29 November 2022 03:46:42 IST

Do we need freebies in a democracy?

Beneficiaries of the Tamil Nadu government’s free colour TV sets | Photo Credit: K.V. Srinivasan | The Hindu

The pre-poll giveaways and opulent promises create economic and political instability. Leaders from different political parties have publicly voiced their disapproval of the said ‘ revdi culture’. However, we see an increasing role of freebies again in the run up to the polls in Gujarat and Himachal Pradesh.

The evidence lies in the increase in the number of seizures made by the Directorate of Revenue Intelligence (DRI) in the poll-bound states closer to elections. Analysing this trend from January helps corroborate this claim. Of the ten seizures made by the DRI in January and February, six were in Manipur and Uttar Pradesh alone, two of the five states that were entering the election phase.

This pattern has continued in the poll-bound state of Gujarat. Earlier this month, ₹71 crore worth of Chinese toys, liquor, and other freebies were seized within days of the election announcement. Clearly, there is some dissonance between the stance that political parties take and their actions.

Pros and cons

This begs the question of whether there is a need for ‘freebies’ in a democracy. Proponents propose that free endowments rolled out by the government are a mode of redistribution of wealth (a step away from ‘ dostwaad’) which in turn reduces the income gap.

Contenders contest that freebies have instant political and economic ramifications. Irrational distribution and promise of freebies pave a path for demagoguery — a state of complete political instability arising from absolute indulgence in people pleasing as opposed to sound policy making and capacity building by political parties.

Political parties cannot implement long-term policies with greater economic returns because freebies block economic resources to assuage the short-term whims of their ‘vote bank’. The second-order implication of such distributions is the distortion of prices and thus, the natural economic equilibrium.

Economic health

Financing these freebies comes at a cost and causes fiscal instability. A fiscal deficit is a gap between revenue and expenditure. Freebies increase this gap by reducing revenues and increasing expenditure. This burden is financed using debt which destabilises the economic health of a country.

The recent economic and political debacles in the UK and Sri Lanka are a testament to this. At the national level, we are a few steps behind Sri Lanka’s trajectory in terms of the debt-to-GDP ratio, one of the biggest causes of the experienced economic downfall there. It is about time that we align on the definition of freebies and discontinue their use to boost our economic health and ensure good governance.

(The writers are MBA students at IIM Ahmedabad.)