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Economic Perspectives

Freebie phobia: The BJP’s concerted attack on redistributive transfers

Print edition : Jun 03, 2022 T+T-
Although the BJP is against ‘freebies’ in principle, in practice it has been forced to use a version of concessions and transfers to counter the opposition’s attempt to flag economic issues and create a space for “secular” debate.

I T has all the trappings of a propaganda war. In recent weeks, pro-government voices, from various wings of the establishment or among those seeking to please the party in power at the Centre, have launched an attack on “freebies”— short for unrequited financial and material transfers from the government to sections of the population, especially the poor. The case being made is that the provision of such freebies is fiscally unsustainable and will inevitably lead to an economic crisis, with some people warning that the outcome could be as severe as in Sri Lanka in recent times. While such opinions have been expressed before, the intensity of the recent wave of criticism is unusual and has taken the form of a concerted attack on the practice.

Features of the assault

There are other features of the recent assault on transfers that are noteworthy. The first is the use, with clear pejorative intent, of the informal term “freebies” to refer to them. The term itself seems to declare that these transfers are not acceptable. The second is the timing of the attack on redistributive transfers. It came after the elections to Assemblies in five States, the results of which were declared on March 10. While the Bharatiya Janata Party (BJP) and its allies fared reasonably well in four of them, there were signs that it was slipping in terms of seats in all-important Uttar Pradesh, and it lost out to the Aam Aadmi Party (AAP) in Punjab.

As in the past in other States, all parties contesting in these elections had promised the electorate significant transfers in kind and cash if they came to power. If the AAP in Punjab promised free power supply in rural areas and 300 units of free electricity a household a month and Rs.1,000 a month into the bank account of every woman, the BJP in Uttar Pradesh extended its programme of providing 5 kg of free foodgrains to eligible beneficiaries, launched in response to the pandemic, and promised to pay all daily wage earners Rs.1,000 a month. Other parties pitched in with promises of similar free transfers.

What’s significant, however, is that the BJP too embraced this option. A post-election survey by researchers at the Centre for the Study of Developing Societies found that nearly four in five households in Uttar Pradesh benefited from the free ration scheme, 57 per cent of farmer households from the Kisan Samman Nidhi scheme, and 46 per cent of households from the Ujjwala scheme. However, while promising and implementing such transfer schemes, the BJP declared its opposition to them in principle, suggesting that it was forced to offer such transfers because of the unprincipled populism of the opposition. For example, Haryana Chief Minister Manohar Lal Khattar criticised the opposition for distributing freebies that made people “lazy” and declared that in principle the BJP was against such a “sit down policy”. In Gujarat, BJP president C.R. Patil attacked Arvind Kejriwal of the AAP, describing him as a “maha thug” wooing voters in Gujarat with promises of freebies. This would not work, he argued, since the culture of Gujaratis was such that they extended their hands to give, not take.

This contradictory posture of the BJP is in keeping with its tendency in other contexts to hold back on and/or delay implementing welfare schemes such as providing free COVID-19 vaccine doses or dismissing programmes such as the employment guarantee scheme and opt for them only when it realises that its stance is politically damaging. The BJP’s preferred policy option seems to be to not provide such transfers financed with budgetary resources and to not have to depend on labharthis, or “beneficiaries”, of such schemes for votes.

In keeping with this stance, the BJP and its governments seem to be encouraging a wider attack on redistributive welfare and transfer schemes. On April 2, in what appeared to be an almost stage-managed and well-publicised “internal” discussion, some senior bureaucrats posted at the Centre and invited to an interaction with Prime Minister Narendra Modi reportedly warned that “some States are headed the way of cash-starved Sri Lanka and Greece, if they don’t curb the practice of offering populist measures and freebies”.

‘Sri Lanka–type economic crisis’

The freebies attack has also come from ostensibly independent, but government-linked, “expert” sources. In a speech delivered in mid-April at the Delhi School of Economics, N.K. Singh, former Chairperson of the Fifteenth Finance Commission, declared that India could face “the prospect of subnational bankruptcies if States continued to dole out freebies to influence the electorate” and described the political competition to offer such benefits as a “quick passport to fiscal disaster”. Not to be left behind by his senior, NITI Aayog member Ramesh Chand, at the same location, warned: “India could end up facing a Sri Lanka–type economic crisis if it doesn’t shun the ‘culture of freebies’ and subsidies in sectors like agriculture.” Although the Sri Lanka link was by no means clear, he appeared to suggest that there was a trade-off between subsidies and productivity. Chand said that because of expenditure of “money for support and subsidies, the measures which are needed to give a push to growth and efficiency are not working”. That is exactly the opposite of the perspective that underlay the Green Revolution strategy.

This intellectual environment appeared to be influencing the judiciary as well. In response to a public interest litigation petition filed by BJP leader Ashwini Kumar Upadhyay pleading for curbs on the activities of political parties which promise freebies that will have adverse implications for the fiscal position of already debt-ridden States, a Supreme Court bench headed by the Chief Justice of India issued notices and called for responses from the Centre and the Election Commission of India (ECI). The ECI, however, stated that “[o]ffering/distribution of any freebies either before or after the election is a policy decision of the party concerned” and that the “Election Commission cannot regulate state policies and decisions which may be taken by the winning party when they form the government” since that would amount to an overreach of its powers.

A noteworthy feature of the attack on transfers is a tendency to identify governments in opposition-ruled States and opposition parties in the States as being the chief promoters of this agenda of using freebies as political weapons to fight elections or win social legitimacy. Tamil Nadu and Kerala, which both have a strong record of advances in human development and where “politics of welfare” has a long history, are routinely branded as States in which parties and governments misuse freebies to fight elections. But now the list is growing, and has in it States like Punjab, Delhi, Telangana, Andhra Pradesh, West Bengal and Rajasthan, and none of these is currently governed by the BJP.

The attack on so-called freebies is indeed surprising since such transfers are the norm in all capitalist market economies that are characterised by significant inequality. In the best of circumstances, the government’s tax-cum-subsidy/transfer regime serves as a redistributive mechanism to redress the inadequately inclusive or inequalising nature of growth in market economies. Revenues from progressive direct or indirect taxes, paid by the rich, are used to support the poor with transfers in kind or cash.

Further, given the increasingly informal and precarious nature of much employment in post-liberalisation regimes, such transfers must take the form of “safety nets”, varying from social security payments to access to minimal health or housing for identified segments.

While it would be best if the growth process could guarantee a minimum standard of living and quality of life to all, to the extent it cannot, governments cannot renege on their responsibility to offer some support to the poor and the needy. It is indeed true that such transfers also serve as mechanisms to whitewash the exclusionary nature of the growth process. But such “misuse” does not do away with the need for redistributive fiscal intervention that uses revenues from taxation to support those who are marginalised by or excluded from the growth process.

With the post-1990s neoliberal transition to a less regulated and more market-friendly regime making the growth process more inequalising, the need for such transfers has only increased. A population that has been left to its own devices when it comes to finding work and making a living has come to expect state support in the form of “schemes” and “programmes”, the benefits of which are transparent and immediate. A corollary is that the programmes of political parties, which are translated into slogans and manifestos when they seek electoral support, must include promises to offer transfers of various kinds targeted at different sections of the population.

However, this increased need for distributive transfers under neoliberalism occurs in a context in which government revenues tend to shrink because of business-friendly direct and indirect tax reforms. These too are implicit or explicit transfers, though the targets here are corporates and the well-heeled. Consider, for example, the decision of the Union Finance Minister to slash corporate tax rates in September 2019, ostensibly as a stimulus measure in response to the recession overwhelming the economy even before the pandemic.

The “stimulus” involved a huge reduction in the corporate tax rate from 30 per cent (or an effective rate of 34.61 per cent after surcharge and cess) to 22 per cent (or an effective rate of 25.17 per cent) for domestic companies that do not avail themselves of tax incentives or exemptions. New domestic manufacturing companies incorporated on or after October 1, 2019, were to pay corporation tax at a reduced rate of 15 per cent (which is an effective rate of 17.01 per cent) so long as they did not avail themselves of incentives and exemptions. And the minimum alternative tax applicable to companies that avail themselves of incentives and exemptions was reduced from 18.5 per cent to 15 per cent.

The measures, justified on the grounds that they would spur investment and revive the economy, were patently misplaced. Since the recession and reduced investment were the result of depressed demand, what was needed was additional spending to spur demand and induce investment and not reduced taxation of profits, which would leave investment untouched. The measures, which were estimated to result in revenue foregone of anywhere up Rs.1.45 lakh crore in a full year, or around 0.8 per cent of the gross domestic product (GDP), fattened profits but did little to revive investment.

Such tax concessions are nothing but implicit subsidies or transfers to the corporate sector. But they are not treated as such. Budgetary documents tend to refer to these “taxes foregone” as “tax expenditures” and not subsidies or freebies of a kind. But they cannot be justified as compensation for exclusion since the beneficiaries are the rich and the corporate sector. And providing them constrains revenue mobilisation and widens the fiscal deficit unless they are accompanied by expenditure cuts in other areas.

Since neoliberal reform includes a commitment to reduce the fiscal deficit-to-GDP and public debt-toGDP ratios, such cuts have to be large. Since committed expenditures on wages, salaries and interest payments on past debts cannot be cut, the axe tends to fall on social expenditures, which are the redistributive components of annual budgets. This involves not only reducing ongoing social transfers but also abjuring new subsidies or transfers—the so-called freebies. That, however, worsens inequality. This is the contradiction inherent in neoliberal fiscal policy.

Pro-big business

For the Modi-led National Democratic Alliance (NDA) government, which flaunts its reformist credentials—“minimum government and maximum governance”—but is also unashamedly pro-big business, represented by a few rapidly expanding conglomerates, the “waste” of budgetary resources on transfers and welfare measures at the expense of “investment incentives” is in principle unacceptable. Also, having politically survived much worse, such as the inequalising fallout of demonetisation and the goods and services tax regime, abjuring freebies does not appear to be a problem despite clear evidence of worsening inequality. It seeks to win and retain legitimacy by going beyond the economic, appealing to a newly constructed “nationalism” based on Hindutva and pursuing a divisive, majoritarian agenda. This is seen as a way in which the NDA can aggressively pursue a conservative and neoliberal economic agenda without damaging its electoral support.

However, when unemployment and the incipient inflation associated with the pre-pandemic stagflation led to economic distress, the BJP’s exclusive reliance on its majoritarian platform seemed inadequate to the task of swaying voters. More so because its opponents were not only flagging the distress that economic circumstances were creating but promising and offering benefits that provided immediate relief, even if limited and inadequate. This explains the dissonance between the BJP’s ostensibly “principled” position on freebies and its practice. It reluctantly decided to offer its own version of concessions and transfers to working- and middle-class sections to win legitimacy and garner voters at the time of elections.

But what possibly roiled the BJP was not just that it was pushed into diluting its dominantly pro-business economic agenda by competing on promises offering “developmental benefits”, but that this action eroded, however marginally, the force of its distinctive Hindutva agenda. Although the BJP was in a position to use the promise of freebies to advantage, as it did, for example, in Uttar Pradesh, the use of transfers and concessions by the opposition to flag economic issues and create a space for “secular” debate, and the effect that may have had in reining in the BJP’s success are likely to have caused it to view this as a challenge to the force of its core Hindutva agenda. That, in turn, may explain the partial divergence in principle and practice on the freebies front and, more importantly, its offensive against so-called freebies.

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