Sunday, September 25, 2022

Welfare or freebies; a debate will separate wheat from chaff

Prime Minister Narendra Modi’s discomfiture with ‘populist’ schemes led to formulation of the ToR ‘control or lack of it in incurring expenditure on populist measures’ for the 15th Finance Commission (FC) in 2017. The ‘populist measures’ of the 15th FC mandate have metamorphosed into ‘freebies’ and ‘revadis’ now.
The 15th FC unfortunately did not identify or quantify ‘populist measures’. Neither did it call out the states which splurged or controlled expenditure on populist schemes.
On a petition filed by a Bharatiya Janata Party (BJP) leader-advocate, the Supreme Court (SC) expressed its angst at freebies culture in India. The union government has understandably supported the petition by pontificating that freebies will lead to economic disaster.
The SC appears keen on constituting an expert committee to make recommendations in this important public policy matter.
Governments, both at the Centre and states, spend substantial public funds on myriad ‘welfare’ and ‘freebies’ schemes; many targeted at deserving sections of society, and many not so.
The most critical question is which of the government schemes serve the cause of public welfare, and which are ‘freebies’.
Anatomy of welfare expenditures
No one will disagree that it is the primary duty of the government to take care of the poor and the vulnerable.
Aged and infirm people, specially-abled, people in need of health services, destitute without food — all deserve the government’s support.
There are many schemes to meet this objective — old age pensions, free medical aid and insurance schemes run by both the Centre and many states, and so on. These are justifiable welfare expenditures — not ‘freebies’.
The governments also need to take care of positive and negative spill-overs, termed merit goods and services, with fiscal expenditures. An individual affected by COVID-19 virus is a risk to neighbours.
By vaccinating people against deceases and viruses, the governments prevent negative spill-overs. Primary health services, including mohalla clinics, are unquestionably justifiable on this consideration.
Expenditure on universal literacy, primary education, etc. spread positive externalities.
At the core of general disgust against ‘freebies’ is the feeling that many government schemes benefit undeserving people. Subsidies to industrialists, expenditures on bailing out loss-making PSUs, providing free/subsidised electricity, fertilisers and loan wavers for economically well-off farmers and others are definitely ‘freebies’.
Some schemes serve well-deserved poor also provide freebies — for example, Rs 6,000 under PM KISAN scheme is provided to government servants, and rich farmers as well. Similar is the case under Telangana’s Rayatu Bandhu scheme.
There is one class of public expenditures where targeting public welfare to deserving poor presents some design problems.
The government needs to provide a backup for the workers who lose job for whatever reasons. Programmes such as the MGNREGA are modelled on self-selection to resolve the issue.
Universalising electricity access under programmes such as SAUBHGYA and free electricity up to a defined number of units to the poor offer another way to resolve such contradictions.
While there are good principles to investigate the design of welfare schemes to determine their true nature, public welfare or freebie, there is indeed a good challenge to sift wheat from chaff and callout ‘freebies’.
It is not just the states
The Union government expenditure on redistribution schemes in 2021-22 was approximately Rs 10.5 trillion. It spent Rs 4.63 trillion on food and fertiliser subsidies, Rs 1.36 trillion on direct income transfer schemes (including PM Kisan), Rs 1.26 trillion on schemes of jobs and employment (including the MGNREGA), Rs 2.98 trillion on in-kind benefit transfer schemes, and Rs 0.26 trillion on indirect benefit schemes such as Fasal Bima Yojana.
The expenditure on bailing out banks, telecom companies, Air India, industrial subsidies, etc. was additional.
Let there be a public debate
Welfare schemes are powerful means to reach out to people and convert them into a vote-bank. Both the Union and state governments use these, in fact they compete.
There is nothing intrinsically wrong in political parties promising to spend public resources on public welfare schemes.
The debate, however, should widen. The recipients of these benefits, the taxpayers, who fund these expenditures, the academics, the government and non-government agencies, and other stakeholders should join in this debate.
The election commission (EC) is not the right institution to pronounce judgment on welfare programmes, or to stop undeserving freebies.
The EC can, however, be asked to prescribe a declaration form for all political parties to file details of the welfare programmes they espouse, the beneficiaries targeted, the scale of proposed assistance, the likely cost to the exchequer, and how the expenditure will be funded. This will provide a sound basis for an informed debate.
The Supreme Court admittedly does not get into the thicket of policy issues. Welfare schemes and ‘freebies’ are classical questions of public policy.
Besides asking the EC to prescribe the declaration on public welfare programmes, the court can also ask the Union government to task another finance commission, which would be constituted shortly, to examine the welfare programmes of both the Centre and the states, quantify actual expenditures thereon, and classify these expenditures into public welfare and ‘freebies’.
Subhash Chandra Garg, currently Chief Policy Adviser, Subhanjali, is former Union Finance Secretary, and author of “The $10 Trillion Dream”
(As published in Moneycontrol)