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Analysis of Sansad TV Discussion : Impact of Election Freebie Politics on Economy

Introduction

  • As the poll season is round the corner, political parties are busy planning to lure the electorate with their promises which also include freebies.
  • Over the years the politics of freebies has become an integral part of the electoral battles and the scenario is no different in the forthcoming assembly polls in five states- UP, Uttarakhand, Goa, Punjab and Manipur.
  • While some political party is offering free electricity, others are offering a monthly allowance to unemployed, daily wage workers and women. Scooters and smartphones are also part of these promises.
  • There are arguments both in favour and against this practice. The supporters of such freebies argue that poll promises are essential for voters to know what the party would do if it comes to power and have the chance to weigh options. Those against these freebies point out that this places an economic burden on the exchequer.

Arguments in Favor of Freebies

  • Aid to the poor is seen as a wasteful expenditure on the other hand low-interest rates for corporates to get cheap loans or the ‘sop’ of cutting corporate taxes are never criticised.
  • When the Centre gives incentives to stimulate private investment or states give free land to big companies and announce multi-year tax holidays, questions are not asked as to where the money will come from.
  • Freebies and sops given to the poor help create demand. In other words, the multiplier effect of inducing demand through fiscal transfers is equal, if not greater than giving incentives to the corporate world.
  • Sops ensure that a majority of Indians can stay afloat in a fiercely difficult economic environment.

Why do political parties need to promise sops to the poor before every election?

  • The answer lies in the utter failure of our economic policies to create a decent livelihood for a vast majority of Indians.
  • If anything, both the RBI-KLEMS estimates for employment since 1981, and the employment surveys done by the Centre for Monitoring India’s Economy (CMIE) since 2016, have shown that employment growth initially slowed down from the 1990s, and then has turned negative over the past few years.
  • It is obvious that if people don’t earn enough to get two square meals a day, they will be unlikely to vote governments back into power.
  • Real income growth of the bottom 30% of Indians slowed down from 1982 when India first began ‘opening up’ and ‘liberalising’ its economy by encouraging the private sector.

Where is the Money?

  • Most states have dodgy finances and are always asking for more central support. Only recently, some states asked that the GST compensation scheme be extended for another five years beginning 2022.
  • AAP’s free power-water offerings in Delhi have a less negative impact, thanks to the city-state’s surplus budgets and predominantly urban economy. But practically no other state has such advantages.
  • When politicians promise sops, often fiscal constraints force governments into cutting corners elsewhere or raising new taxes. UP’s 2020-21 capital expenditure was 16% lower than the budgeted outlay, a sure sign of strained finances.
  • In Punjab, experts led by Montek Singh Ahluwalia, tasked by the government to prepare an economic revival road map, warned that its capital outlay at 0.7% of GSDP was the lowest and subsidy burden highest among similar states.
  • Under this scenario, states giving unviable sops will end up hurting citizens down the line.

What latest data says about employment in the country?

  • If we take CMIE’s latest employment data, we find that less than 38% of Indians above the age of 15 had paid work in December 2021.
  • The situation wasn’t significantly better before Covid hit us. In February 2020, less than 39% had some sort of employment.
    ILO data suggests that the global average at that time was about 57%.
  • A large number of Indians have got so used to not getting paid work that they have stopped looking for it altogether.
  • The global average for people wanting jobs (known as the labour force participation rate) was about 61% before Covid, while in India, CMIE’s data shows it was less than 44%.
  • Income data from CMIE’s surveys and from the World Inequality Database suggests that not more than 10% of Indians earn enough to spend on high-value durables. Another 30% have incomes that enable them to spend on low-value durables and cheaper FMCG items.
  • The bottom 30% barely manage to survive, while another 30% above them are always in danger of slipping into poverty.
  • Our organised sector, whether in manufacturing or services, is almost entirely oriented towards catering to the top 10%. A smaller portion of their output is consumed by the next 30%. The remaining 60% of people are simply out of their ken.

Why do Politicians Need the Support of the Bottom 60%?

  • India’s corporates and the ruling classes do not need the bottom 60% of Indians but politicians cannot ignore them.
  • This is why they promise income support or subsidies on essentials, whether in cash or kind.
  • Without this, they might throw governments out of power, or even begin to question what media and public culture feed them.
  • A democracy that is controlled by a corporate-dominated ruling class requires popular support for its rule to continue. The sops and freebies to the poor buy it the requisite votes.
  • It is a small price that India’s affluent have to pay to ensure the economy continues to disproportionately reward them.

Way Forward

  •  Promising freebies from the state exchequer raises moral, ethical, and serious administrative and legal issues.
  • The revenue is collected from taxpayers and it should move as per the existing set procedures for the welfare of the people.
  • It is a corrupt practice and loot of treasury to garner votes promising something for free when it requires money to procure.
  • Competitive politics may see a party tomorrow promise free ration for all and there could come a time when the government’s revenues would be dedicated to only disbursing the freebies. This will have debilitating effects if political parties and the Election Commission of India do not intervene.
  • The elections are conducted by the Election Commission of India and it is their responsibility to ensure that free and fair elections are held.
  • The Election Commission rather than taking the concurrence of parties, should bring freebies like free electricity under the purview of the model code of conduct. It should define what should be listed as freebies and what should be listed in manifestos — like free schooling and free health which cannot be listed as freebies.

Conclusion

The prevalence of “freebie culture” is not a good thing for a healthy democracy and economy as fulfilling the freebie promises takes a lot of damage to the economy and always sacrifice economic sense.

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