Welfare spending is not freebie culture

It must be understood that welfare spending is essential to partly redress the widening inequality in Indian society

Ajit Ranade Aug 09, 2022
Welfare spending is not freebie culture( Photo: Twitter)

India has been managing the world’s largest and longest running free food programme since April 2020. This is called the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). It ensures that more than 80 crore Indians get a ration of five kilos of either rice or wheat per person per month, completely free. This is a transformed version of the National Food Security Act (NFSA) passed in 2013, which guaranteed three-fourth of rural India and half of urban India rice, wheat or coarse cereal at 3, 2 or 1 rupee a kilo respectively. 

PMGKAY has made the food distribution free of cost to the beneficiaries. It was launched during the pandemic and ensured that the economic and livelihood predicament did not become a food crisis. It has been extended beyond two years. The government also claims, validly, that the in-kind transfer of food (instead of giving a fixed amount of cash) has protected households from food inflation.  

The critics of the NFSA back then (and there were many) had mainly focused on its huge fiscal burden. But NFSA was passed in Parliament after more than a decade long movement called the right to food campaign. In the early days of the campaign there was a public interest litigation in the apex court asking for its intervention to reduce hunger and malnutrition. 

Hunger and food

It was especially shocking because hunger coexisted along with mountains of food grain stocks in government granaries. There was no question of not affording a programme to ensure a nearly universal ration of subsidized food grain. The other objection to NFSA came from a cabinet minister himself who famously quipped that since it cost 18 rupees to produce a kilo of rice and only 3 rupees to buy it at ration shops, why would any farmer have the incentive to produce rice? It was a clever quip and pointed out the incentive effect of freebies.

But this lack-of-incentive argument fails, since the government has a large procurement programme which provides supply side incentives, and the food subsidy is the difference between cost of procurement and revenue from selling at low prices. The right to food along with the right to employment (MNREGA) and right to education was a new paradigm of rights-based development that the government initiated in the first decade of this century. 

This new rights-based approach of course does have a fiscal cost, but that cost is inevitable if we as a society believe that these are basic rights and must be enforced, whatever the cost. During the pandemic not only has PMGKAY proved invaluable, but also MNREGA which acts as a proxy for unemployment insurance. The government in the last decade has extended such rights toward to affordable housing (Pradhan Mantri Awaas Yojana), to health insurance (Ayushman Bharat) and to toilets (Swachh Bharat). 

Subsidies are not freebies

All of these programmes have elements of subsidies, and nobody can accuse these programmes of inducing a freebie culture. Indeed, in developed countries even access to electricity and the Internet have been raised to the level of basic rights. In Scandinavia even convicts in prisons have the right to Internet access. But here sometimes the debate over subsidies, incentives, much needed support, welfare spending, basic rights and election campaign promises often gets mixed up in the slamming of “freebies”.
The Supreme Court last week suggested setting up a specialized body to debate the issue of doing away with “irrational freebies” offered to voters during elections. Suggestions by the apex court follows a PIL that has been supported by the government. The PIL wants political parties to be stopped from offering “irrational freebies” and making populist promises that sways voters from making informed decisions.

It is not the first time that the courts have been approached to do something about the “freebie” culture. In 2006, the Madras High Court admitted a petition against the practice of offering free mixers, grinders and what not during election campaigns. The case was eventually resolved by the apex court, asking the Election Commission to include some provision for this in the model code of conduct. Then came the Amma Canteens (almost free, highly subsidized cooked food) of Tamil Nadu. Such subsidized canteens for the working urban poor have been emulated by other states as well.

Free power to farmers

The most discussed issue has been that of free power to farmers. This is a practice which has spread far beyond Punjab where it originated many years ago. It has led to many ill effects such as reckless proliferation of irrigation pumps, tube wells and an alarming lowering of the water table. Not to speak of motors which get burnt often, leading to a thriving business of motor winding repair! 

Similarly massive subsidies on urea lead to overuse, and increased salinity of the soil making the land fallow. High chemical fertilizer usage has also been linked to the increased incidence of cancer. But how many of these ill effects can be linked to the so-called freebie culture? And is this connection not for elected politicians to explain to their electorate? If the electorate expects parties to deliver on these promises, how can courts intervene? And why should they intervene?

The case of free electricity is worth examining. Technology like metering and remote measurement makes it possible to assure a limited quantity of free power, beyond which commercial rates can apply, or the user faces a termination of the connection. Most poor households will not cross the minimum threshold, since they don’t own devices that consume massive amounts of electricity. Besides, more than half the losses of all electricity distribution companies are on account of unpaid subsidies from state governments. 

Welfare needs must be met

The total cumulative losses of all discoms are only 10 percent of bad loans written off by public sector banks in the past five years. Surely those losses of banks are an egregious waste of taxpayer and voters’ money. Hence the fiscal argument against so-called freebies does not stand, since much bigger fiscal giveaways exist as loan write-offs or in non-merit subsidies.

The budget itself discloses revenues foregone in terms of tax exemptions, which used to be bigger than even the biggest item -- the annual interest burden of the government. As India’s development path is more along the welfarist model of a mixed economy (balanced between state and market economy), the expenditure on various modes of welfare, many of which are simply ensuring basic rights to things like food, school lunches, healthcare, primary education and piped drinking water, is fully justified. 

It is for lawmakers to find the appropriate source of untapped funds, the right mix of direct and indirect taxes to address the needs of welfare spending and to reduce inequality. Promises of welfare spending should not be equated to a reckless freebie culture or a race to the bottom.  

This is really an issue between lawmakers, the political executive and the people and not a matter of concern for the judiciary.  It must be understood that welfare spending is essential to partly redress the widening inequality in Indian society.

(The writer is a noted economist. Views are personal. By special arrangement with The Billion Press)

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