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What exactly are freebies? Simply put, it refers to a public welfare measure – any good or service – provided by government to its citizens free of charge. However, our existing legal or policy framework does not provide a precise definition of the term.

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In the current context, it is often used as a political term by the Center to express disapproval of certain programs at the state level. Therefore, the meaning seems to change depending on whose perspective you’re hearing.

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Free color televisions, mills, grain, laptops, bicycles, gold, washing machines, cows, sheep, cash transfers to farmers, health insurance and fertilizer subsidies – Indian voters have benefited from all of this and more. But which of these are vote-catching freebies and which are legitimate social actions?

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Making this distinction is an almost impossible task.

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Let’s take a famous example from Tamil Nadu, home of the two major Dravidian parties known for giveaways, the DMK and the AIADMK.

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In 1982, when the then Chief Minister, MG Ramachandran or MGR, expanded the lunch program for school children introduced by K. Kamaraj in the late 1950s, he met opposition from all quarters. The program dramatically improved enrollment, attendance and absenteeism. About a decade later, in 1995, it was rolled out nationwide from the center. Similarly, today the Center’s PM KISAN program is modeled after Telangana’s Rythu Bandhu program.

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These are just two of many examples where state welfare systems, once derided as giveaways, have served as templates for central government to emulate.

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Facing the ambiguity, 15th Finance Commission Chairman NK Singh said in a recent column that there is a need to distinguish giveaways from merit goods, the spending of which brings economic benefits, such as the public distribution system, job guarantee schemes, and government support for education and health .

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On the other hand, a June RBI paper said that providing free electricity, free water, free public transport, no outstanding utility bills and no agricultural credit are often seen as giveaways that potentially undermine the credit culture, prices through subsidies. This undermines the incentives for private investment and discourages work at the current wage rate, leading to a decline in labor force participation.

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But this exercise also comes with risks.

This is because, in the long run, the social and economic benefits of certain freebies can far outweigh the fiscal costs they entail, even if they seem cumbersome in the short term. States see it as an investment in human capital. This makes it difficult to label the expenditure as earning or non-earning at the time of introduction.

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Alok Prasanna, co-founder of the Vidhi Center for Legal Policy, says there’s no way to define a “giveaway,” it’s a pejorative term. Politicians who listen to people’s wishes are part of the political process. He can’t make a blanket case for fiscal caution because states’ finances differ, he says.

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If the Supreme Court isn’t the right institution to regulate giveaways, can Parliament legislate?

Alok Prasanna, co-founder of the Vidhi Center for Legal Policy, says it’s not Parliament’s job to regulate giveaways. States are free under the Constitution to legislate on such matters.

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Prasanna says income tax deductions or exemptions and corporate tax rebates might be classified as giveaways, but they are also deliberate policy choices.

Does something stop being a freebie because it has center approval?

Experts largely agree that states should be free to decide on freebies if they have the cash. The problem arises when states distribute freebies, merits or non-merits, beyond their fiscal capacity.

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As a percentage of GSDP, revenue receipts and own tax revenue, Punjab’s freebies in budget FY23 are among the highest in India

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Consider the financially weak state of Punjab. It is among the most indebted countries and its own tax revenues have declined over time. Punjab spends over 13% of its revenue on subsidies, one of the highest.

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Nonetheless, the ruling Aam Aadmi party recently made good on its election promise to provide up to 300 units of free electricity to every household.

Given the poor budgetary situation in some countries, is there a way to set guard rails to ensure that freebies don’t become excessive?

NR Bhanumurthy, Vice Chancellor of the Dr. BR Ambedkar School of Economics University says policies in many states are creating long-term debt sustainability issues. Need organizations like the Intergovernmental Treasury Council to oversee spending. There needs to be more discussion about the ratio of government debt to GDP. States and centers can issue a debt note every six months, he says.

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The debate surrounding freebies also needs to be looked at from the perspective of state revenue.

As the center imposed more levies, the percentage of tax revenue the center gives to them has gone down.

The end of the Center’s GST subsidy payment has further reduced the states’ available budget for social sector spending.

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As such, giveaways should remain a conversation between states, political parties and voters, with prudent measures being taken to control generosity in the case of financially strained states.

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