There is no easy answer to the freebies issue

When MG Ramachandran, the then Chief Minister of Tamil Nadu, launched his now-famous mid-day meal scheme in 1982, it faced opposition both within his own party, the All India Anna Dravida Munnetra Kazhagam (AIADMK) and the opposition. There were concerns within the party that this would lead to leakages and corruption. The opposition said it was aimed mostly at strengthening his personal image among the poor.

Parents saw merit in sending their children to school regularly. As a result, attendance in schools has increased. Thus the benefits outweigh the immediate objective of providing adequate nutrition to the children.

Merit vs Non Merit

The success of the plan reflects a broader point. It is difficult to capture the total welfare effects of a given scheme at the outset and hence, it is difficult to evaluate the merits of a given one. freebie (a term used to describe subsidized consumption). Bicycles for children may seem like a cheap election bribe. But those familiar with rural areas will know that poor transportation is a serious obstacle to going to school or college. Television sets may not be about entertainment, they may be vehicles to provide useful information or they may simply bring the family together, both of which have wider benefits for society.

Economists make a distinction between ‘qualifying’ goods and ‘non-qualifying’ goods. Merit goods, such as education and health care, have positive externalities, i.e. public benefit exceeds private gain. Such goods are eligible for subsidy. It is not ‘non-qualifying’ goods.

But what is ‘qualification’ or ‘non-qualification’ is not always easily understood. With their sharp appreciation of ground reality, politicians often have a better understanding than economists of the ‘merit’ inherent in some freebies. They have a better understanding of what is needed to transform the lives of the underprivileged or bring about social change

court intervention

These views appear to be based on the Supreme Court of India’s decision to refer the free gift case to a three-judge bench instead of a panel of experts as indicated earlier. During the hearing, the then Chief Justice of India, NV Ramana, remarked, “A shaving kit for a barber, a cycle for a student, tools for a toddy tapper or an iron for a washerman could change their lifestyle.” Gives and exalts them … That’s why, sorry to say, you elite lawyer can not understand. ” How true.

The Supreme Court has framed four questions for the three-judge bench: What is the scope of judicial intervention? What should be the composition of the expert panel to examine the issue? Can the court pass any enforceable order? does S. Subramaniam Balaji Vs. Government of Tamil Nadu & Ors. (2013) Need a rethink?

in your decision S. Subramaniam Balaji Vs. Government of Tamil Nadu & Ors.The Supreme Court of India gave an emphatic answer to the third question and it also partially addressed the first question. The matter arose out of the Dravida Munnetra Kazhagam government’s election promise of color TV sets to a specified group in 2006 and the AIADMK government’s decision in 2011 to distribute blenders, grinders, electric fans etc.

The Court addressed the contention that free gifts are unproductive expenditure and should therefore be rejected. The Court observed, “Whether the State should formulate a scheme which directly benefits for improving the standard of living or indirectly by increasing the means of livelihood, it is for the State to decide and the Court’s decision in this regard.” The role is very limited.”

The observations of the Apex Court on the specific issue whether distribution of blenders, grinders, fans, mangalsutra etc. is a desirable form of expenditure deserve to be quoted in detail. “The concept of livelihood and the standard of living are bound to change in their content from time to time. The fact is that what was once considered a luxury has become a necessity in today’s times. The donation is directly in the form of distribution of color TVs, laptops etc. to the Directive Principles of State Policy… Judicial intervention is permitted when the action of the government is unconstitutional and not when such action is not wise or is costly. The border is not for the good of the state.”

Should the Supreme Court issue guidelines on a matter like freebies? The Court said that guidelines such as the Visakha Guidelines on Sexual Harassment can be issued where there was a legislative void with respect to an issue. There was no such void with respect to freebies: the Representation of the People Act adequately dealt with corrupt practices on the part of political parties.

public finance and a hat

The important questions on free gifts seem to have been adequately answered. However, in the present petition, a new issue has been raised, namely, the possibility of free gifts to undermine public finances. What’s to stop a political party from promising freebies left, right and center to get elected and leave a bankrupt economy behind? There seems to be a motivation to revise the three-judge bench S Subramaniam Balaji.

The Supreme Court is facing difficult questions. How do you rein in spending options that aren’t accounted for? Who decides whether political parties are sufficiently responsible? Former Reserve Bank of India governor Duvvuri Subbarao has proposed a limit on freebies, aptly defined. I wish political parties could find a way around the cap on freebies just as they have found a way around the cap on fiscal deficit. Furthermore, it is difficult to argue that freebies are the sole or primary cause of fiscal imbalance. Therefore, there is no assurance that the limit on free gifts will mean a return to overall financial prudence.

It is also wrong to assume that political parties are purely short term oriented and will indulge in spending without any thought for the future. Political parties see themselves as a concern that has been in the game for a long time. They are unlikely to make decisions that will ruin an economy and discredit them in the eyes of the electorate forever.

About growth and equity

In the end, the issue is not spending on freebies but the choice of productive versus unproductive spending. It is too good to say that we should invest in job creation rather than blowing away scarce money for free. But jobs in industry or services go to the relatively privileged, that is, those who have education and the means to afford it. A large portion of the freebies go to those who would not be able to access the jobs created by productive spending.

So, how much to spend for free relative to productive spending is also a question of growth versus equity. This is a question that can ultimately be answered by voters. They will do this by voting for parties in power that they feel the balance is right. We may have no choice but to rely on democratic accountability to resolve the issue of freebies.

TT Ram Mohan is an academic, consultant and author. E-mail: ttrammohan28@gmail.com