Paying for a safety net

Source: The post is based on the article “Paying for a safety net” published in Business Standard on 17^th June 2023.

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

Relevance: concerns with freebies

News: Government and politicians are now moving with the old approach to gain votes because economic reforms have failed to achieve the desired results.

What old approach is being adopted by the government?

The government is moving towards the old approach of offering subsidies and cash incentives. This strategy has proven effective in past elections.

For instance, M G Ramachandran expanded a limited programme of free midday meals in schools.

This improved nutrition, better school attendance, and therefore improved literacy, even a lower birth rate. It is now a nationwide programme.

Similarly, the ruling party in recent years has adopted a strategy due to the failure of its macro promises like doubling farmers’ incomes, or a $5 trillion economy.

As a result, it has emphasized its own welfare initiatives, including cash payments to farmers, free foodgrain, free toilets, housing subsidies, and free medical insurance.

Even the Congress has copied the Aam Aadmi Party in the recent Karnataka election by promising monthly payments to jobless diploma-holders and graduates, financial assistance to female heads of households, free electricity, and free grain.

Why are the governments moving towards offering freebies?

Offering freebies attract votes. Freebies are being looked at as an alternative to job creation, improvement in education, etc. This approach serves as a way for the democratic system to manage economic distress and social unrest.

Therefore, India is moving in an unplanned and haphazard way towards setting up a social safety net, with the free provision of grain and medical insurance; public works programmes to create work, etc.

What are the concerns with freebies?

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What can be the way ahead?

Freebies raises the question of whether India is building a productive economy substantial enough to generate the necessary tax revenue to sustain a welfare system.

This is because the tax-to-GDP ratio has shown little improvement despite a significant increase in per capita income over the past three decades. This in turn has increased public debt, consuming around 40% of tax revenue.

Therefore, there is an urgent need for public debate on this central political-economy question. The NITI Aayog or a private think tank should take the lead.