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EconomyFreebies are problem: Supreme Court accepts Ashwini Upadhyay's plea

Freebies are problem: Supreme Court accepts Ashwini Upadhyay’s plea

The lawyer who abandoned the AAP and joined the Delhi unit of the BJP, Ashwini Upadhyay saw another success in his legal practice when the Supreme Court acknowledged the issue of the economy getting wrecked by populist announcements by politicians. 

The Supreme Court today observed that promising and distribution of freebies by political parties during seasons was “a serious issue” as the nation was losing money due to the populist proclivity of politicians.

The apex court was hearing a PIL filed by lawyer Ashwini Upadhyay, seeking a ban on political parties that promise services for free to lure voters in the run-up to elections. The plea asked for steps to be taken to regulate poll manifesto and make political parties accountable for promises made therein.

Freebies are an issue: Supreme Court

“Nobody says it is not an issue. It is a serious issue. Those who are getting they want it and ours is a welfare state. Some may say that they are paying taxes and it has to be used for the developmental process. So, it's a serious issue. So both side has to be heard by a committee,” Chief Justice of India NV Ramana said.

Speaking to Sirf News, Ashwini Upadhyay said that the committee he proposed to the Supreme Court, if accepted, would comprise the chief commissioner, chairman of the Finance Commission, governor of the Reserve Bank of India, comptroller and auditor general, chairman of the Law Commission and CEO of Niti and chairman of the National Institute of Public Finance and Policy.

The CJI also noted that India was a country “where there is poverty and the central government also has plans to feed hungry” and said that the economy was losing money and that “people’s welfare has to be balanced.”

The court will next hear the plea on 17 August.

Earlier, the Aam Aadmi Party (AAP) opposed the plea and said that “schemes for the socioeconomic welfare of deserving and disadvantaged masses cannot be described as ‘freebies’”. The party also accused the petitioner — who it said has “strong links” to the BJP — of “furthering a particular political agenda”.

But it was not about the AAP's populism alone. The Supreme Court had last week called for forming a panel to help control the “irrational freebies” offered to voters during elections, but the Narendra Modi government has already been mulling ways to keep checks on the funding of such handouts.

The union government’s opinion, according to senior government officials, is that if a political party in a state offers freebies such as free power or rations, the state government should be transparent about the funding of such schemes and should not resort to off-budget loans, which are not included while calculating the fiscal deficit.

“You can’t say I will give you free electricity and not pay the subsidy. Then you pay the power discoms (distribution companies). That’s actually wrong. And that is a problem that we don’t account for properly,” a senior government official said under the condition of anonymity. “They don’t show these hidden liabilities and that is why we are cracking down on them. We are gradually tightening this,” he said.

How Kejriwal rose

It is pertinent to note in the given context that Arvind Kejriwal began his political career by targeting Anil Ambani's BSES and BSES Yamuna, saying the privatised versions of what once used to be state-owned Delhi Vidyut Board were unethically overbilling. However, on being elected with 28 out of 70 seats in Delhi for the first time in December 2013 and forming the city-state government with the help of INC's eight MLAs, one of the first policy decisions that the AAP government took was clearing the dues of BSES and BSES Yamuna that amounted to more than Rs 370 crore.

Kejriwal also turned big the idea of winning over the electorate by offering free water and electric supply thereafter.

In the wake of elections in five states earlier this year, populist schemes and “freebie culture” have come under increased scrutiny because of their impact on the economy, especially in debt-ridden states like Punjab.

At an event in Uttar Pradesh’s Jalaun last month, Prime Minister Modi warned people against falling for “revadi (freebie) culture” during polls, calling it “dangerous” for the development of the country.

Exactly how this “revadi culture” could be reined in is currently under active consideration.

International examples of collapse; not merely freebies but socialism as a whole is a problem

In the backdrop of the economic crisis in Sri Lanka, a Reserve Bank of India (RBI) paper in June this year sought to analyse the “fiscal vulnerability” of Indian states. It pointed out that freebies exceeded 2 per cent of the gross state domestic product (GSDP) for highly indebted states like Andhra Pradesh and Punjab.

Before the instance of Sri Lanka, several purely socialist economies — where the government owns all means of production — had collapsed, much as these governments used to be hailed by leftist commentators until the coffers ran dry. In June 2015, Greece was warned by the European Union for taking grants and loans only to callously distribute the money in doles and freebies. Earlier, socialist champion Hugo Chávez officiated over the collapse of the Venezuelan economy.

The issue cannot be narrowed down to freebies alone but include the overall concept of welfare, which even the Narendra Modi government is not ready to look into under the pressure of competitive socialists in the electoral fray. While being immensely popular in his country, Chávez had turned to China to fund its overspending on social programmes. Despite warnings during his tenure, his government continuously overspent on the social sector and did not save enough money for any future economic turmoil, which Venezuela faced shortly before and after his death.

And the most glaring example of socialism's failure is the collapse and disintegration of the Union of Soviet Socialist Republics (the Soviet Union) in 1991 followed by China turning to state capitalism while maintaining a one-party rule like communists under the guidance of the then-CCP general secretary, Deng Xiaoping.

How they do it in India

Last month, NK Singh, the chairperson of the 15th Finance Commission, said that while the states’ share of central taxes was their right, revenue deficit grants given monthly to them could be linked to the curbing of freebies and off-budget liabilities.

These grants are provided to the states under the recommendations of the finance commissions — which are constitutional bodies formed every five years to give recommendations on union government-state financial relations — to bridge the gap in the revenue accounts of the states after the devolution of central taxes.

The term of the 15th Finance Commission, whose recommendations are valid for a period of 5 years until 2025-26, is over.

In India in June this year, Finance Secretary TV Somanathan said at a national conclave of chief secretaries that many states were mortgaging public assets like municipal parks, hospitals, and other public offices to raise funds to finance their revenue spending (which refers to the committed expenditure of a state on items like salaries, pensions, welfare schemes and subsidies).

Five states — Andhra Pradesh, Uttar Pradesh, Punjab, Madhya Pradesh, and Himachal Pradesh — raised up to Rs 47,316 crore in the two years ending March 2022 through “escrowing of future revenue” — using state assets in the safe custody of a financial institution to secure loans against them — the presentation showed.

According to the central government, if such loans are secured, they should be clearly disclosed to it under the states’ net borrowing ceiling (NBC) as prescribed by the union government at the beginning of the current financial year.

But what happens when the funding of subsidies becomes transparent? Do subsidies stop?

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