All About Freebies
What do freebies mean?
- To win the public’s support, political parties pledge to provide free power and water, monthly allowances for women, daily wage workers, and jobless people, as well as technology like laptops and cellphones.
- States have developed a tradition of providing free gifts, whether it be in the form of loan forgiveness or free power, bicycles, laptops, TVs, and other items.
- Certain spending decisions made in response to populist pressure or with elections in mind may be suspect.
- However, considering that inequality has increased over the past 30 years, providing some sort of relief to the populace in the form of subsidies may not only be justified, but really required for the economy to maintain its upward trajectory.
What justifications exist for free gifts?
- Encourages Growth Examples of expenditures that have an overall positive impact include the Public Distribution System, employment guarantee programmes, support for education, and increased health spending, notably during pandemics.
- These have a significant impact on raising the population’s capacity for production and aid in creating a stronger and healthier workforce, both of which are essential components of any growth strategy.
- The same holds true for government expenditures on health or education.
- Increases Industry Sales: States like Tamil Nadu and Bihar are renowned for providing women with sewing machines, saris, and bicycles; nevertheless, these are purchases made from budgetary funds, which helps increase industry sales.
- Given the comparable production, it can be seen as a boost for the supplier industry rather than a needless expense.
- Important for Exceeding Expectations: When elections are approaching in a country like India, where each state varies in its level of development, people have expectations that these freebie promises help to fulfil.
- Additionally, there are comparison expectations when residents of neighbouring or other states (with various ruling parties) receive freebies.
- Helps Lesser Developed States: In states with a higher proportion of the population living in poverty and a lower degree of development, such freebies become need- or demand-based, and it is necessary to provide the people with such subsidies for their own upliftment.
What Drawbacks Are There related to Free Stuff?
- Freebies undermine the fundamentals of macroeconomic stability, the politics of freebies alters priorities for spending, and spending remains mostly focused on subsidies of one form or another.
- Impact on States’ Fiscal Situation: Giving out things for free ultimately has an effect on the public coffers, because the majority of Indian states do not have strong financial standing and frequently have few resources in terms of revenue.
- States’ finances will suffer if they continue to spend money for ostensible political gains, and fiscal profligacy will take control.
- States are not allowed to borrow more than allowed by the Fiscal Responsibility and Budget Management (FRBM) regulations, and any variation requires approval from the federal government and central bank.
- States can therefore spend their money however they see fit, but under normal circumstances they are not allowed to go above their allowed deficits.
- Against a Free and Fair Election: The provision of irrational freebies from public monies before elections corrupts the integrity of the voting process by unfairly influencing voters and upsetting the level playing field.
- It amounts to a dishonest behaviour comparable to bribing the electorate.
- Moving Toward the Environment: Freebies that involve providing free electricity, or a set amount of free electricity, water, and other types of consumable goods divert funds away from spending on renewable energy, environmentally friendly growth, and more effective public transportation systems.
- Furthermore, when something is offered “free,” there is a general human tendency to use it excessively (wasting resources in the process).
- Freebies have a crippling effect on future production because they take away from the competitive and efficient infrastructure that enables high-factor efficiencies in the manufacturing sector, which lowers the quality and competitiveness of the manufacturing industry.
- Giving away loan exemptions in exchange for free things could have unintended repercussions like ruining the entire credit culture and obscuring the answer to the fundamental question of why so many farmers are continually falling into debt traps.
What might the future hold?
- Understanding the Long-Term Costs of Freebies: The true cost of freebies to the economy, quality of life, and social cohesion is not how inexpensive they are in the short term.
- Instead, we must aim for a race to efficiency through democratic and sanguine federalist laboratories, where states exercise their power to enact novel ideas and answers to universal issues that other states can adopt.
- Demand-Based Freebies Done Wisely: India is a big country, and there are still a lot of people living in poverty. All of the population must be taken into account in the nation’s development plan.
- Freebies or subsidies that are prudently offered and easily fit into the state budget cause no harm and can be used as leverage.
- A part of state spending should ideally be set aside to ensure better resource utilisation overall.
- Distinguishing Between Subsidies and Freebies: It’s important to comprehend the financial effects of freebies and how they relate to tax dollars.
- The difference between a subsidy and a freebie must also be made because subsidies are advantages that are justified and precisely targeted and result from demand.
- Creating subsidised ecosystems to help certain needy people is a right of every political party, but doing so shouldn’t have a long-term negative impact on the state’s or the federal government’s finances.
Mains Question:
- Freebies have evolved into a crucial component of Indian politics throughout time. Freebies also undermine the fundamental principles of macroeconomic stability, even though some programmes, like the Public Distribution Schemes and MGNREGA, have become essential parts of India’s growth plan. Discuss.
