[Answered] In the light of the present circumstances, discuss the implication of controlling freebies on federalism and social welfare measures of states.

The literal meaning of freebie is something that is given free of charge or cost. No advanced economy spends more than 1% of GDP on subsidies across all sectors but in India, agricultural subsidies alone eat up around 2.25% of GDP. Recently the Supreme Court suggested setting up a specialised body to examine “irrational freebies”.

Implications on federalism:

• The strength of the Centre lies in the strength of the states. Therefore, the macroeconomic stability of the Union is contingent on the macroeconomic stability of both the Centre and states.
• Without due consideration of socio-economic diversity, this step would not only be counter- productive to the economic freedom of the States but also to the ‘Idea of India’ as a ‘Union of States’ -as highlighted in Article 1 of the Constitution of India.

Implications on social welfare measures of states:

• Social welfare measures may differ from State to State or region to region. For example, in the desert regions of Rajasthan it could be free drinking water, in Kerala, it could be fiscal incentives to encourage corporates/entrepreneurs to boost industrial growth, and in T.N., educational/marriage assistance and a free bus pass to help girl empowerment.
• It will help the government to provide access to the basic facilities such as access to banking, electricity, housing, insurance, water and clean cooking fuel, etc.
• Due to high indirect taxes, there is a financial burden on the poor and resulting in inequality. States such as Tamil Nadu address this inequality through social welfare measures. For example, the Tamil Nadu government’s free bus pass for women has not only saved families fuel cost but has also encouraged more women to join the workforce, in turn leading to economically stable families and women’s empowerment.

Way forward:

• India needs to have an institutional mechanism to control wasteful expenditure.
• Instead of having a blanket policy, the state needs to identify the beneficiary of a particular public policy.
• India needs to have a good tax framework for more social sector expenditure while also ensuring medium-term debt sustainability.