First thing first- The electorate likes freebies. Why should it not? It is human nature to want something in return for nothing. Let’s accept it. The political class, on its part, likes doling them out. So, is this is a win-win game for everyone? What about the Taxpayer-read the middle class- who has to bear the brunt of these freebies? Is It inherently unfair to the tax paying middle class?

Since I belong to the Middle class, I will examine it with that lens. Fundamentally The middle-class is often the glue that holds a society together. When it has access to the basic needs of life—education, health and housing—it acts as a buffer between the rich and the poor, promotes social harmony, and generally serves as a force to protect humanitarian values and principles. It is we who must pick up the tab for free water, electricity, debt waivers, you name it, while politicians romp home at the hustings. The moment of reckoning comes later, by which time it is usually too late to undo the damage.

The primary argument backing freebies is that India is a country of social and economic inequalities. Thus, free electricity and water are equivalent to the fundamental right of the poor.

Inequality is indeed the crude reality of the country, where earning merely Rs 25,000 per month puts one in the top 10 per cent and where 800 million people have been supplied with foodgrains for more than two years now, apart from their routine monthly quota.

However, divorcing freebies from welfare becomes imperative. The debate around freebies versus welfare can be narrowed down to one question. Does the policy (freebie or welfare) enable the beneficiaries or merely write them juicy cheques between election cycles? Put simply, is the welfare policy teaching the 800 million-odd people to catch a fish, or is it supplying them with a fish each day from a financial pond that is both finite and vulnerable?

Money power was always on blatant display during elections which is reflected in every innovative method of distribution of cash and liquor, but now the political parties are queuing up to announce freebies as part of their pre-election promise. 

If Hamlet’s question was “to do or not to do,” the one before every elected administration at least at state level is how far it should throw caution to the winds on populism. Should it take the ‘après Moi le deluge’ (after me the deluge) approach and spend its way to popularity and election victory? Or should it take a long-term view and do what is eventually best for the State/Country?

There are a few political-economy reasons for the “rise of Rewari“. One is the need for political parties to distinguish themselves. The other is opposing any idea for the sake of opposition itself. This happens when politics become solely a game of rhetoric and promising/doing anything that the opponent is not in Favour of becomes the norm.

There is a strange contradiction in politics in India. It is elevating at the national level and transactional at the state level. With large-scale corruption exposed through raids by the Enforcement Directorate in various states, people have become disillusioned with “big talk” of state leaders. They are reduced to asking, “what is in it for me directly?” This has led to a demand for Rewari’s.

However, the central government has resisted this temptation admirably. The BJP government at the Centre has been following the paradigm of “input-based” development. By focusing on infrastructure, skill-building, security, investment promotion and so on. It results in a healthy development of capital goods and skills, resulting in both short-term and long-term benefits. In other words, it follows the “teach a man to fish” principle. Even in the recently launched “Vishwakarma scheme”, the focus was on skills, infrastructure and intellectual property. The central government uses Direct Benefit Transfer only for purposes such as the Krishi Samman Nidhi, Ujjwala Yojana, etc.

The Reserve Bank of India (RBI) report on state finances published last month has thrown up some alarming numbers on fiscal deficit and debt of various States. The fiscal deficit in many states has reached alarming proportions. Simply put Fiscal deficit is the difference between what you earn and what you spend. When you spend more than you earn you have to borrow to make up the deficit and then you have to spend part of your earning to service those debts i.e. pay the interest on those debt.

In an effort to control the fiscal deficit Fiscal Responsibility and Budget Management (FRBM) Act 2003 was passed. FRBM Act of 2003 has helped; though critics might say it has been observed more in the breach than in practice, with successive governments pushing the Act’s fiscal-deficit target—3% of GDP—further into the future. Yet, while the law could be amended for more flexibility, currently it is the only statute, that serves as a Lakhman Rekha for governments. It also gives target of Debt-GSDP (Gross State Domestic Product) ratio to be 20% for any state.

. Look at the state debt-GSDP (gross state domestic product) of Punjab (48%), Himachal Pradesh (44%), and West Bengal (38%). They are the top three large states for the last fiscal year. To the numbers above, we should add approximately another 10-15 % to accommodate for state PSU (public sector undertaking) debt and guarantees.

A look at tax revenue spent on free schemes gives an even bleaker picture. Punjab gives away close to half of its revenue. The BJP-ruled Madhya Pradesh gives away close to a third. How are these states hoping to invest in long-term prosperity like roads, electricity and water to name a few? Take a look at the impact on economic development in a few states. Kerala has run out of money for mid-day meals and is not making payments to pensioners, MNREGA workers, and KSRTC employees. Basically, the state is broke!

Punjab offers 300 units of free electricity. Ninety per cent of the households pay zero charges. The already existing free power to farmers had created negative impacts like depletion of the water table, environmental degradation, and stubble burning. This is the region that is water-surplus! It is hard to imagine that Punjab was at the forefront of our economic growth just a few decades ago.

In Karnataka, the Deputy Chief Minister recently lamented the lack of funds for developmental works in constituencies. The Congress government is just a few months old in Karnataka, yet there is already a question mark on the progress of infrastructure projects in the state.

Tamil Nadu has the highest power sector debt in the country at Rs 1.34 lakh crore, as of March 2022. Successive governments have found it difficult to reverse the culture of subsidized power. Chennai city has fallen behind even its South Indian counterparts in Bengaluru and Hyderabad in civic infrastructure- with annual cycles of draught and floods.

 Free electricity, free water, and free travel in public transport for women by the Delhi government have burned its coffers. The promises made by the Aam Aadmi Party before coming to power, such as building 20 new colleges, building 20,000 public toilets, installing 5 lakh CCTVs, creating 8 lakh jobs, etc., all remain pipe dreams due to poor fiscal management.

But nowhere is the distinction between freebies and welfare more obvious than in Punjab, a state with a debt of more than Rs 270,000 crore. What the Congress and AAP want for the state is endless freebies in the form of free electricity and water, and an inflated and continued MSP for wheat and paddy.

Today, the state’s entire agricultural economy depends on two crops. However, what these promoters do not realize is that even if the government supplies them with twice the MSP annually, it does nothing to reverse the falling groundwater levels, the depleting soil quality, or the state’s rising debt. with depleting water table and reducing yields, the very freebie AAP and Congress want for the Punjab farmers would be futile for them five years from now. That is the consequence of imagined threat from new farm laws and the private sector participation. No wonder there is Zero improvisation and zero improvement on the ground.

In the public square, it is difficult to craft arguments clearly distinguishing genuine welfare measures and freebies. Not only the lack of nuance, but the positions will also be very hard to oppose in the political arena, lest one come across as “anti-poor”. The economic argument of increase in productivity at a population level, expressed rhetorically as “Samruddhi”, is hard to estimate and harder to explain. When Rewari are presented as a moral case for human welfare, the only counter could be to subsume it under a larger short-term vs. long-term debate.

There are multifold ramifications of these ever-increasing deficits. In the short term, old-school corruption will come back with a vengeance, from over-counting of beneficiaries. Look at Tamil Nadu’s distribution of Rs 1,000 for about 1 crore women every month. It is begging for an ED raid for later. Current capacities suffer from poor maintenance, e.g., buses in Karnataka, West Bengal. The list can go on. In the medium term, state government bonds will get dearer, thus increasing infrastructure woes. Over the course of time, investors will flee, thus reducing tax revenues and the money available for normal functioning of the government. The goose laying the golden egg, thus dies.

It seems like ancient-regime, but there was a state government not too long ago that focused on building roads and check-dams, made electricity reforms with separate feeders for farmers, conducted pioneering investor summits etc. It is another stunning aspect of Narendra Modi’s political journey that he did it virtuously without pandering to people or ruining the state finances. Gujrat remains one of the three states (besides Orissa and Maharashtra) which meets the fiscal deficit targets of FRBM 2003.

In summary, Rewari’s have their roots in political psychology. They threaten the long-term economic prospects of states just when India is being looked at favorably as the next superstar of the world economy. Rewari’s threaten to overrun the state led economic development. They could unsettle not just the economic prospects, but also the moral contract between citizens and the state.

The administrative and legal solutions can only help set up the stage for political debates. Ultimately, it will be people like us that will choose the way we want to be served.