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Not by freebies alone PDF Print E-mail
Saturday, 21 May 2016 04:50
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If this guaranteed victory, Congress would never lose

 

With even the Election Commission, last Saturday, asking both AIADMK and the DMK to explain the freebies in their manifestos, attention remains focused on how politicians like J Jayalalithaa and Mamata Banerjee bought the electorate. After all, if they’re going to give free laptops or gold for mangalsutras, this influences voters. The rationalists juxtapose this against the cost of building schools or dispensaries and explain how freebies make the states’ fiscal weaker and, in the long run, are harmful—obviously the aam aadmi is too stupid to realize this. While freebies may influence voters, the question is by how much, for how long, and do they worsen public finances? The answer to the last question depends on how much is delivered. The Congress party, against whom the charge of freebies is never leveled, introduced the Food Security Act which promised 5 kg of wheat/rice at Rs 2/3 per kg per person per month—at even a subsidy of Rs 15 per kg, that’s Rs 4,500 per family per year which is far more than what mixer grinders cost and equals the cost of a laptop given once every five years. And yet, the Congress party lost the general elections while Jayalalithaa/Mamata got re-elected.

All of which suggests that, even if voters are swayed by freebies, they vote for parties they trust can deliver on their promise. And, if a government can ensure there are no leakages in the distribution of freebies, chances are that state will be efficiently run and will have a tradition of good delivery of all public services including infrastructure. Such states attract more investment—look at the increase in large industrial investments in Tamil Nadu over the years—which, in turn, generates more jobs which is what voters really want. The Rs 375 by way of subsidised food the Congress promised per family per month, for instance, can be made up by the wages for just 1-2 days of work in a state that generates enough jobs.

That is why, as in the case of a Tamil Nadu, while the freebie numbers look large in absolute terms, they don’t add up to that much. If the spending on freebies in Tamil Nadu is around Rs 2,000 crore a year—that’s the maximum that various reports suggest —that’s under 1.5% of annual spending by the government. In a state where, thanks to more industry coming in and a good tax system, its own tax collections were 8.7% of GSDP in FY16—compared to 7.5% for all non-special-category states—this is also why freebies haven’t made the debt position worse. Tamil Nadu’s debt-to-GSDP is in the 20-21% range which is very comfortable. Given West Bengal’s poorer finances—its own tax collections were under 5% of GSDP in FY16 and, at 33%, the debt-to-GSDP was very high. While that suggests Mamata Banerjee can’t spend as much on freebies, keep in mind state finances were even more precarious before she came—debt-to-GSDP was 44% in FY10 and own taxes just 4.2%—so freebies are not the culprit here.

 

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