Do Rich People Love Freebies in India? Redefining Welfare Measures

The concept of populist measures, often associated with 'freebies', has been a contentious topic in India. These measures, while politically attractive, are frequently criticized for burdening the government's fiscal burden and failing to address underlying structural issues. However, evaluating these initiatives solely based on their short-term benefits overlooks their broader social and economic impacts.

The Context of Freebies and Populism

In October, the Supreme Court of India addressed a petition urging a ban on freebies, suggesting that the government and other institutions consider ways to regulate the welfare promises made by political parties. This renewed focus on freebies highlights the ongoing debate over the effectiveness and ethicality of such measures.

Income Support, PDS, and Financial Relief

The agricultural sector, facing structural challenges and long-term profitability issues, has seen several state governments introduce direct income support for farmers. For example, Odisha's Krushak Assistance for Livelihood and Income Augmentation (KAAR) scheme offers Rs 10,000 annually to vulnerable farmers. While these measures do provide immediate relief, they may not address long-term capacity issues in the sector.

Debt waiver schemes, implemented by multiple states, aim to settle outstanding farmer loans and offer immediate relief. However, these measures are often criticized for burdening state finances without delivering long-term benefits. Nonetheless, such short-term measures are justified as they maintain social protection and prevent further deterioration in development outcomes for target groups.

Subsidies and Their Role

Subsidies play a crucial role in enhancing consumption and promoting broader societal benefits. For instance, the Public Distribution System (PDS) in India provides wheat and rice at highly subsidized prices, reducing the budget to Rs. 2.06 lakh crore in the Union Budget 2022-23. The PDS has found acceptance among political parties due to its role in addressing hunger and malnutrition.

The larger question revolves around which commodities need to be subsidized, balancing economic efficiency with social welfare.

Merit and Non-Merit Subsidies

The Reserve Bank of India report distinguishes between merit and non-merit subsidies. Non-merit subsidies, such as providing free bicycles to students, have indirect benefits such as increased school enrollment and retention, especially among girls. During the COVID-19 pandemic, the free distribution of communication devices to children was a critical measure to bridge the digital divide and improve educational access.

While free distribution of water and electricity is often criticized for being instances of non-merit subsidies, these interventions can also create positive externalities, such as promoting economic growth and creating a more inclusive ecosystem.

Key Question: Do these measures support public goods or are they merely short-term fixes?

Meritocracy vs. Welfare: A Nuanced Debate

Taking a closer look, it becomes apparent that measures like tax exemptions for corporates, loan waivers for big farmers, and bank recapitalization due to non-performing assets often go unmentioned in discussions around freebies. These measures create fiscal constraints but are often justified as incentives aimed at promoting economic growth and development.

The debate on populism versus welfare measures is not black and white. It is crucial to examine these policies in the context of specific sectors or demographics. While it is true that some measures may be inefficient or wasteful, simply scrapping social protection-oriented welfare measures would be shortsighted. The focus should be on whether a policy fosters development outcomes and fulfills human rights.

Conclusion

The provision of essential goods and services to disadvantaged groups is not just a temporary fix but an integral part of welfare measures. As India continues to navigate economic challenges, it is essential to redefine and reevaluate the role of freebies in fostering a more inclusive and equitable society.