population and improve their standard of living and access to
resources. They are typically aimed at fulfilling the constitutional
obligations (Directive Principles of State Policy) towards citizens. They are often seen as a way of promoting social justice,
equity, and human development. |
They are often seen as a way of luring voters or bribing
them with populist promises. |
|
Welfare schemes have a positive impact |
Freebies can create dependency or distortions in market
& society |
|
Some examples of welfare schemes are public distribution
system (PDS), Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA), mid-day meal scheme, etc. |
Some examples of freebies are free laptops, TVs, bicycles,
electricity, water, etc. |
1.3 Why Freebie
is a Double-Edged Sword?
Freebies can be a double-edged sword for a few reasons.
1.3.1
Advantages of Freebies
Increase Public Trust and Engagement: Government freebies
can increase public trust and satisfaction with the government, as they
demonstrate its responsiveness and accountability to the people.
Increase Public Engagement (Positive impact on voter turnout):
A study by the Centre for Policy Research found that freebies such as laptops,
bicycles, and cash transfers had a positive impact on voter turnout, political
awareness, and satisfaction with the government in Uttar Pradesh and Tamil
Nadu.
Economic Growth: Freebies can stimulate economic growth by
increasing the productive capacity of the workforce, especially in less
developed regions. For example, freebies such as laptops, bicycles, or sewing
machines can enhance the skills, mobility, and income opportunities of the poor
and rural population.
A report by the NITI Aayog stated that freebies such as
bicycles given to schoolgirls in Bihar and West Bengal increased their
enrolment and retention rates, reduced dropout rates, and improved their
learning outcomes.
Social Welfare: They can provide basic necessities and
social welfare to the poor and marginalized sections of society, such as food,
education, health, electricity, etc. For example, freebies such as uniforms,
textbooks, or health insurance can improve the literacy, health, and quality of
life of the needy and vulnerable groups.
A study by the World Bank estimated that freebies such as
food subsidies under the Public Distribution System (PDS) reduced the poverty
ratio in India by 7% in 2011-12.
A survey by the NSSO revealed that freebies such as health
insurance under the Rashtriya Swasthya Bima Yojana (RSBY) reduced the
out-of-pocket expenditure and catastrophic health shocks for below poverty line
households.
Income Equality: Freebies can reduce income inequality and
poverty by redistributing wealth and resources more equitably. For example,
freebies such as loan waivers, or cash transfers can empower the indebted, or
low-income households by giving them access to assets, credit, or income
support.
A report by the Reserve Bank of India analysed that loan
waivers relieved the debt burden and improved the creditworthiness of
distressed farmers.
1.3.2
Disadvantages of Freebies
Increase Dependency: Freebies can create a negative pattern
of dependency and entitlement among the recipients, who may expect more
freebies in the future and become less motivated to work hard or pay taxes. For
example, freebies such as rice at Rs 1 per kg or electricity at zero cost can
reduce the sense of responsibility and accountability of the beneficiaries and
make them dependent on external aid.
Fiscal Burden: Freebies can have adverse consequences on the
fiscal health and macroeconomic stability of the state or the country, by
increasing public expenditure, subsidies, deficits, debts, and inflation. For
example, freebies such as farm loan waivers, unemployment allowances, or free
laptop can strain the budgetary resources and fiscal discipline of the
government and affect its ability to invest in other sectors or repay its
obligations.
Against to Fiscal Responsibility and Budget Management
(FRBM), high debt-GSDP ratio.
The collapse of the Sri Lankan economy is an example which
show that Freebie culture is Macroeconomically Unstable. The government of Sri
Lanka cut taxes across the board and provided several free goods and services.
Consequently, the economy collapsed and the heavily-indebted country was left
with no choice but to default on its commitments.
Resource Misallocation (Opportunity Cost): Freebies can
distort the expenditure priorities and allocation of resources, by diverting
funds from more productive and essential sectors such as infrastructure,
agriculture, industry, etc. For example, freebies such as mobile phones,
laptops, or air conditioners can consume a large share of public spending and
crowd out investment in public goods such as roads, bridges, irrigation
systems, or power plants.
A report by the NITI Aayog criticised that freebies such as
laptops given by the Uttar Pradesh government diverted funds from more urgent
needs such as improving school infrastructure, teacher quality, or learning
outcomes.
Quality Compromise: Freebies can lower the quality and
competitiveness of the goods and services that are given for free, by reducing
the incentives for innovation and improvement. For example, freebies such as
bicycles or laptops may be of inferior quality or outdated technology compared
to those available in the market or those produced by other countries.
Devaluation: Freebies can devalue the perceived worth of a
product or service. When something is free, its perceived value often
diminishes. This might make it harder to convince people to pay for it in the
future, even if it's a high-quality offering.
Impact on Environment: Freebies can have a negative impact
on the environment, by encouraging overuse and wastage of natural resources,
such as water, electricity, or fuel. For example, freebies such as free power,
free water, or free gas cylinders can reduce the incentives for conservation
and efficiency and increase the carbon footprint and pollution levels.
A report by the CAG revealed that free electricity for
farmers in Punjab led to overuse and wastage of power, low tax compliance, and
poor quality of service delivery by the state power utility. (reduce ground
water significantly)
Fail to reach target audience: Sometimes, freebies attract
people who are not genuinely interested in the product or service but are
merely attracted by the "free" aspect. This can dilute the engagement
from the actual target audience.
Against Free and Fair Election: The promise of irrational
freebies from public funds before elections unduly influences the voters,
disturbs the level playing field and vitiates the purity of the poll process.
It amounts to an unethical practice that is similar to giving bribes to the
electorate.
Destroys Credit Culture: Giving away loan waivers in the
form of freebies may have undesired consequences such as destroying the whole
credit culture and it blurs the very basic question as to why is it that a
large majority of the farming community is getting into a debt trap repeatedly.
1.3.3 Way Forward
Drawing a Line Between Welfare and Freebie: Freebies must be
understood from an economic perspective and connected to taxpayers' money.
Differences between subsidy and freebie are also
essential since subsidies are justified and specially targeted benefits meant
to meet specific demands. The freebies, on the other hand, are quite different.
Clear Rationale and Indication of Funds: Political parties
should be required to disclose the financing and trade-offs of freebies to the
voters and the ECI before announcing them. This would include specifying the
sources of revenue, the impact on fiscal balance, the opportunity cost of
public spending, and the sustainability of freebies.
Empower the Election Commission of India: Freebie culture
promotes due to Lack of regulatory powers with ECI. ECI should be provided more
powers to regulate and monitor the announcement and implementation of freebies
by political parties during elections. This would include giving the ECI more
powers to de-register parties, impose penalties, or take contempt action for
violating the model code of conduct or the court orders on freebies.
Voter Awareness: In a democracy, the power to block or allow
the march of freebies rests with the voters. Educating voters about the
economic and social consequences of freebies and encouraging them to demand
performance and accountability from political parties. This would include
creating awareness campaigns, voter literacy programs, civil society
initiatives, and media platforms to inform and empower voters to make rational
and ethical choices.
Judicial Intervention: A constructive debate and discussion
in parliament is difficult since the freebie culture has an impact on every
political party, whether directly or indirectly. Therefore, judicial
involvement is required in order to propose measures.
The Supreme Court has suggested setting up an expert
committee to look into the issue of freebies and their impact on the economy
and democracy. The committee would consist of members from the Niti Aayog, the
Finance Commission, the RBI and other stakeholders. The committee would make
suggestions on how to control freebies given by political parties during
election campaigns.
Focus on Inclusive Development: It would address the root
causes of poverty, inequality, and exclusion that make people vulnerable to
freebies. Inclusive development would also create a more conducive environment
for economic growth and social progress, which would benefit all sections of
society in the long run. Therefore, inclusive development can be a more
effective and desirable alternative to freebies.
It can be understood well through this quote - “Give a man a
fish and you feed him for a day, teach a man to fish and you feed him for a
lifetime.”
Assessment of financial viability: There should be a
mechanism of assessment of financial viability of populist policies: funding
sources.
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Great work 👍
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