Home / Opinion / Views /  The problem of freebies and how we define them

How free is a freebie? What do voters lose out on when politicians hand out saris, laptops, cash and the like to win electoral favour? The hidden cost of reckless spending is often a government short of money to invest in things that multiply incomes and improve lives sustainably, whether it is roads that aid commerce or schools with mid-day meals. And so, Prime Minister Narendra Modi’s recent warning about election-driven fiscal populism is well taken, especially since states finances remain weak. Covid relief expenses left us with extra public debt and it is not prudent to borrow for hand-outs that simply get consumed. The PM called it a culture of distributing free revri—a sesame-filled sweet that is often tossed into bonfires at north Indian harvest festivals. Instead of burning cash on such “shortcuts", he pitched for building expressways and airports, houses and toilets for the poor, as spending that generates growth and delivers “social justice". Scholars have called the Modi government’s redistribution agenda ‘new welfarism’, with its emphasis on household provisions beyond public healthcare and education. His Bharatiya Janata Party had been wary of welfare spending and keen to plug leakages. But if the Modi administration once saw our rural job scheme as an indictment of previous regimes for failing to end poverty, it soon came around to seeing it as a useful aid programme. Its post-covid offer of free food to the most vulnerable enlarged its welfare bill as well. Is something that keeps millions away from starvation also a freebie?

Infrastructure projects do account for a bulk of the Centre’s recent fiscal enlargement. This is welcome. But what qualifies as a hand-out is not so easily defined. What about, say, tax relief for India Inc in times of stretched finances? If this can be justified as being value additive, so could many other sops. On a big picture view, stimulus packages—fiscal or monetary—can also be called largesse. While crises like the pandemic do necessitate their use, they too have beneficiaries who gain at the cost of an economy that could get distorted as a result. Easy money aids business activity alright, as does deficit spending, but both stoke inflation beyond a point. And that is an uneven burden on people. Excess stimulus can create larger distortions too. Super-cheap credit is a global addiction that keeps ‘zombie’ firms going and retards the process of creative destruction which lets only real value-creators survive. It also spurs hazardous bets. Overall, it causes resource misallocation and lowers efficiency, cramping a country’s economic prospects ahead. Yet, cushions and bailouts are cheered along and rarely dismissed as giveaways.

Finally, it comes down to political choices. Job scarcity and weak earnings often make leaders resort to freebies. Ideally, state outlays should go into value generative stuff. Yet, distress rescues and safety nets serve a good purpose, as do welfare measures, though these are best if they eventually enable livelihoods (think education). Unless faced with a crisis, all of this should be done within tight fiscal limits so that it doesn’t threaten price stability or land us in a debt trap. The same logic applies to business support. Our covid policies kept many enterprises afloat, and while expanded asset wealth has meant a K-shaped recovery, we arguably had few other options. The mix of measures adopted, of course, was for policymakers to pick. And the jury is still out on its wisdom.

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