End this odd struggle over ‘freedom’

On August 3, 2022, the Supreme Court of India has bounced back the issue of ‘free gifts’. Recommendation to set up expert committee It involves the beneficiaries, representatives of Central and State Governments, Finance Commission, NITI Aayog and Reserve Bank of India to study the issue of ‘free gifts’.

The Court seems to contradict the line of critics that ‘free gifts’ put pressure on the state exchequer, trapping them in debt. On the other hand, in favor of freebies argue that in a stratified society where capital in various forms (intellect, wealth, caste) is stored in the hands of a select few, the poor and marginalized become victims. Here, the ‘measures of social welfare’ which are otherwise ridiculed ‘Freebies’ act as shock absorbers,

On ‘trickle down economics’

In the famous Reagan tax cuts, or Reaganomics, associated with ‘trickle down economics’, maximum cuts were made to high-income earners and corporations in the hope that any benefits provided on top would go to the poor in the form of jobs. construction, higher production and infrastructure development. While ‘trickle down’ produced some positive results, it also increased inequality, reduced inclusive growth, and led Nobel laureate Joseph E. It was criticized by economists like Stieglitz.

In India, post-1990s neo-liberal schemes such as Special Economic Zones (SEZs), Software Technology Parks of India (STPI), and Biotechnology Parks (BTPs), (where there were incentives in the form of tax holidays), subsidized electricity, and exemption of stamp duty), was seen as a result of ‘trickle down economics’, including the recent cut in corporate tax from 30% to 18%.

However, the World Inequality Report 2022 says that by 2021 the top 1% of India had 22% of the total national income, and the top 10% had 57% of the income. In another example, a research paper, ‘Wealth Inequality, Class and Caste in India, 1961-2012’ states that India’s upper caste households earned about 47% more than the national average annual household income, thus Made India one of the most economically. and socially stratified countries in the world. In addition, 93% of the top corporate board members and 61.8% of micro, small and medium enterprises (MSMEs) are owned by the upper castes (MSME data March 31, 2022) – hence, freebies as incentives for higher castes The elite of the caste benefits. ,

differential tax burden

The central government relies more on indirect taxes than on direct taxes. While direct taxes such as corporate tax were reduced from 30% to 18%, indirect taxes have increased manifold between 2014-21 – these include taxes on fuel and food (rice, milk, cereals) on which the poor spend a large part. Their income puts a financial burden on the poor, which in turn leads to high inflation and resulting in inequality and low growth.

States like Tamil Nadu address this inequality through social welfare measures (ridiculous as free). For example, the Tamil Nadu government’s free bus passes for women have not only saved families fuel costs, but also encouraged more women to join the workforce, leading to financially stable families and women empowerment. The free mid-day meal (now till free breakfast) has encouraged socially backward parents to send their children to school for less and less food, resulting in the evil of child labor being kept under control and even more so. The important thing is to provide education. These measures have resulted in a high undergraduate enrollment ratio for TN (at 52%) that is more than twice the national average at 27% and even higher than the United States at 41%.

Comment | Understanding the issue of ‘freedom’

A paper published in Oxford University Press Quarterly Journal of Economics (2009) has commended the introduction of free color television in villages as it has resulted in a reduction in domestic violence and has also enabled women empowerment (women, who are largely indoors due to traditional practices/household duties , are able to connect to the outside world through visual media). This has ensured self-respect, as women and children are able to watch TV in their homes, and not go to the homes of those who are rich and have TVs. In addition, the reduction in elite corporate tax (30% to 18%) has resulted in a revenue loss of ₹1.84 lakh crore to the central government for 2019-20 and 2020-21; There is an expected loss of ₹1 lakh in 2021-22, which has exceeded the cost of some of the major freebies put together (free color TV – ₹750 crore; free bus pass for women – ₹1,250 crore; children for mid-day meal – ₹1,823 crore).

a fiscal federal setup

India adopts ‘cooperative federalism’ where the union and the states cooperate in making laws and policies in their respective areas. Constitution Benches of the Supreme Court have been cautioning their courts not to initiate policy matters. In RK Garg vs Union of India (1981-4SCC 675), and BALCO Employees Union Vs Union of India (2002 2 SCC 333), the Court held that laws relating to economic policies should be viewed with greater latitude and respect, and that knowledge of economic policies is not subject to judicial review. In S Subramaniam Balaji Vs State of Tamil Nadu (2013 9 SCC 659) Dismissing the challenge to the much talked about free gift schemes (colour television, mixer grinder, laptop) of the TN government, the Court observed that the distribution of gifts pertains to the implementation of the Directive Principles of State Policy.

The Finance Commission, which was politicized due to the abolition of the Planning Commission in 2014, became the only institution for fiscal devolution. This only increased the dependence of the states on the Union in fiscal matters, thus, the Supreme Court-recommended committee would further intensify the existing distrust that the states have with the Union.

region-specific steps

Furthermore, in a fiscal federal system, states or territories are expected to have autonomy. Social welfare measures (free gifts) may vary from state to state or from region to region. For example, in desert areas of Rajasthan it may be free drinking water, in Kerala, it may be financial incentives to encourage corporates/entrepreneurs to promote industrial development, and in Tamil Nadu, educational/marriage support and A free bus pass may be there to help the girls. Empowerment is thus, for the concerned legislature/executive to formulate social welfare measures for that area. By recommending a central committee, it seems that the Supreme Court has treated India as a single administrative entity facing similar issues without considering the socio-economic diversity. This move would be prejudicial not only to the economic independence of the states but also to the ‘idea of ​​India’ as a ‘Union of States’ – as enshrined in Article 1 of the Constitution of India.

Read also | YSRCP pleads in Supreme Court in freebies case

So, as long as the notion that the ‘incentives’ provided to the elite are ‘affirmative economic measures’ while provided to the poor are in the minds of policy makers, decision-makers and the elite (both are economic/social welfare interventions) are provided ‘free’. In various forms), this heterogeneous conflict will continue to exist.

Puhaz Gandhi P. is an International Trade and Investment Attorney. He is also the State Joint Secretary, NRI Affairs, Dravida Munnetra Kazhagam (DMK) and Coordinator, Dravidian Professionals Forum (DPF).