Models of welfarism

The distribution of freebies has its limits

Last week, Prime Minister Narendra Modi sparked fresh debate on the politics of welfarism by taking a crack at politicians who garner votes by promising freebies. He described the practice as distributing revadi (sweets) and should be removed from Indian politics. Though Mr Modi did not name anyone, Delhi Chief Minister Arvind Kejriwal has chosen to take those comments personally. On the same day he took time out to argue that far from offering vote-catching sweeteners, his “Delhi Model” of ensuring free education, health care, power, and water for low-income groups was an effort to “lay the foundation of the country”.

Mr Modi’s comments and Mr Kejriwal’s riposte have re-focused the spotlight on the competing models of welfarism and their relative efficacy. There is no doubt that a new model of strategic welfarism has played a key role in the sustained national electoral success of the Bharatiya Janata Party (BJP) under Mr Modi. Instead of the usual politically cynical distribution of free cycles, laptops, mixer grinders, cows, goats or health and education, the BJP-led central government has focused on maximising the number of “touchpoints” with low- and middle-income groups for essential goods. Thus, since 2014 it has extended the concept of welfare delivery to the extension of sanitation, cooking gas, banking, housing, health insurance, and maternal care to low-income groups.

The key point, however, is that none of these goods is entirely free — as beneficiaries of the cooking fuel scheme understood only later — but heavily subsidised, enabling the state to recoup at least some of the cost of producing and providing these services to create sustainable delivery models. Few economists would quibble with this model, though its efficacy in practice is open to question. The mess in the power sector and public-sector banking demonstrates the problems with freebie-oriented policies (free power to farmers and serial loan melas) over seven decades of independence. Mr Kejriwal, on the other hand, has created a model that may have delivered similarly consistent electoral results but it is built on the foundations of a comfortable financial cushion, given that Delhi has one of India’s highest per-capita incomes with buoyant tax collection. Only Jayalalithaa in Tamil Nadu was able to manage a comparable freebie-led administration because of the state’s robust economic and manufacturing base. In Delhi, the additional advantage of not having to pay for the police service — which comes under the Centre — and the little-noticed cross-subsidies on power and water enable Mr Kejriwal to finance his populist welfare model. It is, however, a template that his Aam Aadmi Party will struggle to replicate elsewhere, as it is discovering in Punjab, which ranks among India’s most indebted states.

It is possible to argue that Mr Modi’s template of redistribution focuses less on education and health but it has certainly resonated with those who have benefited — especially women and children. The test for his government is how far it can temper the welfarism embedded in subsidies for transport fuel, food, and fertiliser, the big-ticket items of government expenditure that are set to soar. These subsidies may not be revadis but they too have a bearing on electoral outcomes, suggesting that all models of welfarism have their limits.