Making sense of the ‘freebies’ issue

Source: The post is based on the article “Making sense of the ‘freebies’ issue” published in The Hindu on 3^rd August 2022.

Syllabus: GS 2 – Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes.

Relevance: India’s subsidy burden.

News: Recently, Prime Minister warned youth not to get carried away by the ‘revari culture’, where votes are sought by promising ‘freebies’.

In another instance, while hearing a PIL, the Chief Justice of India remarked that ‘freebies’ were a serious issue and asked the Central government to take a stand on the need to control the announcement of ‘freebies’ by political parties during election campaigns.

The Court also suggested that the Finance Commission could be involved to look into the matter and propose solutions.

What are freebies?

In general, Freebies are a waste of resources and place a burden on already stressed fiscal resources. For instance, free distribution of goods such as televisions and gold chains. Ironically the definition also includes free or subsidised rations under the Public Distribution System (PDS), cooked meals under the mid-day meal scheme, Work payments under MGNREGA also come under freebies.

Foodgrain distribution

Pre-Pandemic: In the mid-2000s, state governments started expanding coverage and reducing the prices of PDS products. Lower prices in the PDS became electoral issues in the southern States.  This ultimately led to the National Food Security Act being passed by Parliament unanimously in 2013. The NFSA expanded the coverage of the PDS to about two-thirds of the population.

Even before the COVID-19 pandemic, there have been studies which showed the poverty-reducing effect of the PDS. Subsidised foodgrains distributed under the PDS not only contribute to ensuring basic food security but also act as an implicit income transfer allowing the poor to afford commodities that they otherwise could not.

The products under PDS are procured at minimum support prices (MSPs) from farmers. It is one of the main instruments of support to farmers.

During Pandemic: The Prime Minister has repeatedly campaigned about the Government implementing the ‘world’s largest food security programme’ by distributing free foodgrain, through the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) to around 80 crore ration cardholders.

The scheme kept many away from the brink of starvation during the novel coronavirus pandemic.

What is the performance of other schemes?

MGNREGA has been another scheme which has been a lifeline for many during the pandemic and earlier. At a time when there are few employment opportunities, working under MGNREGA can guarantee some assured wages.

Similarly, mid-day meals in schools have been proven to contribute to increased enrolment and retention in schools and addressing classroom hunger.

Schemes such as old age, single women and disabled pensions, community kitchens in urban areas, free uniforms and textbooks for children in government schools, and free health-care services play a critical role in providing social security and access to basic entitlements.

Why these should not be considered freebies?

Calling the above schemes ‘freebies’ will make a view that the poor are unproductive and dependent on charity. Hence, it is important to recognise that most welfare schemes contribute to improving human development outcomes, which also results in higher economic growth in future.

How rich is getting freebies?

Around ₹1 lakh crore is the revenue forgone annually as a result of ‘major tax incentives for corporate tax payers’. Corporate tax rates have been reducing and Budget documents show that in 2019-20, the effective tax rate (tax-to-profit ratio) declined as profits increased.

The freebies that the rich get all the time through low tax rates and exemptions are considered ‘incentives’ instead of freebies. Hence, the government need to view both rich and poor alike in democratic India.