Separating revari from jalebi: Swaminathan Aiyar decodes the freebies debate

Do freebies end up hurting the economy? Earlier this week, Prime Minister Modi had said freebies handed out by states are not in the interest of the taxpayers and set the nation back. “As a country, we have to take a pledge that we will not allow such tendencies to grow. This is a collective responsibility of the country,” Modi said. The Supreme Court also weighed in adding that the Center must form an expert committee to analyze the freebies doled out by various states as electoral promises, ultimately costing the exchequer dearly.

Swaminathan Aiyar says the onus lies with the parties to convince voters which (dole) is appropriate, taking into account short-term and long-run consequences. Edited excerpts from an ET Now interview:

Is there merit in this argument that freebies will end up hurting the economy?

Swaminathan Aiyar: Well the first question is how do you define freebies and what are we talking about. There are a large number of expenditures that the government makes without charging people and as I said the PM referred to something called revaris meaning these are things that are just being given away to some people without merit and that those kind of revaris if you spend too much money on that, then there is not enough left for good causes.

On the other hand there are various other things that are free which I would call jalebis which we need, we need quality education free of charge for the villages. We need quality primary health. We need high quality public health, preventive health. So there are large number of jalebis along with the rewaris. Now what is true is that there are some expenditures which I am dead against.

For instance if you are giving free electricity to farmers, this is a terrible thing. For a state like Punjab it has been a serious problem as it is staring at bankruptcy. It means that we are over-pumping, we are growing the wrong kind of water intensive crops instead of the appropriate crops, a series of wrong things.

Free electricity is a bad thing. Again need to say highly subsidized urea at one-third the world price, when you start doing that that is highly subsidized but the other phosphatic and potassic fertilizers are not, therefore farmers use too much of urea not enough of the others and this spoils the soil. On top of that, a lot of this highly subsidized urea is being smuggled across to Bangladesh and Nepal or being diverted to chemical industries.

So these are the really bad freebies that you should not have. There are some other freebies like PM Kisan, should you be giving money to all farmers? I would say no. What is special about farmers? If you like give it to everybody. I mean if you see what Naveen Patnaik has done in Odisha, he has said in rural areas it will go to all people whether they are farmers, tenants, landless labour, other kinds of people.

So if you give it to all of them, that makes sense to me. If you only give it to farmers, that I would call a freebie that is unwarranted. But broadly speaking in every democracy there are powerful lobbies who demand favors and they get those favors because politicians want to cater to those vote banks so that I am afraid is a fundamental flaw you do get in democracies and this is why you had the former president of the European commission Jean-Claude Juncker made this famous statement we all know what is to be done, what we do not know is how to get re-elected after doing it and because they do not know how to get re-elected after doing they continue with freebies that are not good in the long run.

You talked about revari and jalebi, is it the Supreme Court, the Election Commission or political parties who decide what is the jalebi and what is the revari?

Swaminathan Aiyar: Let us face it, this is fairly and squarely something in the political arena to be decided by political parties and voters. This is not a thing for the judiciary to get into. It is not a thing for the election commission. It is not a thing for some committee of technocrats. I mean all those people can have their views on the matter but ultimately this is about the fundamental functioning of government of we raise money, whom do we tax, whom do we subsidize or help in various ways.

So this has to be done through the political system, through politics, through convincing voters that we need to do this, we cannot do that. Within this some things that will happen that are very good, money will flow to things that are good and appropriate, within this also unfortunately some money will go to favored lobbies and those favored lobbies do not always deserve what they are getting like the farmers of the northwest are getting various benefits through MSP which is not available to farmers in the rest of India. So clearly it is a favor to one group of people that is a rewari. So but at the end of it all this cannot be resolved by some committee. It has to be done in the political arena, the political parties have to convince the voters which is appropriate taking into account short-term and long-run consequences.

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