Freebies and Their Burden on the Country’s Revenues: Time for an Open Discussion

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(By Nilesh Shukla)

The provision of freebies by political parties has become a hot topic of debate in India. With the Delhi Assembly Election scheduled for 5th February 2025 and results to be declared on 8th February, the issue of freebies is once again in the spotlight. The Aam Aadmi Party (AAP), which has successfully won the last two assembly elections by promising free electricity, water, and other benefits, continues to use freebies as its Unique Selling Proposition (USP). Meanwhile, the Bharatiya Janata Party (BJP) and the Indian National Congress (INC) have also included similar promises in their manifestos to compete with AAP.
What Are Freebies?
Freebies refer to goods and services provided by the government at no cost or a highly subsidized rate. These can include essential services such as electricity, water, healthcare, education, and food supplies. While such measures offer immediate relief to citizens, they can have long-term consequences for the nation’s economy and financial health.
The Political Freebies Race in Delhi Elections
Aam Aadmi Party (AAP)
AAP has promised to continue its existing welfare schemes, including free electricity, water, and bus rides for women. Additionally, they have announced a monthly cash dole of ₹2100 for women under their ‘Mahila Samman Yojana.’
Bharatiya Janata Party (BJP)
BJP has promised a cash allowance of ₹2500 per month for women, a subsidy of ₹500 on LPG cylinders, and one free cylinder during the Holi and Diwali festivals. They have assured voters that existing welfare schemes will continue if they come to power.
Indian National Congress (INC)
Congress has also promised a monthly allowance of ₹2500 for women while focusing on broader issues such as education, healthcare, and employment in their manifesto.
Impact of Freebies on the Country’s Revenues

1. Increased Expenditure
   Providing freebies requires substantial government expenditure, which can escalate the fiscal deficit. The government might have to divert funds from critical development projects to meet these expenses, potentially stalling infrastructure growth and public services.
2. Reduced Revenue Generation
   Subsidizing essential utilities like electricity and water reduces government earnings, affecting public sector utilities’ financial sustainability. Reduced revenues hinder the government’s ability to invest in long-term developmental initiatives.
3. Inefficient Allocation of Resources
   When funds are allocated to freebies instead of long-term developmental projects, it can lead to resource misallocation, slowing down economic progress and innovation.
   Fiscal Impact Analysis
   According to the Reserve Bank of India (RBI), India’s fiscal deficit increased from 3.5% of GDP in 2017-18 to 4.5% of GDP in 2020-21, primarily due to populist measures, including freebies. Similarly, an International Monetary Fund (IMF) report estimated that freebies cost the Indian government around 1.5% of GDP annually.
   Socioeconomic Implications of Freebies
4. Dependency Culture
   The continuous provision of freebies creates a dependency culture where individuals may choose not to seek employment opportunities, relying instead on government aid.
5. Impact on Labor Market
   With access to free resources, the lower and middle-class workforce may lack motivation to engage in labor-intensive jobs, creating a shortage of workers, particularly in construction and manufacturing sectors.
6. Public Perception and Taxpayer Concerns
   Taxpayers, who contribute significantly to government revenues, increasingly oppose freebies, arguing that their hard-earned money is being diverted towards schemes that do not promote long-term productivity or economic growth.

The Legal and Ethical Perspective
Given the fiscal burden of freebies, there is a growing demand for judicial intervention. Some key concerns include:

1. Violation of Fiscal Responsibility: The provision of freebies without a clear funding strategy violates the principles of fiscal prudence and responsibility.
2. Resource Mismanagement: Public funds could be used for productive purposes, such as infrastructure and healthcare, rather than temporary populist measures.
3. Burden on Future Generations: Accumulated national debt due to freebies could impact future generations, restricting the government’s ability to provide essential services.
   Election Commission’s Role
   The Election Commission of India (ECI) has issued guidelines mandating political parties to explain how they plan to finance their promises. However, enforcing these guidelines remains a challenge, as political parties argue that welfare schemes are crucial for social upliftment.
   Balancing Welfare with Fiscal Responsibility
   While freebies can serve as short-term relief for vulnerable populations, it is essential to strike a balance between welfare and economic sustainability. Instead of unconditional giveaways, the government should focus on skill development, employment generation, and targeted subsidies for those in genuine need.
   Alternatives to Freebies
4. Conditional Cash Transfers: Instead of blanket freebies, targeted cash transfers linked to employment and skill-building programs can ensure economic productivity.
5. Public-Private Partnerships (PPPs): Encouraging private sector participation in welfare programs can help balance financial sustainability and social welfare.
6. Subsidy Rationalization: Streamlining subsidies to eliminate inefficiencies and ensure that benefits reach the genuinely needy.
   The issue of freebies is a contentious one, with arguments both for and against their provision. While they provide temporary relief to economically weaker sections, their long-term impact on government revenues and economic sustainability cannot be ignored. The time has come for an open discussion on this topic, involving policymakers, economists, and the public to ensure that fiscal responsibility and social welfare go hand in hand.