The inevitable result is financial disaster and irreparable damage to long-term growth, development and welfare programmes.
Sometimes, people find dark humor even when the news is terrible. In Himachal Pradesh, the so-called “toilet tax” recently created a huge controversy. Urban households in the state have to pay a certain amount as a fee for every toilet they own and use. As usual, the Congress government in Himachal Pradesh denied the false reports and most of the media platforms moved on to other controversies and events, especially the assembly elections. There is no clarity on whether the owners and users of toilets have to pay toilet tax under the “Swach Bharat” scheme. Beyond the drama and dark humor, the episode once again highlights the dangers of handing out freebies like confetti at a parade. The inevitable result is financial disaster and irreparable damage to long-term growth, development and welfare programmes. During the tight and closely contested election campaign in Himachal Pradesh in late 2022, the Congress had promised to bring back the old pension scheme if it came to power. Under OPS, the employee gets lifetime pension after retirement without paying a single penny during service. As the number of pensioners continues to increase and retirees live longer, the pension burden across India has become unsustainable and has been replaced by a new pension scheme where the employee also contributes to the pension along with the government.
The Congress promise attracted enough voters in Himachal to win the election. It was implemented by OPS. Now the state government is bankrupt. Unprecedented, the government delayed payment of salaries to employees by more than a week as the state coffers did not actually have any money. There was a delay in disbursement of pension. The government is trying to borrow more and more. But it eventually leads to a mess as it reaches a point where you have to borrow to pay interest on old and outstanding loans. What about the money needed for roads, urban infrastructure, irrigation, government schools, primary health centers and hospitals? Forget it.
As Himachal Pradesh is a relatively small state, disaster is not yet an issue that garners national attention. But Karnataka, the largest state, is also headed for financial disaster due to indiscriminate freebies. When the assembly elections came in April 2023, anti-incumbency against the ruling BJP government was incredibly high. Congress is certain to win the election. But with the “Gattagat” culture and vision put forth by Rahul Gandhi, the party promised voters five sets of freebies in Karnataka. It won the elections by a landslide and engaged in fulfilling free promises. They range from direct cash transfers for women to unemployment benefits to free bus rides for women. The total annual expenditure of the five “welfare” schemes is projected to reach Rs 60,000 crore by next year. In the 2024-25 budget presented by the Karnataka government, a total of Rs. 350,000 odd crore out of which Rs. 52,000 crore for five new freebies. Naturally, money doesn't grow on trees, so the Congress government is borrowing over Rs 1 lakh crore this year mainly to finance freebies. In the years to come, the interest burden on the state will be higher as borrowings to finance the freebies will increase. The tragedy is that freebies “crowd out” much-needed investments in physical and social infrastructure that matter most to the poor in the long run. The math is pretty simple. Unavoidable and fixed expenditure of Karnataka Government is Rs 80,000 crore for salary, Rs 32,000 crore for pension and Rs 40,000 crore for interest payment (approximate figures). Add more than Rs 53,000 crore to new freebies. This has crossed Rs.2 lakh crore.
Inevitably, there will not be much money for education, health, irrigation, infrastructure and development projects. But that is not the end of the story. The Karnataka government, which is staring at bankruptcy, has started raising the prices of all the commodities it can. The state tax on both diesel and petrol has been hiked significantly. It will affect the poor the most. The price of milk has been increased. It will affect the poor. Bus fares have been hiked significantly for non-free users. So women will enjoy free bus travel and poor men will suffer even more in monetary terms. This will have a cascading effect year after year as salaries, pensions, interest and gratuity costs continue to rise. The end of the road is financial disaster. It is not like only Congress governments distribute freebies like there is no tomorrow. Realizing that not giving freebies will lead to electoral defeat, the BJP has also jumped into the fray.
The clearest example of how freebies can destroy a state in the long run is Punjab, which has been ruled by the Congress, AAL-BJP alliance and the Aam Aadmi Party for the past 25 years. Maximum procurement of food grains at MSP is from Punjab. There is also a unique model where farmers can use as much electricity as they want without paying any fees. This perverse incentive system has led to strange developments. For one, the State Electricity Board is insolvent. Besides, since there is MSP for water-absorbing crops, Punjab farmers are mainly focusing on those crops. Since electricity is free, water can be drawn from reservoirs without any cost. Consequence: The water table in Punjab has now dropped alarmingly and there is a consensus among agricultural scientists that Punjab will become a desert state in a few decades. Focusing on agriculture, Punjab has neglected the industrial and service sectors. Not surprisingly, while Punjab's per capita income is less than Rs 2 lakh, neighboring Haryana's per capita income is Rs 325,000.
Any more freebies?
Yashwant Deshmukh is the Founder and Editor-in-Chief of CVoter Foundation and Sudhanu Guru is the Managing Director.
