While ‘feebies’ schemes are intended to offer immediate relief to the targeted groups, their effectiveness and necessity remain suspect
Delhi Government on 1st July 2024 buckled down for implementing the Mukhyamantri Mahila Samman Yojana, which aims to provide aid of Rs 1,000 to Delhi women above 18, baring the taxpayers, government employees and other government pension plan beneficiaries. An amount of Rs 2,000 crore has been set aside for this scheme. Several such schemes or freebies are provided by different state governments across the length and breadth of the country. Many times these freebies of diverse nature are strategically planned to precede elections and are highly poll-driven in a bid for electoral success.
These freebies or Rewari culture as mentioned by PM Modi, have been defined by the Reserve Bank of India report as “a public welfare measure that is provided free of charge”. They are generally aimed at benefiting the targeted population in the short term and are different from long-term welfare schemes which are categorized as public/merit goods and are a way of promoting social justice, equity, and human development. Some examples of welfare schemes are the Public Distribution System, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the mid-day meal scheme, etc.While freebies are frequently used by political parties to build public trust, it is worthwhile to analyse them as a necessity or waste. <
Such schemes stimulate economic growth by incentivising and increasing the productive capacity of the workforce along with providing necessities and social welfare to the poor and marginalized sections of society. For example, freebies such as uniforms, textbooks, bicycles or health insurance can improve the literacy, mobility, health, and quality of life of the needy and vulnerable groups. By increasing the disposable income of the poor, freebies can stimulate demand for goods and services, thereby boosting economic activity. Besides, if rationally devised, they can also reduce income inequality. For example, loan waivers, or cash transfers can empower the weaker and indebted households by giving them access to assets, credit, or income support. However, freebies are like a double-edged sword, with heavy economic and social costs. Foremost, large-scale public expenditure comes with a huge and permanent fiscal burden and macroeconomic distortions.
It leads to an immediate increase in demand, disrupting inflation; diverting funds from repaying governments’ previous obligations causing accumulation of public debt; and diverting funds from more productive and essential sectors such as infrastructure, agriculture, industry, etc. leading to resource misallocation. Besides the freebies in the form of free water, electricity, or fuel can lead to the deterioration of the environment, by encouraging their overuse and wastage of natural resources.Freebies can also lead to negative externality by creating a dependency culture and loss of productivity, reducing the incentive for individuals to seek employment or improve their economic situation through their efforts. Additionally, cash vs. kind grants are always debatable and in general cash benefits generally lead to misuse of funds such as gambling, liquor consumption, adultery, etc. which leads to deviation from the desired benefits.
In conclusion, freebies can play a crucial role in addressing immediate social and economic challenges, they must be implemented with careful consideration of their long-term impact and sustainability. A rational policy framework is needed foremost, to define the targeted section and then design the nature and amount of benefit to minimize inappropriate utilization of resources
(The author is assistant professor at Sri Guru Gobind Singh College of Commerce, University of Delhi; views are personal)
