Why in the News?

A three-judge Bench led by Chief Justice of India criticised States for offering free electricity and direct cash transfers ahead of elections while running deficits. It questioned how such schemes are funded and said subsidies must be clearly shown in the budget instead of hiding revenue gaps. The Court noted that Tamil Nadu alone faces a power sector revenue gap of around ₹50,000 crore. The issue raises concerns about fiscal discipline, burden on future generations, and whether such policies serve constitutional goals or electoral politics.

What are Freebies?

Freebies refer to benefits such as free electricity, free water, cash transfers, loan waivers, free transport, or distribution of consumer goods announced by governments, often around elections. They are generally universal or broadly targeted and may not be strictly linked to poverty or vulnerability criteria.

Types of Freebies

1. Consumption-Based Freebies: Free electricity, water, LPG refills, or public transport. These reduce immediate household expenses but increase revenue burden on the State.
2. Cash Transfers: Direct cash assistance to specific groups (e.g., women, farmers, unemployed youth) without productive conditions attached.
3. Loan Waivers: Farm loan waivers or interest subventions. These provide short-term relief but may affect credit discipline.
4. Goods Distribution: Free laptops, smartphones, bicycles, mixers, or other consumer durables.
5. Service-Based Freebies: Free pilgrimages, free education kits, or free healthcare schemes not linked to targeted social security design.

Freebies differ from targeted welfare schemes such as MGNREGA or PDS, which are structured, means-tested, and aimed at long-term poverty reduction.

How Do Universal Subsidies Impact Fiscal Federalism and Public Finance Stability?

1. Fiscal Deficit Expansion: Increases revenue-expenditure gaps and shifts burden to public exchequer; example: Tamil Nadu power sector revenue gap of ~₹50,000 crore.
2. Intergenerational Burden: Transfers current consumption costs to future taxpayers through debt accumulation.
3. Revenue Distortion: Weakens cost-reflective tariff mechanisms mandated under electricity regulatory frameworks.
4. Budgetary Opacity: Masks real fiscal stress when subsidies are not explicitly budgeted under planned expenditure.
5. Federal Stress: Limits States’ fiscal space under FRBM constraints.

Do Electoral Freebies Undermine Constitutional Principles of Welfare State and Equality?

1. Welfare State Commitment: Constitution envisages targeted support for marginalised sections (Directive Principles).
2. Equality Principle (Article 14): Universal subsidies blur distinction between those capable of paying and those below poverty line.
3. Appeasement vs Welfare: Court questioned whether non-discriminatory subsidies amount to political appeasement.
4. Public Interest Doctrine: State must prioritise sustainable development expenditure over short-term populism.
5. Institutional Accountability: Elected governments remain accountable for fiscal prudence.

What Is the Regulatory Concern in the Power Sector?

1. Cost-Reflective Tariff Rule: Electricity Amendment Rules, 2024 mandate no revenue gap between approved annual revenue requirement and estimated revenue.
2. Tariff Pass-Through: Revenue gaps eventually increase consumer tariffs.
3. Subsidy Accounting Reform: Court suggested inclusion of subsidies in planned expenditure to avoid financial opacity.
4. Public Utility Viability: Persistent losses weaken State DISCOMs and reduce investment capacity.
5. Moral Hazard: Free electricity reduces incentive for efficient consumption.

How Does the Judiciary Balance Policy Autonomy with Fiscal Oversight?

1. Judicial Restraint Principle: Policy decisions fall within executive domain.
2. Constitutional Guardianship: Court intervenes when fiscal actions affect public interest and economic stability.
3. Separation of Powers: Remarks do not ban subsidies but question sustainability.
4. Institutional Dialogue: Encourages reconsideration of policy frameworks rather than direct prohibition.
5. Democratic Accountability: Final political wisdom rests with elected governments.

Are Freebies Economically Distinct from Welfare Schemes?

1. Targeted Welfare: Focuses on vulnerable groups (e.g., PDS, MGNREGA).
2. Universal Freebies: Extend benefits irrespective of income level.
3. Capital vs Revenue Expenditure: Freebies often reduce fiscal space for capital investment.
4. Development Trade-off: Excessive distribution hampers infrastructure and human capital formation.
5.  Sustainability Criterion: Long-term growth requires disciplined expenditure prioritisation.

Conclusion

The debate on freebies highlights the tension between welfare obligations and fiscal responsibility in a federal democracy. While the Constitution mandates support for vulnerable sections, such support must be targeted, transparent, and fiscally sustainable. Competitive populism risks weakening public finances, distorting development priorities, and burdening future generations. A balanced approach that strengthens human capital, ensures cost-reflective pricing, and upholds institutional accountability remains essential for long-term economic stability and constitutional governance.

PYQ Relevance

[UPSC 2022] Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and underprivileged sections of the society. Discuss

Linkage: This question links directly to the freebies debate by highlighting that sustainable poverty alleviation requires macroeconomic stability, not just welfare distribution. It brings focus on fiscal discipline, inflation control, and employment generation as structural solutions beyond populist subsidies.

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