The freebie problem: It is not a Centre vs state issue

Both the central government and states offer freebies, but Delhi is an outlier because it has high revenues and low fiscal responsibilities

The freebies debate is going off-track. The Supreme Court is seized of the matter when it should have better things to do. Non-Bharatiya Janata Party ruled states have taken up the cudgels against the Centre for allegedly trying to restrain them from offering better welfare to their people. Some columnists have also weighed in on the side of states, even as the finance minister has raised the right issue: Why not provide for your welfarist spending in your budgets instead of leaving the question of financing “freebies” vague or by letting the deliverers of freebies go bankrupt (example, discoms)?

Let us start with the basics: It is impossible to define freebies in any acceptable way (that is, beyond the provision of universal primary education, health and law and order) for two reasons. One, what is a freebie in one context or in one state, can well be welfare in another. And two, is the freebie (or subsidised service) targeted at the deserving, or even unintended beneficiaries get it? A rich state can do what a poor state cannot, even though what is given free may be the same. In the US and Europe, unemployment allowances are not freebies, but in India they can well be called that. The best we can do to beat unemployment is the Mahatma Gandhi National Rural Employment Guarantee Act. Rich Delhi can afford more free power and water than poor Bihar, so is free power a freebie or not?

However, to make the freebie culture a complete centre-versus-state issue is wrong, for neither the Centre nor the states has opposed the basic idea. The issue relates to Delhi’s high ability to provide free power and water because of its unique position as a half-state, with high revenues and lower costs as the Centre picks up the tabs for law and order and even pensions of employees. What Chief Minister Arvind Kejriwal considers the truncated powers of Delhi state vis-à-vis the Centre is actually a fiscal boon for him.

Most states, even when they use promises of free power or loan write-offs, are constrained by the overall limitations of their budgets. If they provide something free, they have to pay a price elsewhere, whether it is in law and order, education or health. High bills on the provision of free services impact them the most, as they end up using up resources that ought to have been spent on improving state infrastructure or even filling up vacancies in government jobs. Most political parties would like to use job creation as their calling cards, but they can’t because their freebie-squeezed budgets won’t allow it.

Put simply, the problem is this: Most states have a natural limit on how much they can offer by way of free-this-or-free-that; Delhi is the exception. The freebie problem is thus a Delhi-created one, which, given Mr Kejriwal’s national ambitions, may get extended to states that cannot afford Delhi’s untargeted indulgences. In Gujarat, where Mr Kejriwal is hoping to make inroads in Assembly elections later this year, he has offered farm loan waivers, free power, monthly allowances for women and sarpanches, among other things. Gujarat may be able to afford it temporarily, but its fisc will certainly deteriorate.

Illustration: Binay Sinha

Delhi is revenue-surplus because many of its bills are paid by the Centre; and Mr Kejriwal can spend a lot of the state’s gushing coffers on self-promotion. One Right to Information reply indicated that publicity spending by Delhi has risen more than 4,200 per cent. In 2012-13, just before Mr Kejriwal became chief minister in 2014, the Delhi government spent less than Rs 12 crore on advertising. In 2021-22,

Mr Kejriwal spent more than Rs 488 crore for a half-state.

It does not need a political expert to guess what is happening. The Delhi chief minister is using the coffers of a rich half-state to bankroll his national ambitions, touting a Delhi fiscal model that is not replicable elsewhere, neither in debt-laden Punjab, nor in less constrained Gujarat, where he wants to grow at the cost of the Congress party, which has been unable to dislodge the Bharatiya Janata Party from power for over three decades now.

 

The debate and controversies over freebies are thus not generalised Centre-state conflicts, but one specifically between the Centre and Mr Kejriwal caused by Delhi’s unique status. In fact, similar problems could crop up in every state. For example, if, say, Mumbai were to be fiscally independent of Maharashtra, it could decide to offer more freebies than the rest of the state. The reason why no state is willing to invest in its prime revenue-generating urban centres with more fiscal powers is because then there would be more Kejriwals cocking a snook at rural politicians who have a bigger problem of mass poverty to solve using urban resources.

The only way to resolve this is by making hard choices about Delhi’s status. Two obvious solutions are to revert its status back to Union Territory with its own Assembly, something like Puducherry or Ladakh. The other option, but a messier one, is to bifurcate the state, with the Cantonment and New Delhi areas becoming Union Territory, and the rest of Delhi a regular urban state with full powers. But even if we do this, the bifurcated and fully-empowered Delhi state will have to be denied normal jurisdiction over its citizens, since many of the Union government’s own offices and personnel will be living or working there. It would be ludicrous to have Mr Kejriwal deciding which Union official to target, the way the Opposition believes the Enforcement Directorate and Central Bureau of Investigation are being used to target opposition politicians.

The simple solution is to make Delhi a Union Territory once more with limited political and fiscal powers. The freebie debate will die an immediate death. Cities need to be empowered, but not like we have in Delhi.

It is worth noting that the states and Centre have never had major issues with freebies before this, except when the fisc went completely awry. But we had the normal political arguments for and against, raised usually by economists, and not so much by politicians. It is Delhi’s unique status and privileges that have made the freebie argument more generalised in nature.

To repeat: This is not a Centre vs state issue; it is about Delhi’s unique ability to spend like crazy and set a bad example for the rest of the states that cannot afford its largesse.

The writer is editorial director, Swarajya magazine