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Populism is harmful for the health of India

30 Jan 2024 Populism is harmful for the health of India

Posted at 12:38h in Daily current-affairs by
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Source – The Hindu and PIB.

General Studies: Growth of Indian Economy, Fiscal Deficit, Populist Announcements and Schemes, Subsidies, Cash Transfers.

Why in the News ?

“Give a man a fish and you will feed him for a day, but if you teach a man to fish, you will feed him for the rest of his life.”

  • Recently, some senior officials of the Government of India have warned Prime Minister Narendra Modi that the debt of many states of the country has reached very high levels. The coffers of the governments have started groaning due to the burden of subsidies and cash transfers. Due to which the problem has become so serious that it needs immediate attention. If this trend continues like this then no solution will be effective. In this kind of politics, no party and no state is behind anyone. During the last few years, a new wave of welfarist populism has swept across India’s political-economic structure. Be it at the Center or at the state level, there seems to be a competition between them. They are emphasizing on things like loan waiver, gas cylinders and cash transfer. Due to which important areas like health and education are being ignored. Overall, all governments are busy spending more than their earnings.
  • It is also true that some welfare schemes cannot be questioned. Such as food subsidies from the central government. The initiative taken by the government during the Covid pandemic proved its usefulness. Still, a question arises how logical it would be to continue spending lavishly in India, where the government treasury is already under pressure. That too when this is being done without finding additional ways to raise revenue.
  • There is obviously an electoral factor behind this change in expenditure trend. Elections in India have become an arena of competitive populism, in which leaders try to win at any cost. It is widely believed that voters repay the favor of such welfare schemes by voting in favor of a party. Due to the expenditure incurred in these schemes on such a large scale, this issue has reached the Supreme Court of India. The apex court had summoned the Election Commission to the court in July 2013 in the case of Subramaniam Balaji vs. Government of Tamil Nadu and others. Recently, the case related to freebies was heard again in the Supreme Court. BJP leader Ashwini Upadhyay had filed a petition to this effect. Their petition is addressed to the Election Commission asking whether the Commission can make such rules which can discipline the political parties regarding the promises made in the election manifesto. In its reply, the Commission said – “In the absence of any legal authority, it is not in a position to do much in the matter given that such policies are economically unviable and dangerous to the health of the public exchequer. Only the voters will have to decide this.”
  • There are fears that in view of the upcoming elections in 2024, the promises made in populism may have a negative impact on the slow pace of India’s economic recovery. Some of the main points of which are as follows–
  • The government has set a medium term fiscal deficit target of 4.5% of GDP for 2025-26. This is 2% less than the current level of three financial years.
  • It is 5.9% and 3% for the Center and states in 2023-24, respectively. In this, a rebate of half percent has been kept for improvements in the power sector.
  • States have ways to avoid fiscal deficit, but they are not achieved because of promises of free electricity and food grains. On the other hand, the central government is ready to spend capital for economic reforms, and is encouraging the states to maintain fiscal balance.
  • Currently high interest rates are prevailing globally. In such a situation, the central government is struggling to maintain the credit flow in small enterprises. Now only one solution remains: by controlling government expenditure, credit cost can also be controlled. Only after this can provision for large scale investment be made.
  • The states have increased their own problems. The additional burden of fulfilling the political promises of free electricity is placed on him. Since the income from electricity is very important for the states, the states are no longer able to invest in generation and transmission.

Such a political form of welfare not only distorts the market system but also perpetuates inequality. Cash transfers are being considered globally as the best way to redistribute universal wealth. India has tried unsuccessfully for inclusive development since independence. Changing approach, now similar welfare schemes are being run in groups. This approach has rescued the economy from many global crises. It should no longer be destroyed by competing announcements of freebies. This may slow down India’s development pace.

Freebies :

A 2022 report by the Reserve Bank of India defines freebies as “a public welfare measure (which is provided free of charge)”. It says that freebies are distinct from public/merit goods that provide broad and long-term benefits, such as health and education.

Fundamental difference between freebies and welfare state :

The difference between freebies and welfare schemes can be understood in the light of their long-term impact on society and beneficiaries. Welfare schemes have a positive impact on the state or society, whereas freebies can create dependence or distortion on others or the state.

  • On the one hand, freebies are goods and services that are provided to users for free at no charge. It is usually provided with the aim of benefiting a target population in the short term. Such actions are often seen as a way to sway voters or bribe them with populist promises. Providing free laptop, TV, bicycle, electricity, water etc. are some examples of freebies.
  • Welfare schemes on the other hand are well thought out schemes aimed at benefiting the target population and improving their standard of living along with easy access to resources. It generally aims to fulfill the constitutional obligations towards the citizens (in compliance with the Directive Principles of State Policy). These are often seen as a way of promoting social justice, equity and human development. Some examples of welfare schemes are Public Distribution System (PDS), Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Midday Meal Scheme etc. 

Benefits of free populism :

Public engagement and outreach : Free schemes launched by any government greatly increase the trust and satisfaction of the public towards the government, because in this way any state or central government demonstrates its responsibility and accountability towards the people. Are. Additionally, free schemes create opportunities for feedback and dialogue between the government and citizens, which can enhance democracy with transparency.

Positive impact on government : A study by the Center for Policy Research found that free schemes like laptops, bicycles and cash transfers in Uttar Pradesh and Tamil Nadu had a positive impact on voter attitudes, their political awareness and their satisfaction with the government. Is.

Increasing the productive capacity of the workforce and economic growth : Free schemes can stimulate economic growth by increasing the productive capacity of the workforce (especially in less developed areas). For example, free schemes like laptops, bicycles or sewing machines can increase the skills, mobility and income opportunities of poor and rural populations.

Improving school dropout rates : A NITI Aayog report says providing free schemes like bicycles to schoolgirls in Bihar and West Bengal has led to an increase in their enrolment. Along with this, the school dropout rate has also decreased and the teaching learning outcomes of children have improved.

Helpful in improving the quality of life and social welfare : Free schemes can provide basic facilities like food, education, health, electricity to the deprived, poor and marginalized sections of the society. For example – free schemes like school uniforms, textbooks or health insurance can improve literacy, health and quality of life among needy castes, communities or disadvantaged groups.

Helpful in reducing poverty ratio : A study by the World Bank has found that food subsidy free schemes under the Public Distribution System (PDS) have played a role in reducing the poverty ratio in India by 7%.

Important role in reducing devastating health shocks : An NSSO survey found that free schemes like health insurance under the Rashtriya Swasthya Bima Yojana (RSBY) reduced out-of-pocket expenses for below poverty line (BPL households). -of-pocket expenditure) and has played an important role in reducing devastating health shocks.

Helpful in reducing poverty and income inequality : Free schemes can reduce income inequality and poverty by redistributing wealth and resources more equitably. For example, free schemes such as loan waivers or cash transfers can empower indebted or low-income households by providing them access to assets, credit or a fixed income.

Improvement in credit capacity of farmers : A Reserve Bank of India report found that loan waiver has relieved the debt burden and improved the credit capacity of the majority of distressed farmers.

Disadvantages of free populism :

Barriers to becoming self-reliant : Free schemes can create a negative pattern of self-reliance and entitlement among the groups receiving free schemes, which may lead them to expect more free schemes in the future. Which may make them less motivated to work hard or pay taxes. For example – free schemes like Rs 1 per kg rice or electricity at zero cost can reduce the beneficiaries’ sense of responsibility and accountability towards the state and turn them into a group always dependent on external assistance. A survey by the Association for Democratic Reforms revealed that 41% of voters in Tamil Nadu considered free voting schemes an important factor, while 59% said they were satisfied with the performance of the state government.

Increase in debt and inflation and increase in fiscal deficit : Free schemes can have adverse consequences on the fiscal health of the state or country, as it increases public expenditure, subsidies, deficit, debt and inflation. For example, free schemes like farm loan waivers, unemployment allowances or pension schemes may put pressure on the budgetary resources and fiscal discipline of the government and affect the state’s ability to invest in other sectors or meet its obligations.

Misallocation of expenditure priorities and resources : Free schemes divert funds from other more productive and essential sectors like infrastructure, agriculture, industry etc. into expenditure priorities and allocation of resources, thereby negatively impacting the development of the state. Does matter. Free schemes such as mobile phones, laptops or air conditioners can account for a large portion of public expenditure, leaving the state short of funds to invest in public sectors such as roads, bridges, irrigation systems or power plants.

Reduction in innovation and improvement quality : Free schemes reduce the quality and competitiveness of the goods and services provided for free by reducing the incentives for innovation and improvement by the state. For example – free schemes like bicycles or laptops, may be of inferior quality or old technology compared to these products available in the market or produced by other countries.

Environmental protection and over-exploitation of natural resources : Encouraging over-use and wastage of natural resources like water, electricity or fuel by the state through free schemes can have a negative impact on the environment. Free schemes, such as free electricity, water or free gas cylinders, may reduce incentives for conservation and efficient use and thus increase the carbon footprint and pollution levels in the environment.

A CAG report said that the allocation of free electricity to farmers in Punjab has led to excessive use of electricity and its efficiency.

Way forward :

Clearly specifying the sources of revenue by the State: Political parties, before announcing free schemes, clearly specify to the voters and the Election Commission of India the sources of revenue related to financing the scheme, which will have an impact on the fiscal balance. There should be clarification about the impacts of the scheme, the cost to public expenditure and the sustainability of the free schemes.

Empowering the Election Commission of India to regulate and monitor the announcement and implementation of freebie schemes by political parties during elections. This should include giving the ECI broader powers to deregister political parties, impose fines or take contempt action for violating the Model Code of Conduct or court orders on freebies.

Educating voters about the economic and social consequences of freebies : In a democracy, the power to allow or prevent the spread of freebies ultimately lies with the voters. It is essential to educate voters about the economic and social consequences of freebies and encourage them to demand performance and accountability from political parties. Voter awareness campaigns, voter literacy programmes, civil society initiatives and media platforms will play a significant role in informing and empowering voters to make rational and ethical choices.

Involvement of the judiciary is necessary :  Constructive debate and discussion in Parliament on free schemes is difficult because the free scheme culture has an impact on every political party, whether directly or indirectly. This scenario requires the engagement of the judiciary in India to consider various remedies.

Focusing on inclusive growth for social progress : This will address the root causes of poverty and inequality that make people vulnerable to free schemes. Inclusive growth will also create a more conducive environment for economic growth and social progress, which will benefit all sections of society in the long run. Thus, inclusive development can be a more effective and desirable alternative to free schemes.

  • It is worth noting that political parties offer freebie policies to voters without informing them about their potential harm. The reason for this is that if someone is offered something free, the chances are high that he will not reject it. It is no surprise that parties advocate these policies, as their own surveys show the popularity of these schemes. When voters come to know what other benefits they may have to miss due to government money being spent on them due to these election doles, then it is possible that they will reject these freebie schemes.
  • The Indian economy is currently under immense pressure. While the ratio of tax revenue to GDP of the Center and states together is 18 percent, the ratio of expenditure is 29 percent. NK Singh, Chairman of the Fifteenth Finance Commission, has recently warned that if states do not stop distributing doles to woo voters, India will face big problems on the economic front. He said this could invite fiscal disaster.
  • Distributing doles from the government treasury may have a very limited impact on electoral prospects, but despite this, this trend does not seem to be stopping any time soon. The politician is in a state of great dilemma. They know that such an attractive offer might help them make some political gains during the elections in the absence of a good governance record. They are also well aware that due to secret voting and similar tactics being used by other parties, the ball remains completely in the voters’ court. It is also true that no leader can afford to completely turn his back on such populist schemes. In such a situation, we can only hope that in the near future, political parties and voters reach a consensus that the demand and supply of such schemes only do harm.
  • When political parties are engaged in this type of populist competition, it is also necessary to investigate how much such policies influence the voters? There is no doubt that these policies do lead to some electoral benefits, but their impact is somewhat exaggerated. If this type of populism had been decisive in electoral victory, then the ruling party and its candidates would have had to face defeat very rarely. Whereas the trend in India shows that here it is considered very difficult to come back to power after winning the elections. For such an offer to have electoral impact, political parties would have to know which beneficiaries voted in their favor and which did not. And it is very difficult to do this in India. Here the Election Commission is committed to ensuring secrecy of voting. According to data compiled by Lokniti-CSDS in 2009, it is particularly difficult for politicians to find out who voters voted for in local elections.

Practice Questions for Preliminary Exam :

Q.1 Consider the following statements in the context of populism and free schemes.

  1. It is usually provided with the aim of benefiting a target population in the short term.
  2. It is helpful in reducing poverty and income inequality.
  3. This is likely to lead to expenditure priorities and misallocation of resources.
  4. This is done with the aim of improving the quality of life and helping in social welfare.

Which of the above statement /statements is correct?

(A). Only 1, 2 and 3

(B). Only 2, 3 and 4

(C). only 2 and 4

(D) All of these.

Answer – (D)

Practice Questions for Main Exam :

Q.1.How do populist announcements and schemes in any democratic state increase fiscal deficit and slow down and adversely affect the pace of India’s economic recovery? Critically explain the social, economic and political implications of populist announcements and plans.

 

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