Freebies and public policy imperatives: are they worth it? | Amrendu Kumar Singh

by Amrendu Kumar Singh*

Introduction

‘Freebies’ have always been part and parcel of India’s political economy of development, better known as ‘subsidies’ in the traditional sense when a large segment of society and public economy were often subsidised. However, with the introduction of market reforms since early nineties and ushering of liberalization, privatization and globalisation (LPG), many areas that were traditionally benefitting from the largesse in the name of subsidies came to be rationalised. However, the compulsions of electoral politics have again repositioned the very concept of freebies — providing things at a free or subsidised cost, into mainstream politics. In the process, freebies have metamorphosed into a politically contested concept with some parties being opposed to it while others vigorously pursuing the same. However, in a large country like India, we cannot afford this kind of binaries and need to develop a clear public policy perspective for adherence by all political parties and stakeholders.

The polemics over freebies 

The current polemics can be dated back to 2013 when the Supreme Court in its judgement on S Subramaniam Balaji vs State of Tamil Nadu ruled that ‘freebies are not corrupt practices’. This verdict encouraged the political parties to gain political mileage and most of them started bankrolling freebies in their public policy schemes. The (then) Delhi-based Aam Aadmi Party (AAP), was one of the first to announce a series of freebies or subsidies in the field of electricity, education, medicine and other areas just before the last Delhi Assembly elections. The successful implementation of the same brought rich dividends for the AAP-led Government, including a renewed popular mandate in subsequent Delhi Assembly elections. The political commitment of freebies and subsidies was extended by the AAP into the Punjab Assembly elections as well with a massive popular affirmation for AAP Government. The AAP now intends to proliferate this model further for gaining electoral victory in the Himachal Pradesh and Gujarat elections. However, AAP is not the only political party to swear by freebies politics. Down south, the DMK won a handsome majority in the Tamil Nadu Assembly elections bandwagoning the freebies horse. The increasing tendency of political parties to rely on freebies have led to a contradiction of sorts. On the one hand, they oppose freebies being promised by rival parties; on the other hand, they are themselves acting as protagonists of freebies to woe the electorates.

The lack of consensus amongst political parties, complicated by a political slugfest, has escalated the matter to the Supreme Court once again. While the Court initially mulled over constituting an expert committee to look into the matter, the same was shelved later since there were application interventions by some political parties who contended that all promises cannot be equated with freebies as they relate to welfare schemes or measures for the public good’. The matter now stands referred to a three-member bench since extensive hearing is required in the instant case for the welfare of the country.

Theoretical propositions on public policy and empirical problems in India

Most theoretical propositions in public policy have a take on freebies or subsidies. Even in developed countries arranged essentially on market principles, the states have certain responsibilities in the field of poverty, inequality, education, health, social security and, most importantly, carrying along the weakest link in the societal chain. Therefore, most states come out with freebies or subsidies for some or the other sector in keeping with the Rawlsian concept of justice. For instance, school education is free at public schools in the United Kingdom. Similarly, urban communication is heavily subsidised in all developed countries. Part of the reason for such subsidies is a broader political consensus of protecting, preserving and promoting certain segments of society or sectors of the economy and ensuring the larger benefit of largest number of people. Also, subsidies in sectors such as education are considered as investment in future citizenry.

 However, at empirical levels, there are many factors that should have been taken care of but are unfortunately ignored in Indian context, as evident in the entire polemical discourse on freebies. First, much of the controversy on freebies as a public policy measure has arisen primarily because many stakeholders perceive the issue only from political perspective. The technical dimension of public policy making is being lost, as evident in this case, since only the technical process can balance goals with tools and resource mobilisation. Second, public policy making is a detailed process that involved due adherence to all sequential stages in policy cycles such as agenda setting (with involvement of all policy actors), policy formulation (where key decision makers have sufficient knowledge and expertise), decision making, policy implementation and policy evaluation. It is, however, debatable, if the freebies policy has been filtered from the procedure prescribed for public policy making. For instance, the macro goal of most political parties in vigorously pursuing freebies is largely electoral rather than ethical public service. Thus, the very first process of agenda setting gets vitiated and polluted. Third, a major segment of decision makers such as the political class is largely not exposed to the art or science of public policy. Freebies for them are, at best, political statements to be made at the time of elections and rarely get filtered through cost-benefit analysis and resource mobilisation. It would also be fair to say that most members of another decision-making body such as bureaucracy, are also not keen about public policy making despite huge investments in training them for the same. Public policy making for them, is largely taking organizational decisions on ad hoc basis, often on the basis of whims and fancies of political masters. The academic tools and methods are quietly consigned to the archival dustbins. As typical bureaucrats, they would take decisions that suit them at the earliest, rather than comparing them through public policy prism or resource mobilisation prism. Such decisions, therefore, may not be the best decisions. Fourth, the decision making in Indian context, is largely organisational. Key decisions, including those having public policy impact, are not taken on a basket of indices or cost-benefit analyses, but rather through the pulls and pressures exerted by different organisations participating in the decision-making system. For instance, it has often been observed that while decision making powers lie with a particular ministry in a state, decisions are dictated by Chief Minister’s office. All popular freebie schemes in states have the CMs or other politicians photograph embossed on them that is largely dictated. Fifth, the politics of freebies in India is symptomatic of the larger problem affecting public policy making in India where a resource mobilisation linkage is not explored in most cases. Public policy pronouncements in such cases, including, freebies, in such cases will be rendered as paper tigers since there would be no money to sustain them in long term. To give one example away from freebies, many state governments, are now announcing a return to old pension scheme and scrapping of the new pension scheme (NPS) but the very finances of these state governments are in doldrums. Where will, then, the money come from to finance the old pension scheme?

Public policy prism and handling of freebies 

From the above discussion, it emerges that a public policy on freebies would be sustainable only if there are enough resources and GDP base to sustain the same. As the Supreme Court has rightfully put it in its recent decision, ‘freebies at taxpayers’ cost may lead to bankruptcy’. Also, the freebies are meant only for the ‘targeted’ sections of the society. For instance, the free ration under public distribution system is now available only for the families under the below poverty level (BPL) category. Similarly, gas subsidies are available only for BPL category. The proliferation of public interest technologies like Aadhaar Card, PAN Card and smart banking etc. have ensured that pilferage in the schemes are minimised. Finally, freebies cannot be a permanent arrangement and must be regularly subjected to an outcome evaluation for judging the intended impact since there is a moral limit of money even in a market economy. That is possible only if there are strong public institutions in charge of regulating the freebies or subsidies who will not leave the decision making to the whims and fancies of individuals or political parties.

Should freebies be continued? 

Political parties like AAP have been advocating freebies on several grounds. First, Delhi where it came to power few years back, has adequate revenue sources and indeed is a revenue surplus union territory. The per capita income in Delhi is one of the highest which turns out into a comparatively better standard of life for most residents. Second,the AAP-led Delhi Government has been justifying the freebies like free electricity to a limited level on the ground of commensurate savings in many areas of revenue expenditure. The revenue model for such freebies have been adequately worked out on sound economic principles along with independent, variable evaluation criteria. Third, the heavy subsidies in building up the school education and infrastructure is being marketed as investments for better Delhi citizenry. One may differ but good results from the Government schools in Delhi have only added weight to this argument. Other states like Punjab, Himachal Pradesh and Gujarat where AAP is spreading the wings also enjoy adequate resource base and higher levels of income which gives the AAP version of freebies a moral justification. Similarly, the early policy of mid-day meal in Tamil Nadu has became quite popular and is now being proliferated across the spectrum in all states. Interestingly, the DMK Government is now going ahead with breakfast scheme at heavy subsidy. These are again investments into the young citizenry from one perspective.

The opposition to these freebies is largely political than one based on techno-political argument. There is no counter to the fact that all the above-mentioned states are economically doling well despite making huge investments into freebies. In fact, even those who are busy in the politics of protests against freebies-led economy are busy doling out some or the other freebies in states governed by them. The only question, therefore, perhaps, need to be discussed at public policy discourse is the quantum of freebies and the timing of promising these freebies since most of the public pronouncements come during election times. Unfortunately, while making these announcements, the political parties do not have to justify the economic resources that would allow them to operationalise these freebie promises. For example, the RJD-JDU Government in Bihar recently announced that they would provide Government jobs to more than five lakh people. Unfortunately, there are few takers for such promissory notes since the financial condition of the state government is quite poor and well known to all.

Conclusion 

Freebies are sin-qua-non of good governance in a democratic society. They allow certain sections of society to cope up with the economic constraints and provide them with an opportunity to develop in a dignified manner. Accordingly, if properly formulated and implemented, they are not irrational promise and wastage of public money’. Therefore, the AAP-led policy on freebies is justified and quite appealing to voters in Delhi and elsewhere. Other political parties must find loopholes in the AAP model of freebies purely on techno-political grounds rather than harping only on political opposition. Additionally, we need to ensure a regulatory mechanism to identify items, sectors and segments that would be taken up for freebies consideration and put institutional mechanism to filter them through a proper public policy prism for larger relevance and sustenance. But perhaps it is time to put an end to empty and hollow protests to the freebies and metamorphose it from a purely political issue to a genuine public policy issue. Hopefully, the larger bench of the Supreme Court will resolve the political dilemma related to the quantity and quality of freebies as part of our public policy commitments in the Central as well as State Governments.

(Author: Amrendu Kumar Singh is Campus Head, Credit Risk Model Validation and Insights, ANZ Bengaluru and carries over 20 years of corporate experience. He is also a Doctoral student in Finance from IIM Kozhikode. Views are strictly personal).