EDEN IAS

Finance Panel

UPSC CURRENT AFFAIRS | ASK FINANCE PANEL, IF POSSIBLE, TO CHECK FREEBIES: SC TO GOVT | 27TH JULY | INDIAN EXPRESS

SYLLABUS SECTION: GS II (POLITY AND GOVERNANCE)

WHY IN NEWS?

Recently, Supreme Court has asked the center to consult the Finance Panel Commission,

Whether it is possible to check freebies by regulating allocation of revenue to states.

  • The apex court was hearing a plea that sought to direct the Election Commission of India to not permit parties to promise or distribute irrational freebies from public funds.

What are freebies?

  • Any goods or services that the government offers to the citizens for free is a government freebie.
  • Freebies like free power, monthly stipend, free water supply etc.
  • Among promises made by parties and this is common to elections in state after state.
  • K. Singh, the chairperson of the 15th Finance Panel Commission, warned about how the race to provide freebies to voters could be a quick path to fiscal disaster.

Why freebies are good?

  • Boost for Supplier Industry: States like Tamil Nadu and Bihar are known for giving women sewing machines, saris and cycles,
  • But they buy these from budget revenues, contributing to the sales of these industries. It can be consider a boost for the supplier industry and not a wasteful expenditure, given the corresponding production.
  • For Lesser Developed States such kind of freebies become need/demand-based and it becomes essential to offer the people such subsidies for their own upliftment.
  • Some expenditure outlays do have overall benefits such as the Public Distribution System, Employment Guarantee Scheme, support to education and expenditure on health, particularly during the pandemic.
  • Welfare spending has been able to at least prevent consumption demand from falling any further.
Problems Related to Freebies:
  1. Freebies undercut the basic framework of macroeconomic stability. The politics of freebies distorts expenditure priorities.
  2. The issue of the distortion of expenditure priority.
  3. The issue of intergenerational equity leads to greater social inequalities because of expenditure priorities being distorted away from growth-enhancing items.
  4. It creates movement away from the environment. When freebies are talked about , it is in the context of providing, for example, free power, or a certain quantum of free power, water and other kinds of consumption goods.
  5. The distortion of agricultural priorities. This affects agricultural practices which do not depend on extensive use of water and fertilizers.
  6. Debilitating effect on the future of manufacturing. Freebies lower the quality and competitiveness of the manufacturing sector by detracting from efficient and competitive infrastructure enabling high-factor efficiencies in the manufacturing sector.
  7. Subnational bankruptcy: Freebies bring into question market differentiation between profligate and non-profligate states and whether we can have a recourse mechanism for subnational bankruptcy.
Way Forward:

The race to the bottom implies government deregulation of markets and business. We must strive instead for a race to efficiency through laboratories of democracy and sanguine federalism where states use their authority to harness innovative ideas and solutions to common problems which other states can emulate.

Read more: UPSC CURRENT AFFAIRS

SOURCE: INDIAN EXPRESS

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