Freebies’ debate: Encroachment on State Govts’ Rights

By Dr. Santosh Kumar Mohapatra*

When so many intractable problems are plaguing the nation, a lot of valuable time has been wasted debating freebies. After the Supreme Court lost precious time discussing and giving a verdict on freebies, today (October 04, 2022), the Election Commission of India ( ECI) unnecessarily trying to interfere with the affairs of the State government and planning to ask the State government to disclose the cost of freebies ( ‘revdi’ told by PM), and how it will be funded.

The Election Commission said while political parties can’t be stopped from making promises, the voters too has a right to be informed to make an informed choice. The Commission said Parties will also have to mention how these promises can be financed. Hence, it plans to soon float a consultation paper that proposes that political parties detail the cost of promises made ahead of Assembly or national polls and also juxtapose the state of their finances giving voters some idea about how these could be financed.

Cognisant of the fact that there is no legislative space to define freebies or welfare, the Election Commission wants political parties to elaborate on the rationale for announcing such promises and the financing plan. This is expected to let voters compare political parties and understand if the promises can indeed be met. The ECI hopes to call parties for consultation on the paper before it can make necessary changes in the Model Code of Conduct ahead of elections.

The ECI has proposed that each state chief secretary and the Union finance secretary — whenever or wherever the elections are held — provide details of tax and expenditure in a specified format. “The idea is to make a physical and financial quantification of promise… if it’s a farm loan waiver, then will it be available to all farmers, or only small and marginal farmers, etc. Further, how will it be funded given the committed and developmental expenditure set aside by the state or the Centre,” a source said.

The above statements by Election Commission reveal how it is under pressure from Centre as it has told something different in its earlier statements. On August 10, 2022, responding to a plea in SC seeking a ban on political parties’ offer of freebies during election time, Chief Election Commissioner of India Rajiv Kumar had told that ‘Freebies’ can be lifesavers during dire times.

What is considered “freebies” in normal times can be lifesavers during a disaster or a pandemic. The top poll body had given the apex court its take on a petition filed by advocate Ashwini Upadhyay to ban the practice of political parties promising “irrational freebies”, especially during election time to garner votes.

The ECI had said both “irrational” and “freebies” were terms open to subjective interpretation. They have no legal precise definitions. What may be irrational or a freebie for one, maybe rational and essential for another section of the society.” ‘Freebies’ can have a different impact on society, economy, and equity depending on the situation…

For instance, during natural disasters/pandemics, providing life-saving medicine, food, funds, etc, may be life and economic saviour but in normal times, they could be termed ‘freebies’,” the ECI reasoned. The benefits of cross-subsidization and situation/sector-specific reliefs to address the different vulnerabilities of sections of society cannot be underestimated, the poll body said.

On September 7, 2022, Shahabuddin Yaqoob Quraishi an Indian civil servant who served as 17th Chief Election Commissioner (CEC) , had written an article in Indian express” where he supported freebies.

According to him, given poverty and inequality in India, it is important that we reaffirm the value and necessity of welfare programmes and the urgent need to expand them”. Freebies are necessary especially when the richest 1 per cent have amassed 51.5 per cent of the total wealth while the bottom 60 per cent of the population is a mere 5 per cent.

On August 3, the Supreme Court, suggesting the formation of an expert body, had orally observed that the Parliament may not be able to effectively debate the issue of doing away with “irrational freebies”. It said the “reality” was that not a single political party wanted to take away freebies.

The remark from a Bench led by Chief Justice of India N.V. Ramana had come even as the Centre had said freebies were paving the way to an “economic disaster” besides “distorting the informed decision of voters”. The Centre, represented by Solicitor General Tushar Mehta, had said it “substantially and in principle” supported doing away with the practice of promising freebies to voters.

At that time , the ECI said a ban on freebies could be “tweaked” by political parties to serve their own ends. “Political parties can make such promises they know would be banned or adversely commented upon by the regulatory authority. This might serve to give them more publicity and mileage than actual implementation post-election,” the Election Commission said.

The ECI, however, said it welcomed the court’s proposal to set up an expert body, drawn from a wide spectrum of government and non-government bodies, to study and suggest solutions to the problem of freebies. But the Election Commission said it cannot be part of the body.”It may not be appropriate for the Commission, being the constitutional authority, to offer to be part of the expert committee, especially if there are Ministers and government bodies in the expert body,” the ECI affidavit said.

Actually, freebies are not at all a problem as both Centre and states are providing in a different forms. The major problem is the tax subsidy given to the rich and corporates who not only evade taxes but also pay taxes as compared to their incomes. The election commission should raise this question. It should ask the Centre why India’s tax-GDP ratio is one of the lowest in the world. If resources can be generated, there will be no problem to finance any freebies or popular schemes.

Why the Commission does not ask the Centre for what it had reduced corporate taxes and how it is compensated? The commission must ask how various political parties and many candidates are spending crores of money in elections, rallies and meetings and where they are getting. The commission must ask why taxpayers’ money will spend when ministers go to different places for election purposes. The election commission must ask why people with criminal backgrounds are given tickets to contest elections even made ministers after being elected.

Why the Commission does not ask questions to the Centre for extending Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) for only another three months (October 2022-December 2022). Free good grains at 5 kg per person per month for all the beneficiaries of NFSA will be continued till December 2022.

PMGKAY has so far had an estimated subsidy of Rs 3.45 lakh crore in six phases. Phase VII of PMGKAY from Oct to Dec entails an estimated subsidy of Rs. 44,762 Crore. The Centre has taken this decision to woo voters of Gujarat, Himachal Pradesh where the election will be finished by December 2022. Actually, poor people have been made to pay for this scheme through oil taxes and GST on food items

Actually, elections in India are usually a time of enticing promises and elaborate offers when all politicians are suddenly and touchingly concerned by the everyday plight of the common citizen. Free electricity and water, cheaper food grain and fuel, bicycles, phones, laptops and wads of cash usually appear on the menu of offerings.

But poor people appreciate this because it is a regressive tax regime, lack of jobs and social protection schemes adversely affecting poor and vulnerable sections of the society who struggle to eke out a basic existence. Such schemes enhance their disposable income and purchasing power which stimulate economic activities too.

However, both the Central government and the state government had to manage their finances as per the fiscal responsibility Budget management Act and guidelines provided by successive finance Commissions from time to time. neither the Supreme Court nor the Election commission should discuss such issue.

The Fiscal Responsibility and Budget Management (FRBM) Bill was introduced in the parliament of India in the year 2000 by Atal Bihari Vajpayee Government for providing legal backing to the fiscal discipline to be institutionalized in the country. Subsequently, the FRBM Act was passed in the year 2003 envisaging a fiscal deficit of 3 per cent of GDP.. It is an act of the parliament that set targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence, and reduce its fiscal deficits.

The targets were put off several times. In May 2016, the government set up a committee under NK Singh to review the FRBM Act. The government believed the targets were too rigid. The committee recommended that the government should target a fiscal deficit of 3 per cent of the GDP in the years up to March 31, 2020, cut it to 2.8 per cent in 2020-21 and to 2.5 per cent by 2023.

The Covid-19 pandemic led to shortfall in revenue and additional burden in terms of expansion of welfare measures. The government reported a fiscal deficit of 9.2 per cent against a revised target of 9.5 per cent in FY21 on better-than reported receipts. The target for the current fiscal year (2021-22) is 6.8% of GDP. The government aims to bring it down to 4.5 per cent by2025-26.

Similarly, the State Government has adopted a rule based fiscal policy with medium term fiscal targets through enactment of the Fiscal Responsibility and Budget Management Legislation. The State Government is in the process of amending the FRBM Act, 2005 on the basis of recommendations of the 15th Finance Commission. The FRBM Act has made it mandatory for the State to generate revenue surplus, contain the fiscal deficit within 3 percent of GSDP.

Additional fiscal deficit of 0.5 percent of GSDP linked to power sector reforms would be available till 2024-25 as per recommendations of 15th Finance Commission. Besides, Government of India is providing 50-year interest-free loan under the Scheme for Special Assistance to States for CAPEX and a portion of GST compensation in the shape of loan, which are allowed over and above the normal fiscal deficit.

But the major problem for state government is not freebies but as a part of division of power and responsibilities between the Union and states as prescribed in the Seventh Schedule under Article 246 of the Constitution, the Centre is empowered to levy and collect both direct and indirect taxes under the Union List. This, ab initio, has created a huge imbalance in resource mobilisation to the detriment of the states for meeting their committed social expenditure responsibilities.

As per the XV Finance Commission, states bear more than 62 per cent of expenditure responsibilities but are given only 37 per cent of revenue raising power, while the Union government owns 63 per cent of revenue raising power to spend on 38 percent of its expenditure responsibilities.

Over the years, the Union government has made use of cesses and surcharges as an additional revenue mobilisation measure. Their share as a percentage of gross tax revenue has more than doubled, from 6.26 per cent in 2010-11 to 16.89 per cent in 2021-22 (Budget Estimate). As a result of which states are getting only 29 per cent instead of 41 per cent from the divisible pool of Centres.

In the case of freebies or popular schemes, it is the poor who are benefited even if they pay through indirect taxes. But the Centre should collect revenues from the rich only instead of the poor. Hence, now the Centre should try to raise resources by embracing progressive taxation and imposing wealth taxes. It should curb tax evasion and transfer more funds to States

 

The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]

 

 

DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English.