General Studies Paper 3 (Indian Economy)
Question:- 52. The culture of freebies is hampering the state’s fiscal health and generating concerns for the future economic growth of country as a whole. Examine the issue in brief. Answer in 150 words.
Aug 30, 2022
Answer:-

INTRODUCTION:

Before every election, political parties in India promise certain health and education services, besides free water and electricity up to a limit. Many parties also promise what have come to be known as freebies such as television sets, laptops with the internet, bicycles, scooters, monthly petrol quotas, cell phones etc. in order to secure vote of the people. Certain kinds of expenditure that are done under populist pressures or with elections in mind may be questionable.

States push back on this issue on the grounds of welfare provisioning and protection of the vulnerable sections of the population.

 

BODY PARAGRAPH:

  1. 1. As both the Union government and States are expected to work closely in a co-operative federal structure, frictions arising out of these exchanges might have repercussions on both resource sharing and expenditure prioritization.
  2. 2. Resources for freebies are raised from the public itself through higher taxes or other means. It is also essential to distinguish between subsidies and freebies as subsidies are the justified and specifically targeted benefits that arise out of demands.
  3. 3. It could damage the financial health of states, leaving lesser resources for essential expenditure. Already, the states’ finances are really getting hit is in their ability to raise revenues in the GST era.
  4. 4. Freebies for One, Disaster for Other: As a result of reducing prices for consumers beneficiaries, the government overcharge industrial and commercial contracts in order to maintain the internal fiscal balance. Subsequently the competitiveness of growing industries is reduced, which results in slower industrial growth and commercial price hike.

Therefore, it is not how cheap the freebies are for the beneficiaries, but how expensive they are for the economy, life quality and social cohesion in the long run.

  1. 5.The promise of irrational freebies from public funds before elections unduly influences the voters, disturbs the level playing field, and vitiates the purity of the poll process.

 

CONCLUSION:

As recently declared by the Supreme Court, a balance must be struck between the economy losing money and welfare measures. In manifestos, when parties promise such freebies, they should mandatorily come up with how they plan to finance them. Also, the Centre and States need to prioritise expenditure and adhere to fiscal discipline.