Freebies, Subsidies and Social Welfare

Recently, a debate has been going on as whether Freebies or Subsidies are good for the economy. It all began with a speech of Mr. Narendra Modi, the Prime Minister of India. On July 16, 2022, Prime Minister Modi was inaugurating the Bundlekhand Expressway and said “Those with revdi culture will never build new expressways, new airports or defense corridor for you”. He further said “Together we must defeat this mentality and remove revdi culture from the politics of the country”.

No doubt, he was hinting how Mr. Arvind Kejriwal Chief Minister of Delhi is playing politics by distributing a series of subsidies or freebies. Some of them include free water, free electricity, free health services, education, free pilgrimage yatra for old age people and the list is long. 

India is a vast country with significant level of uneven distribution of resources and level of income. The per capita income at current price for Delhi capital region is Rs. 4,01,982/- as against Rs. 87,000/- for the state of Meghalaya. This explains that there is a need for welfare measures and freebies to protect the poorest of the poor. This is more so, as India is a place where unemployment rate is high. There are approximately 55 million people in the labour market with at least a graduate degree, who are currently unemployed.

In India the culture of subsidy was initiated first to promote industrial growth in the backward regions including that of the North Eastern Region. The intent was good as it was expected that each industry will generate employment and create wealth. But, unfortunately the scheme of incentive has totally been misused, resulting in complete failure of its objective. Hence, there is a need for an alternative model of incentive to promote industries. Every government comes out with one or another scheme to help the poor. For example, it is the UPA government in the centre, during Mr. Manmohan Singh’s regime, which has brought out MGNREGA, where unemployed youths are given the jobs for fix number of days. Lakhs and lakhs of crore rupees have been distributed under this scheme, without any visible impact. During the last eight years of BJP government they have distributed 5 lakh crore rupees under this scheme. Looking ahead, we have BJP government which also initiated two major subsidies. One to the farmer under the scheme, a fixed amount is directly deposited to the bank account of the farmers. The second scheme is that of free gas connection to the poor and needy. Beside these, there are many other welfare schemes that the BJP government initiated including subsidy for housing, subsidy grant for construction of houses for rural poor etc. Hence, to blame any government for distributing subsidies is not appropriate. The quantum of subsidy distribution must match with the income of the state. The RBI in its June Bulletin conducted a risk analysis of state finances in the backdrop of Sri Lankan crisis. It found five most indebted states in descending orders viz., Punjab, Rajasthan, Kerala, West Bengal and Bihar. According to RBI these states are no longer sustainable and on the verge of financial collapse.

The concern for subsidy and the criticism are both because of these reasons. We cannot play with the resources of the nation to distribute subsidies without maintaining an optimism level. Subsidy to the poor is the need of the hour, but the government at the same time must ensure that the investment in the subsidy and welfare measure ultimately lifts the economic condition of the people living below the poverty line. As on today, the delivery system of incentive and subsidies has improved significantly because of direct case transfer scheme. But much is yet to be done to eliminate middle men and the commission agent from the purview of welfare measures.

Our cover story this month is dedicated on the subject written by our Mr. K.V Venugopal.


Dr. K.K.Jhunjhunwala