The culture of freebies is gradually becoming a hindrance to India’s development. Some ‘good for nothing’ politicians are the ones responsible for it. Nevertheless, the Supreme Court has now given a green signal to the Centre, to address the increasing ‘Revadi culture’.

Supreme Court’s direction to the central government

In a recent development, the Supreme Court asked the central government to take a stand on the need to control the rigorous declaration of freebies by politicians during their election campaigns.

A bench of Chief Justice of India NV Ramana, Justices Krishna Murari, and Hima Kohli, termed this as a ‘serious’ issue, which needs to be addressed immediately. In addition, the Centre was asked by the court to consider whether the suggestions of the Finance Commission can be sought for a solution.

In the wake of CJI asking Senior Advocate Kapil Sibal about his view on the issue, Mr. Sibal said, “It’s a serious issue but difficult to control politically. The Finance Commission when it does allocation to various states can take into account the debt of the state and the quantum of freebies.” Moreover, the Finance Commission is the “appropriate authority” to deal with this kind of issue. In addition, he said, “Maybe we can invite the Commission to look into this aspect. The Centre cannot be expected to issue directions.”

It is looming under the circle of freebies for past some time now. States changes, political representations change, but the deplorable political tactic of freebies doesn’t change. We, at TFI, have often uncovered the political strategies that public servants often masquerade with.

PM Modi on “Revadi culture”

Addressing the same issue, PM Modi had earlier conveyed about the “dangerous Revadi (freebie) culture”, which is gradually deepening its roots in Indian electoral politics. Those who propagate this culture will never be able to build expressways, bridges, and roads for the common masses. He opined, “People of this mindset feel they can buy off voters with free Revadi.”

On the other hand, PM Modi distinguished BJP from the opposition, by concerning their unethical means of filling their vote banks. It is pertinent to note here that there various state governments promulgatefreebie culture. It is done apparently to add to their corrupt political mindset. However, there is an intrinsic need to curb this menace.

State government’s immoral attack on public

As reported by TFI in 2020, it was Delhi CM Arvind Kejriwal who doled out the freebie lolly-pops to the public of Delhi, stating that the government was in surplus. Earlier, before the Delhi elections, Kejriwal had said, “Freebies, in limited doses, are good for the economy. It makes more money available to the poor, hence boosts demand.” However, looking at the other side of the fence uncovers the dilapidated reality of the Delhi government with the sudden outbreak of the COVID-19 pandemic.

Further, Kejriwal tried to imitate the same tactic in Punjab as well. The “Revadi culture” is the most ‘dearest’ phenomenon for AAP to win the elections. The Kejriwal government is mirroring socialist politicians like Lalu Yadav and Mulayam Singh Yadav. Politicians like them caused the states to survive in the doldrums.

The socialists appreciate, that Lalu Yadav, ruined the state by not increasing the passenger fare on railways.  This further caused damage to the railway infrastructure with unhygienic stations, unavailability of tickets, extreme rush due to unavailability of trains, and delays due to single-line infrastructure.

There is an intrinsic need to eradicate the Revadi culture before it spews venom across the country. This culture can be witnessed as an obligation in India’s aim to slash all the “supposed” superpowers of the world. And this envisaged the Supreme Court to ask the central government to carry out an immediate sway of stringent actions to curb the menace.

There is no such thing as a freebie in economics because ultimately somebody has to bear the cost of the supposedly free giveaways

While the Arvind Kejriwal-led AAP has popularised freebies, making it a core element of their election promises across states as part of its “Delhi Model”, parties have been using freebies to lure in voter groups for years. In the hypercompetitive political landscape of India, the last few elections have been a testament to the fact that parties are continuing to use freebies as a bargaining chip with voters. However, the impact of the provision of freebies and their overall benefit has been long up for debate, with many industry experts stating that in the long run, the cost of providing such freebies increases due to the hidden externalities associated with their provision. Speaking at an event last week, N.K. Singh, the Chairperson of the Fifteenth Finance Commission flagged the rising culture of “competitive freebie politics” in India as an issue to contend with. He added that freebies affect the macroeconomic stability of governments and distort the expenditure priorities of governments. Let’s dive into the impact the provision of freebies has had on the fiscal health of some states and evaluate the costs, both actual and hidden, of providing them.

The AAP came back to power in 2020 with a generous welfare and subsidy policy with benefits ranging from free bus rides for women, free electricity up to 200 units, free water up to 20,000 liters a month, fee-waivers, and free tutoring for students from lower-income families, and free primary healthcare, amongst a host of other provisions. The party also made similar promises in 2016 and despite concerns about the viability of these schemes, the 2013-18 CAG (Comptroller and Auditor General) report concluded the Delhi State Government did not have any debt sustainability issues despite running such schemes. Although it should be mentioned that when the AAP came to power, it had a revenue surplus of around 4.2 percent, and while this has declined gradually, it has stayed steady at around 0.6 percent to 0.9 percent. Overall, there has been a decline in both the capital and development expenditure undertaken by the state, which has automatically increased the cash funds at the disposal of the government. The Union Territory of Delhi has the highest funds available in the country for development spending and could have spent Rs 20,142 crores in the financial year 2019-20 while remaining within the fiscal deficit limits according to the state finances report by the Reserve Bank of India (RBI). Even the 2019 CAG Report showcases that the Delhi government has consistently managed to have a revenue surplus, prompting the AAP to use this as evidence that its policies are fiscally prudent and do not impact the financial health of the state. However, critics of the policy state that such policies are only fiscally prudent in the short term and have a much larger impact in the long term, making them unsustainable.

The state’s revenue surplus has been falling every year, along with a fall in its tax revenues (OTRs). While the state continues to operate with a surplus budget, experts point out this is largely due to the huge surpluses created by previous governments in the state. In addition to this, it has been pointed out that while expenditure on both education and healthcare (considered the two most important sectors in the “Delhi Model” of development of the AAP) has increased, overall investment in new infrastructure has reduced. Financial experts suggest this could indicate these popular welfare policies have come at the cost of asset creation and infrastructure development, which directly impacts the long-run financial health of the state as well as its overall production capacity.

Punjab's fiscal health

The AAP in Punjab inherited a state government with a debt of around Rs 2.82 lakh crores from the previous INC-led state government. When the INC government came into power in 2017, it inherited a debt of around Rs 1.82 lakh crores from the 10-year rule of the Shiromani Akali Dal (SAD) led government.

In the run-up to this election, the AAP had promised free electricity for up to 300 units to the people of Punjab, and Rs 1,000 per month for every woman, aged 18 years and above in the state. These policies are likely to put substantial pressure on an already debt-ridden state economy. Given that the promise of the AAP would cover each household in the state (for the provision of free electricity), even at the most conservative estimates, it is likely to increase the subsidy bill by at least Rs 5,000 crores. Additionally, financial assistance of Rs 1,000 per month for every woman aged 18 years and above in the state, is expected to put an additional financial burden of Rs 15,600 crore on the State Exchequer, according to experts. AAP chief and Delhi Chief Minister Arvind Kejriwal also announced that the party will not levy any additional taxes in the state, which would also mean there is no avenue for the state to increase its tax revenue streams. The huge estimated costs of these welfare policies raise the question of their viability, especially for a debt-ridden state like Punjab. It should also be noted that newly elected Chief Minister Bhagwant Mann, in his first meeting with Prime Minister Narendra Modi in March, sought a financial package of around Rs 50,000 crore to improve the financial condition of the state.

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