Obfuscation Overload: Beware the perils of abstraction when discussing freebies

Abstraction has a seductive charm, especially for the leisure class. People who must attend to the daily drudgeries of life are not fortunate enough to have the time or comfort of such indulgences. But when it comes to policymaking, abstraction is a double-edged sword. At times, it facilitates a better understanding of complex phenomena without getting caught in unnecessary detail. But when details are all that matter, abstraction can only lead to dangerous consequences — borne, typically, in much larger proportion by not the abstractor.

The debate on ‘freebies’ is now entering this territory. A number of articles in the past few weeks have resorted to abstract — detached from the actual merits of the specific freebies being debated — principles to justify how the freebies on offer are, actually, a very legitimate part of the democratic process. Apparently, freebies are a result of the state’s failure in being a genuine welfare state by caring for the poor. Moreover, these articles argue, the critics of freebies have also criticised other reasonably successful redistributive policies like the Public Distribution System (PDS) and National Rural Employment Guarantee Act (NREGA). Finally, some people also argue that we are bothered by these freebies but not ‘freebies’ like corporate tax cuts.

These arguments seem reasonable until you realise that they are specious. Essentially, they put freebies in the same category as welfare schemes and tax benefits. This is the folly of abstraction — where without delving into the details of the specific freebies being discussed— that can lead one astray when reasoning about matters of practical relevance.

First, the term freebie is itself a misnomer. Someone is paying for it, but it is just not the consumer. As the Tamil Nadu finance minister P Thiaga Rajan said recently, “One man’s freebie is another man’s essential social spending.” But is it? Are all freebies equal, or are some freebies more equal than others? Is every freebie someone’s essential social spending?

Since the origin of this debate is the Delhi government’s free electricity policy that is now being taken to other states, one must— howsoever one hates it —get into its details and compare it with other welfare policies.

The Delhi government’s electricity subsidy costs over Rs 3,000 crore per year. To put things in perspective, its budgeted revenue surplus for 2021-22 is Rs 1,271 crore. In other words, had it not spent on electricity subsidy, it would have nearly three-and-a-half times its current revenue surplus. This would enable it to spend these precious resources on avenues of building long-term human capital, such as health and education.

Why spending on health and education is superior to spending on free electricity is obvious. A healthy and educated population will pay dividends for decades. More importantly, spending on government schools and healthcare automatically has the desired selection effect: it is largely the less-affluent section of the society that uses government schools or healthcare. Therefore, the money that the government spends on subsidies automatically reaches the poor more than the rich. In contrast, the 300 units of free electricity benefit a significant number of wealthy households. An average household in Delhi consumes 250-270 units of electricity per month. With a per capita income of Rs 3.8 lakh, Delhi is one of the richest cities in the country. Therefore, its average household is significantly richer compared to the national average. And such households are getting free electricity every month.

This is pure transactional politics. Why would a rich household in Delhi prefer that the government spend money on government schools — something that they would never use — instead of receiving direct cash in the form of free electricity? This transaction is of course attractive for the parties involved in the transaction: one gets the votes, the other gets the money. But it beats me why a neutral observer should view the transaction favourably.

To say that the critics of the freebie culture have also criticised PDS and NREGA is a strawman. Regardless of what one views as the fiscal and incentive consequences of NREGA, or its impact on crowding out investment in capital building, there is likely to be no disagreement about the fact that it is well-targeted. By forcing physical labour, NREGA ensures that only the poor would be interested in availing it. Therefore, even its critics, when forced to choose between NREGA and free electricity, would have no hesitation in choosing the former.

On tax cuts, the economic logic behind is that such cuts will raise the economic activity, and tax compliance, and eventually the tax revenue. Whether this happens or not is an empirical question. At least the provisional numbers from the Comptroller and Auditor General suggest that the corporate tax revenues in 2021-22 are significantly higher than those in 2018-19, despite the two COVID years in between.

This brings me back to the perils of abstraction that I opened with. Framing of mundane policy matters — are freebies a good policy given the states’ fiscal health — in some abstract democratic process often obfuscates more than it clarifies. The price of this obfuscation, and the resulting confusion, is borne by the poor.

In a country with infinite resources, there would be no critiques of freebies. But we do not live in such a country. The competition for the state’s resources is intense and real. Every state expenditure is an exercise in opportunity costs: the question to be asked is, is this the best use of public money? Answering this question entails comparing different avenues of expenditure in terms of who the beneficiaries are, what the short-term and long-term benefits are, etc. This is often a painstaking but a necessary exercise. To take the lazy way out by bundling all the expenditures together and calling it a “legitimate democratic bargain” does disservice to the very idea of a democratic bargain. For one could take this a step further and justify simply a direct cash for votes. Such bargains may be legitimate but will most likely be viewed as perversions of a multi-party democratic process.

Aditya Kuvalekar is a lecturer in Economics at the University of Essex, UK. Views expressed are personal.

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