Fresh perspective needed on politics of ‘freebies’ in India

While targeting Opposition political parties, the Prime Minister of India Narendra Modi had equated ‘subsidies and freebies’ as ‘revari culture’ which, he said, ought to be stopped. His language gave an impression to the public that only political parties in the Opposition are indulging in such a ‘culture’ and destroying the State finances. 

However, the fact is that BJP-ruled Uttar Pradesh is among the top five states in the country which recorded the largest rise in subsidies over the last three years. A state like Gujarat spends over 10 per cent of its revenue expenditure on subsidies. 

Thus, PM Modi’s ‘revari culture’ comment is just rhetoric, but the debate engendered by it involved all the three pillars of democracy – the executive, the legislature, and the judiciary, apart from the economists, the intelligentsia, and common men. 

Enthusiasts who do not believe in giving anything to the poor for their well-being and survival even moved the Supreme Court of India pleading for a reasonable restriction on such expenditure, on the ground that it destroys State finances. The Supreme Court in turn set up a panel and wanted thorough discussions on it including what constitutes ‘freebies’. 

Everyone has their own opinion on it, but due to a lack of a standard acceptable definition, all the diagnosis and treatments for this ailment seem to be wrong. The latest being the State Bank of India’s economic report written by the group’s chief advisor Soumya Kanti Ghosh, who suggested that the Supreme Court-led panel cap such welfare schemes at 1% of the State’s GDP or of its own tax collection. The report presumes even wrong definitions and facts about ‘freebies’. 

For example, one can see the online dictionaries or other resources only to find there that even loans taken or given with the intention of not paying back is a form of ‘freebie’. But the SBI report misleads us twice – first by telling us that ‘loan write-offs are purely technical in nature’ and then by stating, ‘added back to bank books once recovered’. 

We already have proven cases of bank frauds which tell us that ‘loan write-offs’ are not always technical in nature, and also that large amounts always remains unrecovered and hence there is no question of them being added back to the bank books. 

Therefore, a comment in the report that ‘equating the haircuts with freebies or even the loan write-offs is at best a deeply flawed argument’ is wrong. 

The most objectionable part of the SBI’s report concerns pension given to the retired government employees, which had been the only social security for them in the country before the scheme was done away with in 2004 under the BJP’s rule. In its place, a new pension scheme was implemented. 

Even at that time, the BPJ’s decision had shocked the nation, because people (barring the rich and the BJP’s rank and file and bhakts) believed that a person who sacrifices the prime time of his life in government service must get pension as financial security in his old age. It is unethical to leave them on their own fate. Now, several political parties in the Opposition have promised to implement the old pension scheme if they come to power.

The SBI report terms even the ‘old pension scheme’ as a ‘freebie’, a very sad approach, since the scheme had always been treated as social security coverage for the old people in return for their service and sacrifice throughout their productive life. 

However, the report now cites the example of just three states, Chhattisgarh, Jharkhand and Rajasthan whose annual pension liabilities are estimated at Rs 3 lakh crore. When viewed in relation to these states’ own tax revenue, the pension liabilities are quite high for Jharkhand at 217 per cent, for Rajasthan at 190 per cent and for Chhattisgarh at 207 per cent. 

The report argued that for states contemplating the change, it would be as high as 450 per cent of own tax revenue in case of Himachal Pradesh, 138 per cent of own tax revenue in Gujarat, and 242 per cent of own tax revenue for Punjab. 

The report also mentions the unfunded pension liabilities of the state which have gone back to the old pension scheme or ‘pay as you go scheme’, or planning to do so as a percentage of tax revenue. It’s a staggering 450 per cent for Himachal, 138 per cent for Gujarat, 207 per cent for Chhattisgarh, 190 per cent for Rajasthan, 217 per cent for Jharkhand and 242 per cent for Punjab.

The report argued that the combined liabilities of these states which have reverted to the old pension scheme or have promised to do so stood at Rs 3,45,505 crore in FY20 and the same will go up as a percentage of GSDP of Chhattisgarh to 1.9 and increased burden of Rs 60,000 crore from Rs 6638 crore. 

For Jharkhand, it was Rs 6,005 crore and will be 1.7 per cent of GSDP and will increase by Rs 54,000 crore; Rajasthan Rs 20,761 crore, 6 per cent and will jump by Rs 1.87 lakh crore;  Punjab Rs 10,294 crore, 3 per cent and will rise by Rs 92,000 crore; Himachal Pradesh Rs 5,490 crore, 1.6 per cent of GSDP and will rise by Rs 49,000 crore and for Gujarat the pension burden was Rs 17,663 crore in FY20 and will jump to 5.1 per cent of GDP and will rise by 1.59 lakh crore.

Merely on the basis of expenditure, the State that used the prime time of the life of a person must not desert them in their old age, which makes it inhuman. It is wrong to presume that pension is a ‘freebie’ and should not have been added to other liabilities such as loans taken by the State to reach at an astronomical figure to influence decision in the Supreme Court. 

The report pointed out that the budget borrowings of states have reached around 4.5 per cent of GDP in 2022, because of their guarantee to support its citizens. 

Such a guarantee amount is significant at 11.7 per cent of GDP for Telangana, 10.8 per cent for Sikkim, 9.8 per cent for Andhra, 7.1 per cent for Rajasthan, and 6.3 per cent for Uttar Pradesh. 

While the power sector accounts for almost 40 per cent of these guarantees, other beneficiaries include sectors like irrigation, infrastructure development, food and water supply.

The report has quoted RBI on financial assistance, utility subsidies, loan or fee waivers and interest free loans announced by the state in their budgets ranges from 0.1 to 2.7 per cent of states’ GDP. The freebies have exceeded 2 per cent is some of the highly indebted states such as Andhra Pradesh and Punjab.

Let us remember that the RBI’s recent bulletin of June said, “While there is no precise definition of freebies, it is necessary to distinguish them from public/merit goods, expenditure on which brings economic benefits.” 

(IPA Service)

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