A brief history
Freebies in India have been around even before the British colonial rule, when they were a means for rulers to appease their subjects as well as provide aid in times of need. After the end of the British colonial rule, that lasted for 2 centuries during which the Indian populace was sucked dry, the condition of the economy was very fragile. In order to sustain the crumbling economy of India, the government introduced various subsidies and welfare schemes. During this period, between 1960-70, the freebie culture was introduced to the political scene of India starting from the south, where the Kumaraswami Kamaraj, the chief minister of erstwhile Madras state, now Tamil Nadu, introduced sops in the form of free education and free meals for school students between 1954 and 1963. Later, in 1967, DMK founder, CN Annadurai took the culture forward by promising 4.5 kg of rice for ₹1 if he were to be elected. Naturally, he won the election.
This sparked the spread of freebies in Indian politics. In order to gain the support of the voters, political parties started offering freebies during elections and even during their tenure and painting anyone who spoke against freebies as villains. Political parties all over the nation started offering free food, housing, electricity, water, transportation, healthcare and even other non essential items like cycles and laptops in order to gain popularity. Some have taken it as far as distributing money.
The freebie ecosystem has sunk its roots deep within Indian politics. It has come to such an extent that states ridden with debt are using taxpayer money to provide freebies instead of using that money in productive activities. Recently prime minister Narendra Modi, citing examples of economic growth of countries like South Korea and Singapore, outlined the necessity for fiscal discipline in the country, urged citizens to not be swayed by false promises of freebies and urged political parties to stop unproductive expenditure on freebies.
When the freebie culture has become such a big issue in our economy it is imperative to understand the economic and social impacts that freebies have.
Impact of freebies
The impact of freebies on the economic and social condition of any economy has been a long debated topic. Many argue that freebies are a tool for providing social welfare and reducing economic inequality, while others oppose freebies as being a waste of the taxpayers hard earned money.
Many economists are of the opinion that as long as a state has the capacity and ability to soundly finance the freebies, then freebies are fine, otherwise they are a burden on the economy. However, this line of thought does not consider the long term impact and the ripple effects that different types of freebies can have on the economy. For example, while providing free healthcare and education can improve the efficacy of the workforce in addition to improving the quality of life of the people, providing free food and shelter can have a negative effect by making people less inclined to work as their immediate needs are being fulfilled by the state. Thus, it becomes very necessary to analyse the various effects different kinds of freebies can have on the social and economic situation of a country.
The so called positive effects' of freebies
- Social welfare - Freebies are often argued for as a tool for social welfare. In underdeveloped nations, freebies can be an important tool to ease the lives of the populace by providing basic necessities on state expenditure while promoting the people to focus on education and join the workforce. However, if not kept in check, it can quickly grow to become a severe burden on the nation's finances and also make the people severely dependent on the state. A very good example of this is the current economic turmoil in Pakistan.
- Reducing economic inequality - Another argument regularly made in favour of freebies is that they help in reducing economic inequality by improving the standard of living of the people. However, this strictly depends on the type of amenities provided through the freebies. While education and healthcare improves the skill level adn standard of living of the workforce, on the other hand providing free food and shelter can in the long run reduce the incentive for people to work harder in order to improve their lives as the law of backward bending supply of labour kicks in.
- Facilitates economic growth - Many argue that freebies facilitate growth, which is true but only to a certain extent as explained above. Certain items if provided for free can reduce incentive to work and thus have a negative impact on productivity.
Negative effects of freebies
- Financial burden on the state - Providing freebies creates a significant financial burden on the state as the freebies do not provide any immediate productive returns and have to be fully paid for by the government.
- Disincentive for taxpayers - Freebies are funded by taxpayer money. When taxpayers see that their hard earned money is not being put to use for productive activities but is being distributed to the poor without any benefit being provided to these taxpayers, they lose the incentive to pay taxes. This causes the problem of tax evasion as well as reduces the productivity of workers as they do not see any benefit in working to have their money distributed for no returns.
- Backward bending supply of labour - The law of backward bending supply of labour is a well known theory in the realm of labour economics. Providing freebies effectively raises the real income of the people and as a result they tend to start preferring leisure over work thus creating labour shortage in the economy.
- Unsustainable - Freebies from their core are unsustainable, as the people receiving freebies dwarf the people who are effectively paying for these freebies, i.e., the taxpayers. In addition freebies generally do not result in any productive activities thus the money used in providing freebies does not have any returns.
- Dependency - Providing freebies for long periods of time tends to make people extremely dependent on the state, making it impossible to remove the freebies in situations of financial struggle as it risks collapsing the entire economy. A prime example of this is Pakistan. The people of Pakistan have become so dependent on the state that if the government removes the severe subsidies that is gives to the people on various amenities it risks the entire nation collapsing as the people will no longer be able to afford these necessities like food, fuel, etc.
The viability of freebies in India
As already stated, India has had a long history with freebies. With time, freebies have started to become increasingly nonviable due to their negative impacts on the Indian economy. However, it is to be noted that some amenities, like education and healthcare, if provided through freebies, hold the power to create massive positive effects in the Indian economy.
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| The Economic Times |
Other freebies, subsidies or relief measures like debt waiver, extremely subsidised goods like food for extremely low prices and poorly planned subsidies can have severe negative impact on the economy instead of improving the lives of the people.
Looking at these examples we can clearly see that for a country like India, most freebies are not a viable option simply because of the state of finances of almost all states as well as the size of the population. Only certain amenities like education and healthcare that do not affect the incentive of people to work and at the same time improves the future prospects of the economy are viable options in India. If the political parties continue to provide freebies in order to gain support and rally voters, India will soon be headed down the same road as Pakistan, as people belonging to lower sections of the society start becoming overly reliant on government support and the middle class loses its incentive to work and pay taxes. Thus, it is extremely necessary that the government start to control their expenditure on freebies and instead use this money on productive infrastructure projects that will provide employment and at the same time improve the infrastructure of the nation.
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