No freebie lunch opposition is promising cash and free services to voters where’s the money for all this

No freebie lunch opposition is promising cash and free services to voters where’s the money for all this

With state elections nearing, it’s open season for tempting the electorate with sops. And no party’s holding back. Punjab Congress chief Navjot Sidhu has promised financial incentives ranging from Rs 5,000 to Rs 20,000 for girl children in Classes 5 to 12, free e-scooters for female college goers and interest-free loans for their higher studies besides Rs 2,000 per month for women homemakers. Earlier, AAP in Punjab, Goa and Uttarakhand had promised Rs 1,000 per month for all women. In UP, SP adapted AAP’s playbook by announcing free electricity for irrigation and first 300 units free for households.

Despite governing at the Centre and in most poll-bound states, BJP too boasts significant cash bonanzas transferred in UP: a Rs 2,000 PM-Kisan tranche, Rs 1,000 crore for self-help groups targeting around 16 lakh women, Rs 1,100 to primary school students for buying school gear, and Rs 2,000 to 1 lakh girl children. True, some cash transfers are good policy, the PM-Kisan being an example. And some freebies, like Tamil Nadu’s Amma Canteens, addressed a real need. But most are just cash thrown at groups with no or little positive impact. Some cash for girl students will help far less than more education options, for example. And many freebies have massively distortionary effects.

Take former Punjab CM Rajinder Kaur Bhattal’s election-eve free electricity scheme for tubewell owners in 1996. It didn’t help her win but institutionalised a policy that depleted groundwater, encouraged paddy cultivation and vitiated not just farm economies but also air quality and power discoms’ viability. AAP’s free power-water offerings in Delhi have less negative impact, thanks to the city-state’s surplus budgets and predominantly urban economy. But practically no other state has such advantages.

Most states have dodgy finances, and are always asking for more central support. Only recently, some states asked that GST compensation scheme be extended for another five years beginning 2022. When politicians promise sops, often fiscal constraints force governments into cutting corners elsewhere or raising new taxes. UP’s 2020-21 capital expenditure was 16% lower than budgeted outlay, a sure sign of strained finances. In Punjab, experts led by Montek Singh Ahluwalia, tasked by the government to prepare an economic revival road map, warned that its capital outlay at 0.7% of GSDP was the lowest and subsidy burden highest among similar states. States giving unviable sops will end up hurting citizens down the line. And freebies may not even win you the election.