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Freebies, a Surefire Recipe for Disaster

Context:

During elections, political parties traditionally inform voters about their policies and proposed programs through election manifestos. However, in the last decade and a half, the nature of these promises has shifted. Rather than focusing on policies and programs, there has been a prevalence of announcements regarding cash transfers and free schemes.

Relevance:

GS2- Government Policies and Interventions

Mains Question:

Rather than focusing on policies and programs, there has been a prevalence of announcements regarding cash transfers and free schemes in recent election campaigns by political parties. Analyse the impact of this developing freebie culture and suggest measures to effectively deal with it. (15 marks, 250 words).

The Freebie Culture:

  • In Madhya Pradesh, a party, in addition to waiving farmers’ loans, has introduced various other free schemes, including free electricity, gas cylinder subsidies, a monthly allowance of Rs 1500 for women, and a Rs 3000 unemployment allowance for youth.
  • Similar announcements are made by various political parties in Madhya Pradesh and other states heading into elections, with a concerted effort to attract voters.
  • This trend of offering freebies is expanding across many states in India. Political parties, in the lead-up to elections, regularly make announcements about freebie schemes such as free electricity, transportation, cash transfers to women, unemployment allowances for youth, and more.

The Negative Fallouts of Freebies:

Raises Question on Democracy:

The concern arises whether this trend is healthy for democracy, and questions linger about the government’s ability to finance these free schemes and the potential increase in state government debt.

Rise in the Debt of States:

  • The Reserve Bank of India and the Comptroller and Auditor General of India (CAG) have raised alarms about the increasing debt of states due to these freebie schemes.
  • According to the Fiscal Responsibility and Budget Management (FRBM) Act, the target debt-GSDP (gross state domestic product) ratio should not exceed 20 percent in any state. However, CAG reports indicate that in many states, this ratio far surpasses the targeted limit.
  • For instance, Punjab has a debt-GSDP ratio of 48.98 percent, Rajasthan at 42.37 percent, West Bengal at 37.39 percent and Chhattisgarh at 26.47 percent.
  • If the debt of state government enterprises and guarantees given by the state government are considered, the debt to GSDP ratio in Rajasthan would be 54.94 percent, in Punjab 58.21 percent, and in Andhra Pradesh 53.77 percent by 2020-21.

Hampers Development in other Sectors:

  • This increasing debt not only impacts the economic rating of the country but also affects the ability of state governments to run welfare schemes.
  • The excessive spending on free schemes leads to a decrease in capital expenditure on infrastructure, affecting social services, education, health, and essential services. It also hampers the development of the state by limiting investment in critical infrastructure.

Conclusion:

If this trend persists, the country may face difficulties attracting new investments, and both government and companies may have to pay higher interest rates on foreign borrowings. Consequently, the increasing debt not only creates fiscal imbalances but also impedes the country’s overall development and industrial growth.


June 2024
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