Good or bad economics? 'Freebies' divide Gujarat politicos, economists

The BJP government in Gujarat has for the current financial year given exemption from professional tax to salaried persons earning up to Rs 12,000 per month. The state coffers will lose Rs 108 crore annually. It has given Rs 1,250 crore interest relief to farmers. The government will also offer financial support of Rs 40,000 to students to purchase laptops for online education.

Will these announcements fall in the freebies category or welfare schemes, question political opponents.

"Not a single promise by the Aam Aadmi Party is a freebie, each is based on econometrics, statistics and logic, and will have little adverse impact on the state coffers," says Kailash Gadhvi, treasurer of the party and a chartered accountant.

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Gadhvi explained the math behind the 600 units of free power. "There are 1.65 crore household consumers, of which 35 to 36 lakh are consumers of private companies. If state power distribution companies consumers are given 600 units free, it will annually cost Rs 6,200 crore to the state exchequer."

The AAP has planned to meet these losses. "Private power companies' transmission and distribution losses are 8 to 10 percent, whereas government companies' T&D losses are between 18 to 20 percent, if this is brought down to 10 per cent, it will meet the losses from free power."

Gadhvi quotes the Constitution's Article 39(A) that asks the states to provide free legal aid to citizens, and Article 45 which asks the state to provide free and compulsory education to all children till the age of 14. When the Constitution has asked the states to provide these free services for the welfare of the people, how can it be anti development.

Economist Indira Hirve argues that in the name of financial burden or economic issues, the state can't run away from social welfare.

She firmly advocates that elementary education and primary health care should be given free of cost, Secondary and tertiary education and special medical health services should be provided at affordable prices.

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According to her, "BJP or NDA government has no right to talk about freebies, NDA has waived Rs 10 lakh crore bad loans of industrial houses, and given Rs 5 lakh crore subsidies and incentives."

No one is asking or advocating for subsidies or financial aid for the rich, but the state has a duty towards the poor and should provide social services like education and health free of cost, says Gagan Sahu, associate professor of economics at the Centre for Social Studies, Surat.

Sahu is of the opinion that social services like these two can't be left to the private sector, it will create inequality in the society. It is the state's duty to treat all citizens equally and see that all get equal opportunities.

Disagreeing with them, Jigar Patel, associate professor (economics), Sardar Patel University, believes the government should stop subsidies and give services free of cost.

According to him, if this continues it will put a financial burden on the rest of the society, trade and industry.

The more subsidies or free of cost services you give, state expenditure will increase; to meet the expenditure, the state will have to levy more taxes on individuals, trade and industries. This will prove counter productive because against the rising expenditure if revenue does not increase the state will have to cut expenses on development, so in the long run subsidies and free of cost services are anti-development.