Supreme Court’s panel on ‘freebies’

The Supreme Court has sought suggestions from petitioners and respondents, in a plea seeking directions against freebies by political parties. The Court said that there is a need to form a committee which can go into the issue dispassionately and make recommendations.

Details –

• Multiple PILs were filed before the Supreme Court to direct the political parties to restrict the promise of freebies in order to have money available for developmental schemes.
• The Central government said it substantially and in principle opposed the practice of promising freebies to voters.
• The Court said that a body should be commissioned that could examine ways to resolve the issue of freebies and file a report before the Centre or the Election Commission of India.

Background –

• Recently, PM Modi had expressed concerns over giving free government schemes to the public on behalf of the states.
• The PM said that this culture of giving freebies is dangerous for the development of the country.
• He targeted the “culture of subsidies” in the power sector and urged the states to clear dues of power utilities amounting to 2.5 lakh crore.
• Even the RBI in its annual report has cautioned that rising subsidy burdens have stretched state government finances already exacerbated by the Covid-19 pandemic.

About election freebies –

• Provision of free electricity, free water, free public transport, waiver of pending utility bills and farm loan waivers are often regarded as freebies.
• Such waivers potentially undermine credit culture, distort prices through cross-subsidisation eroding incentives for private investment.
• It also disincentivises work at the current wage rate leading to a drop in labour force participation.
• As per estimates, expenditure on freebies range from 0.1 – 2.7 per cent of GSDP for different states.

RBI’s report on state finances–

• Recently RBI presented a report titled “State Finances: A Risk Analysis” which pointed out the gaps in Indian states’ fiscal health against the backdrop of the Sri Lankan debt crisis.
• The report highlighted that the fiscal health of states like West Bengal, Kerala, Punjab, Rajasthan and Andhra Pradesh warrant a careful assessment because of their larger focus on social welfare.
• Punjab is expected to be worst hit as its debt-GSDP ratio is projected to exceed 45% in 2026-27. The newly elected state government has announced 300 units of free electricity from July 1 to every household.
• For the five most indebted states – Punjab, Rajasthan, Bihar, Kerala and West Bengal – the RBI said that the debt stock is no longer sustainable as the debt growth outpaced their GSDP growth in the last five years.