Subsidy promises in Indian elections: Freebies or empowerment?

Sparks debate among experts

Politics

January 25, 2025

/ By / New Delhi

Subsidy promises in Indian elections: Freebies or empowerment?

Balancing compassion & fiscal responsibility presents tough dilemma for state (Photo: Canva)

As the 2025 Delhi elections approach, scheduled for February 5 with results on February 8, political parties are unveiling a slew of promises for subsidies and economic incentives to woo voters. This has sparked a debate among experts, raising a dilemma over how to balance support for people with the long-term financial health of the state.

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As the Delhi elections draw closer, political parties have once again turned to their tried-and-tested strategy: offering freebies to woo voters. The Aam Aadmi Party (AAP) has promised 200 units of free electricity and INR 2,100 per month for women from families earning below INR 3,00,000 annually. In response, the Bharatiya Janata Party (BJP) has announced a promise of INR 2,500 per month for women and a life insurance policy worth INR 10,00,000 for auto drivers. Such promises are rolled out in abundance, whenever election season approaches.

While these offers bring welcome relief to many, they have reignited debates over whether such giveaways truly empower citizens or undermine the state’s financial stability. This enduring dilemma continues to polarise public opinion and expert analysis alike.

Subsidies: Vehicle for empowerment?

India, despite being one of the fastest-growing economies in the world for a long time, has seen a dramatic rise in inequality in the past few years. According to a report by Oxfam International, a British charity, 10 pc of the Indian population holds 77 pc of the total national wealth, with the richest 1 pc grabbing 73 pc of the wealth generated.

This means that as of 2017, around 670 million people, who make up the poorest half of the population, have witnessed only 1 pc growth in their wealth.

Furthermore, the Oxfam report also notes that 63 million ordinary Indians have been pushed into poverty simply because they cannot access healthcare adequately due to high costs.

Amidst this prevailing inequality in the country, offering subsidies through slew of welfare measures, becomes a necessity for supporting and uplifting the lower strata of society.

Sandeep Shastri, the academic director of NITTE Education Trust and national coordinator of the Lokniti network, a research programme primarily focused on the analysis and study of India’s electoral politics and its neighbors, has referred to welfare measures as a safety net that enables people to carry on with their lives.

“They rely on this safety net to meet their basic needs. For many in society, survival itself depends on these benefits, as they would struggle to fulfill their essential needs without this support,” Shastri tells Media India Group.

Moreover, Shastri questions the notion that the economic deficit is caused by the distribution of economic support to underprivileged people. He asks whether the government has planned its budget according to its needs, emphasising that the government should carefully plan its expenditure.

“If we assume that basic economic benefits have caused a deficit, it is crucial to consider whether the government has explored sufficient revenue generation avenues. What are its expenditure priorities? Blaming the deficit solely on what you call freebies seems unfair. Has the government cut costs where necessary? Has it addressed wasteful spending? Has it adjusted its expenditure to match needs, instead of simply blaming economic support for underprivileged sections of society,” adds Shastri.

Meanwhile, NITI Aayog has highlighted the positive impact of initiatives like distributing bicycles to schoolgirls in economically weaker states such as Bihar and West Bengal. These measures have significantly increased school enrollment and retention rates, reduced dropout rates, and improved overall educational outcomes.

Additionally, a study by the Centre for Policy Research found that freebies have enhanced public satisfaction with governance in states like Tamil Nadu and Uttar Pradesh, leading to greater political engagement and increased voter turnout.

An Economic disruptor?

However, many are against the distribution of this free economic aid, with many and even experts criticising it as a disruptor of the country’s  economic health.

Additionally, critics also believe that distributing irrational items in the name of economic welfare is a way to unduly influence the voters, hence disturbing the level playing field, as small parties do not have the kind of muscle and clout to fund their promises.

Professor Trilochan Shastry, Chairman and Founding member of the Association for Democratic Reforms, a nonprofit organisation involved in electoral and political reforms for over 25 years, is strongly critical of these subsidies.

“It is not good for democracy and will not benefit the economy unless there is a crisis, such as a drought or famine, in which case it may be justified. Under normal circumstances, it is harmful, hence the focus should be on creating employment opportunities so that people do not have to rely on such measures to sustain themselves,” Shastry tells Media India Group.

Not long ago, Sri Lanka, declared bankruptcy in mid-April 2022, suspending repayment of its USD 51 billion foreign debt. During this period, the country faced severe shortages of essential items such as medicines and fuel, triggering nationwide protests against the ruling government.

According to news reports, short-sighted populist measures, such as subsidies on fuel, food, and electricity for years, along with large tax cuts, led to a sharp decline in government revenue. A blog by the London School of Economics and Political Science noted that the fiscal deficit had swollen to over 12 pc of GDP, double the level before 2019. As a result, citizens struggled to afford basic necessities like bread, milk, pulses and fuel.

Today, many experts in India cite Sri Lanka’s experience as a cautionary tale, warning of the consequences of ignoring fiscal discipline and distributing freebies recklessly.

Against this backdrop, India’s central bank, the Reserve Bank of India (RBI), warned in its 2022 report that some Indian states are at risk of facing similar challenges due to high debt levels and unsustainable populist schemes, which could strain state finances.

In its report at the end of 2024, the RBI reiterated these concerns, cautioning against the free distribution of sops like farm loan waivers and free power, which could drain funds needed for critical infrastructure.

Experts say that the policymakers need to strike a balance between empowering the underprivileged and ensuring the region’s financial health, which is easier said than done. Some point at Singapore as a potential role model for India.

Instead of broadly offering welfare schemes, Singapore has focused its efforts on providing state support in specific areas that can benefit citizens over the long term, such as healthcare, housing, and education. Additionally, under its flagship Central Provident Fund (CPF), both employees and employers contribute a portion of the employee’s salary to the fund.

These contributions encourage citizens to save, while the government provides matching contributions. This system ensures long-term security for individuals without putting excessive pressure on public finances, as the contributions are invested in government securities. CPF members can later use their savings to pay for essentials like housing, healthcare, and retirement, thereby promoting self-reliance among citizens.

Some experts say that as India strives to strike a balance between empowering its citizens through economic assistance and maintaining financial stability, the nation can draw inspiration from countries like Singapore. By adopting tailored strategies that promote self-reliance, India has the potential to transform its populace into a self-sufficient and resilient society while safeguarding its economic future.

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