The fake 'freebie' debate

The model of state government-led provision of welfare is under sustained attack, and that's not good news for India

One reflection of Prime Minister Narendra Modi’s ability to define the national agenda is that even apparently throwaway remarks of his turn into weeks-long debates that seem capable of overturning a national consensus. Just over a month ago, Mr Modi, at the inauguration of the Bundelkhand Expressway, drew a distinction between his political party, which he said builds airports and roads, and others that give things away for free. Since then, discussions about “revadi” culture (in Hindi) or “freebies” (the very inexact and quite irritating English translation of the term) have grown more intense. Even the Supreme Court has gotten involved, by accepting public interest litigation that argues that promising or distributing “freebies” from the public purse prior to elections is the same as unlawful bribery of voters.

Mr Modi’s concerns are, on one level, inarguable. Any government that concentrates on subsidising consumption of some kind or another has less cash available for infrastructure spending. His own government’s preference for infrastructure spending has been quite visible in most of its Budgets. Even during the pandemic — to its credit — it held off on calls to increase aggregate demand through unrestricted spending, and instead focused on guarantees while continuing an infrastructure push that it insisted would revive and sustain growth. The architect of that policy, Union Finance Minister Nirmala Sitharaman, pointed out during the Monsoon Session of Parliament recently that state governments are not just increasingly indebted because of various welfare measures, but that they have taken to using off-budget borrowing by state public sector companies or special purpose vehicles to fund this spending. (Though if state governments are using off-budget borrowing now, it is the Union government that they learned it from.)

One sector that Mr Modi has repeatedly warned requires greater responsibility on the part of state governments is the power sector. State governments owe power companies Rs 2.5 trillion or thereabouts. This is a recurring problem; and, every time, the Union has to bail out the distribution companies so that electricity supply can continue, generation companies can be paid, and public sector banks that have over-lent to the sector can be protected. Mr Modi is familiar with both sides of this question as his greatest, perhaps only, policy innovation as chief minister was separate agricultural power lines and tariffs. This allowed for 24x7 power for households and rural enterprise while limiting the general problems of subsidised electricity distribution — rationing and unprofitability — to agriculture.

Illustration: Ajay Mohanty

Yet it would be inaccurate to claim that the Bharatiya Janata Party’s political appeal is unrelated to “freebies” or electorally significant consumption subsidies. If it were the case that the BJP is a non-“freebie” party, then someone will have to explain all the posters and hoardings of the prime minister next to a gas cylinder and a beaming recipient of the LPG subsidy.

It is clear, therefore, that the various learned commentators who take this debate to be about the division of taxes between current and capital expenditure or something equally arcane, have no idea what they’re talking about. Some others, with the Delhi-based commentariat’s usual belief that “Delhi regional” is the same as “national”, have seen this as a direct attack on the Aam Aadmi Party alone. Certainly, the AAP is likely to find governing an indebted state like Punjab much harder than Delhi, which is capable of running consistent budget surpluses. And the PM’s musing about “highways and airports” has particular bite when it comes to the AAP; after all, Sheila Dikshit’s Congress government had built roads and flyovers and hospitals all over Delhi, making Arvind Kejriwal’s failure to continue that effort even more visible.

The AAP is, however, but one regional party among many. And it is to the model of regional provision of welfare that the prime minister was addressing himself. Thus it is in the context of federal struggles over programme choice and financing that Mr Modi’s statement, and the subsequent debate over “freebies”, should in fact be seen.

Multiple regional parties have defended the right of states to design their own welfare schemes and systems in affidavits to the Supreme Court. The YSR Congress from Andhra Pradesh has pointed out, for example, that “expenditure on sectors such as education, health, agriculture and poverty eradication, have a vast potential to create and strengthen long-term human capital and assets of vast socio-economic significance, though no tangible asset is created from it”. Here is one reasonable counter to the prime minister’s claim at the Mathura Expressway inaugural that hard infrastructure is the only productive use of the public purse.

But this sudden attack on “freebies” by the BJP is odd not just because the party is happily welfarist itself, but also because in recent elections it is clear that voters are much more likely to assign the credit for successful social schemes, even those run or designed by the state government, to the Union government and to Prime Minister Modi personally. This has been confirmed not just anecdotally but by larger scale studies conducted by political scientists.

So what is going on? The answer is that the BJP’s aim is not simply to reduce the power of this or that regional party; or of regional parties overall. It is grander than that. The BJP, having consolidated its power at the federal level of India’s polity, wishes to reduce not just the power of regional parties, but the overall importance of state governments. This aim is what links together various efforts to reduce states’ freedom to tax, their share of revenues, and their control of expenditures. The BJP — like the Indira Gandhi-era Congress that it resembles in power, structure and ruthlessness — cannot but view the state tier of the Indian polity as divisive and destabilising by design. Mr Modi’s throwaway remarks, after all, are often carefully targeted.

There are two reasons — one policy and one political — why continuing this broader attack on state-level welfare systems is problematic.

On the policy level, it is because state governments are indeed the frontline for policy innovation and service delivery. It is necessary for them to be able to experiment and be held accountable. The best ideas — from mid-day meals to cycles for girl students — often get picked up and replicated. It is important for the poorest Indians that this process continue.

The political reasons are equally pressing. For regional parties in India, design of welfare is a crucial differentiator. And it is in the interest of the Union of India that this continue to be the case, or else regional parties will increasingly differentiate themselves through sub-national identity instead.

The writer is head of the Economy and Growth Programme at the Observer Research Foundation, New Delhi