As election pledges of freebies escalate, Modi Government issues a warning to States at the third National Conference of Chief Secretaries
In the third National Conference of Chief Secretaries held in Delhi on 28th and 29th December 2023 under the chairmanship of Prime Minister Shri Narendra Modi, the central government cautioned the states against giving freebies, and goaded them to increase capital expenditure by rationalizing welfare schemes with emphasis on eliminating inefficient subsidies.
The Centre’s concern over freebies – an acronym for “something given free of charge” – has heightened because of a volley of these promised by almost all political parties in five state elections held in November 2023. It apprehends that the freebies would drain state coffers, lead to similar competing moves in other states and set undesirable and unsustainable precedents.
How does one ensure that freebies are not handed out in the garb of welfare schemes?
If, the state makes bare essentials such as education, health, food, fuel, water, housing, electricity etc available for free or at subsidized rates, will that be counted as a freebie? This question can’t be answered without specifying as to ‘for whom’ this is meant. If, it is for persons who are poor say 24 million families covered under the Antyodaya Anna Yojana (AAY), it can qualify as a welfare measure.
In case however, the government decides to provide any of these essential items free to all and sundry, then it might be difficult to justify this as a genuine welfare scheme. For instance, Modi’s promise of free food to about 164 million families – corresponding to 820 million persons and taking 5 persons per family – for five years (the announcement was made in November 2023) is more likely to be interpreted as a freebie.
Similarly, the decision of the AAP government in Delhi led by Arvind Kejriwal to give electricity subsidy on consumption of up to 400 units per month to any household ‘who asks for it’ is a blatant case of freebie driven solely by electoral politics. Likewise, a full waiver of electricity bills on consumption up to 300 units a month to all such households promised by the AAP government in Punjab is a freebie.
At another level, the Centre’s assistance to poor families (as per the socio-economic census 2011) for building 40 million houses under the PM Awas Yojna (PMAY) deserves to be classified as a welfare scheme. Likewise, providing free gas connection to 100 million beneficiaries (albeit poor) under the Pradhan Mantri Ujjwala Yojna or PMUY plus a subsidy of Rs 400 per cylinder for up to 12 refills per year may qualify for a similar treatment.
However, the Centre’s decision announced last year to give a subsidy of Rs 200 per cylinder to all 330 million household consumers of LPG was aimed at alluring voters; hence it won’t pass muster as a welfare scheme. The same can be said of parties promising additional subsidies from state coffers to deliver LPG at Rs 500/450 to all consumers.
The parties have also come up with schemes that promise ‘cash assistance’ to certain target groups. For instance, you have Gruha Lakshmi in Karnataka where every woman head of a household gets Rs 2000 per month; or Ladli Behna Yojana in Madhya Pradesh (MP) under which the State gives Rs 1,250 per month, the amount to be gradually hiked to Rs 3,000 per month, or Yuva Nidhi in Karnataka where unemployed graduates get Rs 3,000 every month.
In the absence of specifying whether the beneficiaries are from economically weaker groups or otherwise, such schemes would naturally get the colour of a freebie.
Then, you have things like free bus tickets for all women to travel in Karnataka, Delhi and Punjab; free pilgrimages for elderly persons in Delhi, MP etc; 10 grams of gold plus Rs 100,000/- cash to women getting married in Telangana and so on. Such schemes are designed to benefit all including the rich or even super rich. Spending taxpayers’ money in this manner is preposterous.
There are production subsidies as well. For instance, you have a supply of electricity at subsidized rates to farmers and a subsidy on fertilizers to keep their prices low. In addition, there is PM-KISAN under which the Central government provides income support of Rs 6,000 a year to farmers with a valid enrolment (now, some states are giving an additional Rs 6000). This support is meant to enable farmers to buy fertilizers and other inputs.
It is ironic that on one hand, farmers are prevented from realizing a good price for their agri–produce courtesy, obstructionist state laws viz. APMC Act under which they can sell only at designated APMC mandi on the other, the Centre and states spend huge sums to subsidize the supply of agri – inputs. In a way, these welfare schemes end up bolstering the profit margins of traders and commission agents.
What is the way forward?
For a Scheme to be welfare-oriented, it must address the needs of a person who is desperately in need of a product or service. Here, an overarching criterion has to be her income. If she is poor or very poor having income below a certain threshold, the government’s assistance should only go to her. A person who is well off has a high income and hence capable of buying all items needed for a good living must not be allowed to benefit from it.
On this fundamental consideration alone, most of the schemes that are being accessed by all and sundry should be disbanded or reconfigured to give help only to the poor. While focusing on the poor, a distinction should be made between a product or service that helps in imparting skills and augments the productive capabilities of a person besides keeping his health in good shape. Accordingly, housing, education and health should receive top priority.
As for food subsidies, a consumption-oriented welfare scheme, in principle, should be given only to the poor. This logic also holds for subsidies on fuel and electricity. The government should shun existing support systems for farmers viz. MSP and subsidy on fertilizers and other agri-inputs etc, instead it should work on facilitating a good price to them through market reforms.
Subsidies like pilgrimages of elderly persons, free bus travel, cash help for marriages, gold etc even if these are meant for the poor should go. If the State starts taking care of almost everything under the roof, the potential beneficiary will stop working and simply wait for help from the former to come. This will be disastrous for the state coffers, the economy and the society.
Ideally, the government should shun the existing practice of subsidizing dozens of products and services; instead, give lump sum income support to the poor ‘only’ and let the beneficiary prioritize its use depending on where the shoe pinches the most.
The list of beneficiaries should be periodically reviewed to delete those who have come out of poverty. Meanwhile, the government should augment and strengthen the social infrastructure such as schools, hospitals etc where facilities for all people are available at ‘affordable’ rates. Moreover, policy reforms in key sectors such as food, fertilizers, fuel etc should be brought about to enable ‘efficient’ and ‘competitive’ markets so that each of the 1.4 billion Indians gets access to these products at low prices. However, for all this to happen, electoral politics has to give some space for decisions based on economic merit.
(The writer is a policy analyst, views are personal)
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