Hidden Cost of Electoral Freebies on Fiscal Deficit

“Freebies are never free…when parties offer schemes, they must be required to make the financing and such trade-offs clear to voters.”

Ashima Goyal, Member of RBI’s Monetary Policy Committee 

The political debate on the electoral freebies to win votes remains high during election season. In the recent state assembly elections of Madhya Pradesh, Chhattisgarh, Rajasthan, and Telangana, political parties focused on ‘freebies’ to grab the large vote share. Even the Bharatiya Janata Party(BJP), which commented on freebies offered by political parties during elections, was also part of this “Win election by offering freebies” strategy.

During the Bundelkhand expressway launch last year, PM Modi criticised the opposition and called freebies ‘Free Ki Revdi‘, which became the topic of debate nationwide. In every election, political parties fill their manifesto with promises and freebies like free electricity, free bus travel, free water, etc., to attract many voters. The best example was the Arvind Kejriwal-led Aam Aadmi Party(AAP), which won the Delhi Assembly election 2020. 

Party leaders save themselves and promote a freebie culture by saying they provide free facilities to the citizens with the money they get by exposing corruption in various departments. In the statement given to the Economic Times, Ajay Dua, Former secretary of the Union Ministry of Commerce and Industry, said, “It is estimated that the current state expenditure on freebies ranges between 0.1% and 2.7% of Gross State Domestic Product (GSDP), with less developed states incurring higher amounts, although they have lower affording capacity.”

Monetary promises in the elections are not new and are often used to win and repeat the government. For instance, the Madhya Pradesh election campaign by Shivraj Singh Chouhan was based on the ‘Ladli Behna Scheme’ for women aged between 21 and 60. He also intended to raise the promised amount from Rs 1250 to Rs 3,000 which made BJP and Shivraj win the assembly elections. There are various petitions in the Supreme Court challenging the pre-election promise of freebies to capture the vote banks.

Unravelling Electoral Freebies Conundrum

NK Singh, chairman of the 15th Finance Commission said, “The Freebie culture is not a road to prosperity. It is a passport to fiscal disaster.” He added that a freebie is not a substitute for economic growth and will, therefore, be more expensive in the long run. A recent report of the SBI Research in 2023 shows that Shivraj’s government’s Ladli Behna Scheme largely impacted the behavioural habits of marginalised women. The beneficiaries of this scheme increased their spending 3.5 times at merchant outlets.

Electoral freebies are still debatable and often questioned on the two grounds. One taxpayer’s hard-earned spending for political gains. Second, freebies exacerbate the state’s financial health, which is already under pressure due to the low revenue deficit. As per the report published by PRS Legislative Research in October, 11 Indian states incurred a revenue deficit in fiscal year 2023-24. The states with the highest revenue deficit were Punjab, Kerala, West Bengal, Andhra Pradesh, and Haryana.

Another factor that raised a question about the justification of electoral freebies is the fiscal deficit to the state’s gross domestic product.

In the fiscal deficit report of the Reserve Bank of India, it was found Manipur has the highest fiscal deficit to GDP, which was around 6.7 per cent. On the other hand, Delhi has the lowest 0.7 per cent GDP to fiscal deficit.

Psychological Game of Beyond the Ballot

The high spending budget by the state government on the freebies attracted voters in the hope of getting financial support. Even the popular freebies like free electricity and bus rides result in a serious budgetary crisis. So, should the state government end the freebies that can be financial aid to the people below the poverty line? 

The research of Business Quartz 2023 found that state governments were pre-committed to half of the expenditure during the election campaign. Since the political parties use these freebies to turn the voters’ minds psychologically in favour of them, there are mixed thoughts that completely end it. The former chief election commissioner OP Rawat shared his thoughts and said, “Continuation of free ration to 80 crore Indians also comes under the Freebie. He added that election commission hands are tied as freebies are announced when the model code of conduct is not in force.”

Based on the data it is clear that freebies used by political parties to win elections will disrupt the fiscal deficit of the state government. It might result in a high cost of living and commodities, hurting billions of people in India.

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