Freebie culture can one day derail India's democracy

It is one of India’s tragedies, that a hyper-competitive, first-past-the-post populist democracy has helped bad economic ideas gain faster traction than good ones. You only need one state to start offering something “free”, and soon it becomes a national obsession. In the election cycle starting 2014, we had several Telugu biddas bidding for votes in a bifurcated state, offering massive dollops of subsidies and farm loan waivers. This trend was accentuated in 2017, when BJP, in order to seal the vote in UP, offered a farm loan waiver, after which the dam burst. Devendra Fadnavis in Maharashtra, who was resisting political pressure to offer a similar waiver in his state, had no option but to follow suit. After that, the only political argument left undecided was how much, and not whether, more loans should be written off and for whom. It is raining freebies again, and this time it is debt-ridden Punjab leading the pack with announcements of free power up to 300 units monthly. Apparently, CM Bhagwant Mann is in awe of the “Delhi model” of free water and power, forgetting that the finances of an urban half-state like Delhi, which has high revenues and lower expenses (especially on policing) than “regular” states, are simply not comparable. medium nocaption90985363Delhi’s free spending priorities, including high spends on Arvind Kejriwal’s self-promotion, cannot be a model for any state to follow. With the highest debt-to-state GDP ratio in the country (53.3% in fiscal 2021-22), Punjab should have been more prudent. Mann is now being followed down the fiscal tubes by BJP-governed Himachal, which has promised 125 units of free power, and no water bills in rural areas, in the run-up to next state elections. It needs no political genius to speculate that free water and power may well be the next ruinous idea that will grab India by storm. States with the worst debt-to-GSDP ratios, apart from Punjab, include Rajasthan, Andhra Pradesh, Kerala and West Bengal. While each state may indeed have its own peculiar set of circumstances for achieving this dubious distinction, the fact that all are opposition-governed may not be just a coincidence. In an era where the PM is seen as widely popular across many states, and hence a formidable political opponent, opposition-governed states and politicians have a greater reason to be liberal with taxpayers’ money in order to endear themselves with voters. It may seem churlish to rubbish freebies, which may benefit the poor if properly targeted and delivered with minimal leakages, especially if this critique emanates from the better-off sections of society and ivory-tower economists. However, here is the real fallout: When taxpayer funds are spent on “private goods” – goods where the benefits go to individuals rather than everybody – we are effectively undercutting economic growth and job creation. It is investments in “public goods” and infrastructure – good roads, law and order, high quality primary education and health facilities – that have the highest impact on new job creation. But that is what is being lost in the deluge of freebies. In 2019, the Union finance ministry said that there were more than one million job vacancies in central government departments alone; add state-level vacancies, and this figure could well double or triple. The point is simple: When governments spend on freebies, they eat into their own resources and cannot afford to fill approved job vacancies. Lower investment in job-multiplying sectors like infrastructure, and the inability to afford high-quality job expansion within government, are partly the direct result of high spending on private goods and freebies. Freebie culture is contributing to killing our jobs growth potential. India is staring at a fiscal abyss unless we develop a national consensus on how far we can let freebie culture grow. While it is perfectly normal for states and Centre to provide people in distress with essential food and other necessities of life, as we did during Covid, it hardly makes sense for governments to provide these benefits universally and for all times to come, regardless of any kind of means-testing. Narendra Modi, who believes in empowerment rather than entitlement, has to take the initiative to rein in his own party governments from mindless subsidies. But it is futile to expect only BJP governments to do the right thing in India’s competitive political scenario. The PM must call a national meeting of all chief ministers to agree on some kind of limit to freebies and debt-fuelled political largesse to undeserving voters. Simultaneously, he must also create a Centre-state consultative committee on job creation, for jobs are the ultimate solution to poverty. Unfortunately, we are promoting subsidies as the antidote to poverty rather than jobs. For his part, the PM has proposed the idea of one-nation-one-poll in order to reduce the pressure on government to be perpetually in election mode. But so far he has found no takers. The opposition fears that this must be beneficial to him and not them. But they need to think long-term. However, regardless of whether the idea finds traction or not, a national consensus on limiting freebie culture is essential. It is the only thing that will prevent India, or some of its most indebted states, from becoming the next Sri Lanka, where essentials are no longer available or affordable to the vast majority of people. We have to pull back from this precipice. Democracy will die a slow death if the state is not fiscally viable.