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Polity & Governance
Mahesh

28/07/22 14:25 PM IST

From freebies to welfare

In News 
  • SC has  directed union government to consult the finance commission on whether it is possible to regulate the distribution of freebies by political parties using public money.
Impact of Freebies
  • Expenditure side: Huge drain on state resources: farm loan waiver in Maharashtra resulted in an outgo of Rs 45,000-51,000 crore during the financial year 2020-21.
  • Lack of specific outcome targets: No responsibility for the money spent. Telangana has committed 35% of revenue receipts, almost 63% of the state’s own tax revenue, to finance populist schemes which are cantered on freebies.
  • Revenue side: Negative impact on state-owned enterprises: leading loss-making PSU’s.
  • March report from ICRA, subsidy payments by governments were estimated to comprise 16% of Discom revenues at an all -India level in 2021-22.
  • Low tax collections: due to Free electricity, free water, free rides etc., there is no realization of tax on these.
  • Political: Competitive manifestos, sometimes seem impractical and illogical and unimplementable. It leads to the degeneration of the political agenda. This can even lead to the wastage of resources on frivolous promises without any real results to show.
Concerns 
  • Huge debt burden: The debt-to-GDP ratio of Punjab reached 53.3% in 2021-22 due to the high-subsidy burden.
  • Creates a never-ending cycle of freebies: as populist schemes are countered with more populist measures.
  • Social inequalities: With the Rajasthan government’s decision to revert to the old pension scheme for its employees, just 6% of the population captures benefits as high as 56% of the pension and salary expenditure.
  • More expenditure towards servicing just interest costs: Andhra Pradesh spent roughly 13% of its budget of 22,000 crores on interest payments.
Measures needed to be taken 
  • Finance Commission (an independent body) when it makes allocations to various states, can take into account the debt of the state and in the context of that find out whether the state’s economy will be sustainable over the years in the context of the freebies.
  • Strengthening Election Commission: bringing freebies under MCC and regulating manifestos by ECI.
  • Demand-based freebies: with priority to DPSPs based or merit goods such as PDS system, education, health etc. for greater prosperity.
  • Improving transparency: to ensure it reaches real beneficiaries. E.g., a farm loan waiver reaches only actual farmers.
  • Revising FRBM act: placing a limit on expenditure on loan waivers, free electricity and water.
  • Outcome-based budgeting: makes the departments accountable for their work, as done on Jharkhand recently fixes responsibility on debts.
  • Educating the public: On effects of such freebies and need for fiscal discipline. E.g. demanding the source of funds for such freebies through citizen groups.
Source- Indian Express 

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