Free of data freebies cut into economic opportunities to end it start with reliable fiscal data

Free of data freebies cut into economic opportunities to end it start with reliable fiscal data

Prime Minister Narendra Modi on Saturday in Jalaun, UP, drew attention to India’s political culture of canvassing for votes by promising “freebies”. This trend, he added, undermines economic development. It’s an important subject which deserves to be foregrounded. Freebies are a shorthand for suboptimal fiscal choices by governments. It’s an area where no major political party is blameless. The tendency to canvas votes by promising free or subsidised goods and services is common to all parties.

An enabling environment for the creation of decent jobs is the most effective and inclusive indicator of economic development. The inability of political parties to bring about such an environment catalyses short-termism in canvassing for votes. Freebies, which trigger a perennial challenge of fiscal stress, are the outcome. India cannot afford to keep going down this road which is why PM Modi’s observations are important. Economic development requires better fiscal choices than what is commonly seen among states and GoI.

The current level of debate around freebies is unlikely to lead to better choices. If freebies represent fiscal choices, we need a widely accepted understanding of the kind of choices that smack of cynical short-termism. It’s currently missing. Are free cereals that were added to the PDS after the outbreak of Covid freebies, or are they a safety net to cope with a shock? If it’s the latter, at what point does a temporary safety net morph into a freebie?

Tamil Nadu’s trajectory embodies the complexities of the subject. The state’s dominant Dravidian political parties have been synonymous with freebies for the last 55 years. Yet, the state has the fourth lowest poverty ratio in India, according to Niti Aayog. Moreover, GoI’s Annual Survey of Industries shows that it’s the state with the highest number of operating factories in the formal sector. Notwithstanding these metrics, recent fiscal slippages catalysed the state government last year to present a white paper on public finances.

Reliable data is the first step to forge a consensus on freebies. GoI should act upon the recommendations of successive finance commissions and establish an independent fiscal council. It needs to be backed by a law that provides access to all accounts of both states and GoI. A debate anchored by data will help the electorate make more informed judgments and, thereby, provide politicians the incentive to make better fiscal choices.