Freebie Debates and Budgetary Priorities: Economic Growth-led India or Inclusive India

Abstract

This article discusses the current debate in India centred on freebie schemes and budgetary priorities. Both are being shaped by India’s political economy within and by globalisation forces outside. Targeting high growth rates and making economies competitively fit are driving this globalization forces. Should budgets prioritise growth or distribution? The Bhagwati–Sen debate provides us insights into the pros and cons of this apparent choice. Economic growth in India has been reasonably good, but not enough employment has been created. The decline in poverty rate has been slower, and in absolute numbers, a staggering number are still poor. India, an erstwhile colonised nation-state, is currently focusing on an infrastructure-led growth budget. The current governing elites assume that growth will take place and benefits eventually will trickle down. It rests its hopes largely on the middle class for high growth rates. The counter-elite voice demands more budgetary allocation for the Indian labouring poor, largely rural. This allocation will widen the participatory base of the economy. The two viewpoints presented here represent two perspectives: an economic growth-led India and an inclusive India. This debate has significant implications for re/distributive policies and programmes and human development.

Introduction

In recent times, the idea of freebie schemes has come to be politically contested in India. The Cambridge Dictionary defines a freebie as ‘something that is given to you without you having to pay for it, especially as a way of attracting your support for or interest in something’. Giveaways, vote bank politics, subsidy, sops and populist policies are the phrases used in India to convey the freebie sense meanings. Several questions arise. Is this labelling helpful? Do all freebie schemes carry nil developmental or welfare outcomes? Answering these questions leads us to the political economy context in which under global pressure economic growth—and not social development—has become a paramount goal of nation-state elites. The causal relations linking state development policy and their development outcomes to desirable economic growth are complex. In this complex process, social aspects also play an important role. The larger aim of a state development policy is to usher in both desirable economic and social changes. Planning, budgeting and policy making are the tools available to a nation-state to usher in the desired changes.

This article discusses five aspects of a freebie policy idea being currently debated in India. First, the immediate contexts around which the freebie debate emerged are discussed. Second, the need for freebies and related issues are pointed out. Third, the current emphasis on a growth-oriented budget strategy is presented. Fourth, a few economists’ views about growth and redistribution with reference to the Indian economy are summarised. Finally, the links between freebies/welfare measures, state policies and developing human capital are explored. In conclusion, it argues that depending upon the influence of these five aspects and choices made, we may create an economic growth-led India or inclusive India.

The Context of Freebie Debate

This debate began in July 2022 when the Indian Prime Minister addressed a public gathering in the state of Uttar Pradesh while inaugurating the Bundelkhand expressway. The address directly castigated opposition political parties for promising unproductive freebie schemes just to lure voters. Indirectly, the occasion conveyed a message that infrastructure projects, such as the Bundelkhand expressway, enhanced productivity. The address framed the forthcoming electoral contestations as a ‘productivity’ approach of the current government versus an ‘unproductive-cum-freebie’ approach of opposition parties. The choice the Indian voter needed to make was made clear. The address also alluded to Indian taxpayers now being happy. Because the productivity projects now underway did not waste their money.

A fuller exposition of this development model was offered when a union minister spoke to The Hindu newspaper. The National Democratic Alliance government led by the Bhartiya Janata Party (BJP) since voted into power in 2014 has been initiating long-term measures that ‘bring in good governance and transparency’. The ‘shortcut’ approach of offering ‘freebies’ carries no long-term impact of easing the day-to-day life of citizens. The ‘freebie’ culture fostered dependency. The union minister contrasted between providing five lakh jobs—empowering people—and announcing an unemployment dole of ₹1,500 that fostered dependency. This development model was a sustainable model (Varghese & Hebbar, 2022, p. 8). The critique of freebie schemes made in the Prime Minister’s address triggered a public debate. Before considering the merits of freebie schemes, it is important to briefly familiarise with the roles played by the regional/state-level elites, the emphasis on infrastructure growth and judicial intervention as part of the broader freebie context.

Regional/State-level Elites

The regional parties and their elites remain today as the sole political force thwarting the BJP’s ambitions to consolidate power further. Given her size, linguistic diversity and federal system, electioneering in India is perpetual. The BJP, which had won just two parliamentary seats in 1984, began its rise in the 1990s and, after the 2014 parliamentary elections, emerged to become the dominant ruling party. Paralleling this rise, the Congress party, the national opposition party, declined. No match to the BJP organisationally and financially, yet these regional elites have retained power in their respective states. Rolling out state-centred development schemes has been the strategy nurtured by these elites or freebie schemes which the BJP denounces. The regional elites have been far more effective than the Congress party, which carries a track record of governing India for the most part between 1950 and 2014.

This effectiveness of the regional parties is in part animating the current effort to de-legitimise the idea of freebie schemes and, consequently, its redistributive potential if this is its original intention. These debates will intensify in the days to come before the all-important 2024 parliamentary elections, whose outcomes carry consequences for the federal structure of India.

Pushing Infrastructure Growth

The BJP government’s emphasis has shifted to infrastructure creation such as ports, airports, bridges and railway infrastructure (Gupta, Episodes 1130 and 1132). The scale of the infrastructure push attempted now has never been attempted before. The intent became clear in India’s Union Budget 2021, which marked ‘a discernible shift towards experimenting with measures to boost economic growth through a push to build infrastructure’. It ‘pins its hopes on the government attracting private finance…’ (Chandrasekharan, 2021, p. 10). This infrastructure push continued in the 2023 budget. As stated earlier, during the Bundelkhand public address, the Prime Minister also spoke about not wasting taxpayers’ money. This will resonate with the middle class which has gained in the past three decades of economic growth. Their technocratic and affluent segment, now quite influential, is integrated into the globalised elite strata and shares this stratum’s aspirations for high growth rates.

However, the BJP government’s claim of completely doing away with freebies and subsidies is not entirely true. The government is estimated to have run up the second-highest subsidy bill in India’s history after the highest in 2020–2021.

Judicial Intervention

Indian voters are often offered a variety of freebies such as washing and sewing machines, tablets, laptops, mobile phones, houses, televisions, grinders and free electricity, water, health services, health insurance, canteen facilities and rations. There is ‘widespread concern over the spread of freebies, particularly during preelection, and the need to develop a mechanism to regulate them and to limit any distortions in resource allocation that adversely affect growth’ (Sharma & Sarma, 2022, p. 17). A judicial pronouncement has added salience to the debate. The Indian Supreme Court adjourned the hearing of a public interest litigation against the freebie promises made by political parties and declined the petitioner’s suggestion to constitute a committee to evaluate the economic repercussions of the promised freebies (Deshwal, 2022, November 1).

The Need for Freebies and Related Issues

Seventy-five years of development have passed and freebies are still in demand. The 1990s’ economic reforms did generate economic growth. But it failed to ‘reduce inequality and achieve inclusive growth’ leading to ‘policy measures’ such as free rations, subsidies, employment programmes and income transfers. Sharma and Sarma categorise these measures as ‘legitimate freebies’ (2022, pp. 18, 19). Legitimacy is a useful conceptualisation in rationalising the policy role of freebies. But can it be squared with free-market ideas?

Poverty creates the need for freebies. The United Nations has reported that the incidence of multidimensional poverty in India has declined from 55.1% (645 million) to 16.4% (230 million) between 2005–2006 and 2018–2021, proving that ‘poverty reduction is achievable’. The immediate challenge is ‘the lack of comprehensive data during the period of the COVID-19 pandemic’ (News Item, 2023, July 12, p. 10). The weak outcome of inclusive growth in India has been exacerbated by the pandemic and the Ukraine war which ‘have added 70 million to those living below the extreme poverty line globally. And India, which experienced a pronounced economic contraction, was the worst affected’. The incidence of poverty has certainly fallen but the trickle-down effect has weakened holding ‘back a humongous 228 million in poverty, the third largest in the world’.

But

What is more worrying is that the deprivation scores show that another one-fifth of the population remains vulnerable to poverty. With 16.4% living below the poverty level and another one-fifth remaining vulnerable to poverty, the share of the deprived adds up to more than third of the population. (Editorial, 2022, p. 7)

Good Versus Bad Freebies

Sharma and Sarma (2022) make a distinction between good and bad freebies by citing three social protection programmes that have facilitated inclusive growth (p. 19). The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is an employment scheme for the rural poor. The National Social Assistance Programme is a pension scheme for the old, disabled and widows. It involves cash transfers. The Prime Minister Awas Yojana is a scheme for constructing houses for the poor. It is a transfer in kind.

These schemes do ‘represent different types of freebies’ and yet have facilitated inclusion. Its programme expenditure has significantly impacted income, output and GDP and also generated employment through the multiplier effect of inter-sectoral linkages. Around ‘one-fifth of the expenses of these programmes goes back to the government as tax revenue’ and ‘create demand in the economy by enhancing purchasing power of the beneficiaries who belong to the poor segment of society’. To sum up, an appropriately designed freebie can foster inclusive growth (p. 19).

Legitimate Versus Distortionary Freebies

Sharma and Sarma (2022) contrast legitimate freebies ‘which are in conformity with the letter and spirit of the Constitution’ with distortionary freebies ‘which are not in conformity with the sound principles of prudent fiscal management and rather distorts resource allocation’. Distortionary freebies ‘have been ballooning because of the political parties seeking support to capture or remain in power’. They have had an ‘adverse impact on fiscal health, resource utilisation and resource allocation and indeed are dangerous for economic development as claimed by the Prime Minister’. A panel of experts should identify distortionary freebies and ‘indicate how best to eliminate/minimise these schemes’ (pp. 17, 20). Other voices are making similar prescriptive recommendations.

The Comptroller and Auditor General of India while agreeing that the underprivileged need subsidies also says that ‘it is essential to transparently account for such subsidies’. Caution demands that state governments should ‘distinguish justifiable subsidies from freebies, which are not fiscally responsible’. The absence of this distinction has added to ‘fiscal sustainability risks’ (News Item, 2023, April 11, p. 12). For fiscal stability, reducing distortionary freebies is now being increasingly voiced. Can this fiscal stability demand be squared with the demand for legitimate and inclusive growth freebies? To know how a nation’s budgets square this equation one needs to delve deep into the domain of political economy.

Utility of the Legitimate Versus Distortionary Freebies Distinction

The utility of distinguishing legitimate freebies from distortionary freebies lies in the fact that it legitimises the idea of making distinctions between freebie schemes. Once this idea is accepted then why not add the criteria of ‘inclusiveness’ and make further distinctions? Why limit the idea of making distinctions to legitimate and distortionary freebies only? The criterion is now broadened and is more representative of the diverse Indian needs. For example, a scheme which is distortionary and hardly inclusive can be re-shaped to be less distortionary and more inclusive. The utility of the idea of distinctions lies in the fact that we have before us three more representative criteria to evaluate a ‘freebie’ scheme.

There is another analytical aspect to the distinction question. The ratio of a sum allocated to a particular freebie scheme and the extent of the fiscal distortion caused by it can be compared to other freebie schemes. This ratio can become an analytical tool for making decisions to retain, modify or end a freebie scheme. This ratio figure gives us a mathematical number to evaluate the effectiveness of different freebie schemes in meeting Indian needs.

A freebie in its essential nature is a form of redistribution policy. Some may be desirable because it is legitimate, while yet undesirable because it distorts fiscal balances. Since distinctions define freebie policies, the question of making choices comes into play. Should one freebie policy be favoured on grounds of humanitarianism and another on grounds of an economic criterion? Humanitarianism would demand that the educational, health, nutritional and livelihood needs of the vulnerable Indian people should be met. The latter would simply take a purely economic point of view of enhancing aggregate growth. Is there a meeting ground between the two? Can a welfare measure connect growth to welfare?

Growth-oriented Budget Strategy

Growth Prospects

India’s economic growth rates are currently viewed approvingly since several other nations are struggling to avoid recession. The International Monetary Fund has forecasted that India will grow at 6.8% in FY 23 and at 6.1% in FY 24. This ‘bright spot’ in the world economy alone ‘will contribute 15% of the global growth in 2023’ (News Item, 2023, February 23, p. 1). Similar forecasts have been made by the World Bank (6.3%) and the Asian Development Bank (6.4%) (The Hindu, Editorial, 2023, p. 6).

India’s ‘growth of 8.7% in 2021–22 is good, but India was among the weakest performers in the world in 2020–2021 with a growth of −6.6%. So, most of the growth in 2021–2022 was the growth of climbing out of the well’ (Perumal, 2023, p. 11). Lahiri (2022) tells us that the GDP grew by 9.2% in 2021–2022 and was higher than the 2019–2020 GDP performance but higher only by 1.3%. In 2020–2021 GDP had declined in real terms by 7.3% (2022, p. 19). The Indian economy has certainly recovered from the pandemic-induced contraction. What budget strategy between 2021 and 2023 has aided this recovery?

Trickle-down Effect

From the 2021–2022 Union Budget onwards, the BJP-led government had declared that their spending ‘will go towards investment-driven growth and physical and social infrastructure’. Presented in the ‘backdrop of a pandemic induced contraction in national economic output’, this budget ‘marks a discernible shift towards experimenting with measures to boost economic growth through a push to build infrastructure’ (Chandrasekharan, 2021, p. 10). This government’s budget strategy for 2022–2023 is like that of the previous years. Growth is to be revived through fiscal consolidation and high capital expenditure (Mundle & Sahu, 2022, p. 46). Has this budget strategy also enabled benefits to trickle down?

In 2021–2022 the growth rate has been high but also distress among the workers of the informal sector and among the self-employed. The stock market boom has increased the wealth of the corporate sector and the big business families (Mundle & Sahu, 2022, p. 40). Kaushik Basu tells us that the Indian economy in terms of aggregate growth has done well in 2022 and this ‘growth matters’ but growth is not ‘an end in itself’. It is an ‘instrument to spread well-being in the entire population’ which is not the case now because India ‘is growing disproportionately at the top end’. The ‘rich are getting richer’. The ‘lower middle classes are facing negative growth while the overall GDP growth is positive. India’s youth unemployment rate stands at 28.3% which is almost double that of most East and Southeast Asian countries’. The budget needs to ‘treat unemployment and alarming inequality as big challenges’ and measures needs to be announced ‘to turn the economy around’. The ‘most outstanding years of India’s growth were from 2003 to 2011, from the time of Atal Bihari Vajpayee’s government to Manmohan Singh’s’ (Perumal, 2023, p. 11).

It appears that the 2022–2023 budget has no direct strategy for redistribution. It ‘signals significant compression of subsidies and transfers to reduce revenue and fiscal deficits and create more fiscal space for capital expenditure’. The ‘fiscal space was created for higher capital spending by containing revenue expenditure, particularly in subsidies …’. The increase in capital expenditure is budgeted mainly by lowering the total subsidy bill for 2022–2023 by cutting back on food and fertiliser subsidies (Rao, 2022, pp. 37 and 39).

The budget of 2022–2023 saw a massive increase in capital expenditure allocation for infrastructure sectors such as transport, communications and energy. The allocation for two key social protection schemes—food subsidy and MGNREGA—has been reduced by about 28% and 26%, respectively. The budget for 2022–2023 ignores the pandemic-induced contraction in incomes and job losses. Considerable distress among the most vulnerable of the 30% population is evident now (Mundle & Sahu, 2022, p. 44). The strategy of the 2022–2023 budget is clear. The ‘increase in public capital investment, through its multiplier effect, will enhance demand to increase private investment and these will accelerate growth and trickle down to increase employment opportunities’. The text of this budget speech makes clear that ameliorating misery and creating livelihood opportunities is left to the ‘trickle-down’ approach (Rao, 2022, p. 38).

In the 2023–2024 budget, the sum allocated to schemes providing food, fertiliser and petroleum subsidies and for the MGNREGA have been reduced. The money saved has been allocated for capital expenditure (Mundle & Sahu, 2023, pp. 37, 39).

High Growth Rates: Employment, Contractualisation and Casualisation

The high growth rate of the Indian economy is primarily based on its service sector growth and improved technologies and digital infrastructure. Aggregate production has gone up. Does this increased production lead to increased employment? The answer is a yes and a no. The high growth rate is creating high-end jobs for which the skills and certifications required are also high-end. A large section of Indian youth do not possess the necessary skills and high levels of certification. Rural youth and those working in the informal sector economy will be bypassed. So will they not benefit at all? Some sections might benefit through a trickle-down process. The high-growth sectors will certainly create indirect multiplier low-end contractual jobs for the less educated and low-skilled. These jobs are of a casual nature and the economic benefits are transient. The neoliberal ideology demands that markets be allowed full freedom. This freedom means contractualisation and casualisation of the workforce that now characterise the lower-end of the job market.

To sum up, personnel manning the high-end jobs are less likely to be unemployed or underemployed and will possess the added advantage of higher salaries and greater access to resources and alternate jobs. For personnel manning the low-end jobs, the converse situation will apply: transient incomes and high job insecurity. For much of rural India, even entry into this high-spectrum growth sector will be restricted. Employment in the organised sector, even for low-end jobs requires smartphones, driving licences and two-wheelers. Many rural youth do not possess them.

Growth Versus Redistribution

Economic growth refers to the sustained increase in the output of goods and services over a time period longer than a cyclical expansion. The distribution aspect refers to the relative shares accruing to different classes of the population in this time period (Bhattacharya, 1989, p. 150). Three aspects of growth and distribution are significant. First, it provides an estimate of economic output and of inclusion. Second, growth figures can hardly capture the latent growth impulses of an economy that can emerge only over time and then either spur an economy forward or pull it down. Inclusion is the third aspect. Economic growth certainly means wealth creation. Does it also mean distribution?

Debating Growth Versus Redistribution

Should a nation-state aim for growth accompanied by a fairer sharing of income and wealth? Or let wealth get concentrated? Some voices are demanding that the educational, health and nutritional needs of all should be met because it permits the sharing of growth-created wealth and strengthens growth impulses. The Nobel laureate economist Amartya Sen and Jean Drezein (2013) in their book, An Uncertain Glory: India and Its Contradictions, argued for an approach that would ‘enhance human capabilities, making the poor participants in growth’. Paralleling this book, Columbia University economists Jagdish Bhagwati and Arvind Panagariya (2013) published a book titled Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries. The very title indicates the direction India should go in framing policies. Apparently influenced by this book, the Government of India Economic Survey for 2014–2015 stated ‘the importance of economic growth, both for lifting up those at the bottom of the income and wealth distribution, and for providing opportunities for everyone in that distribution, cannot be overstated’ (Muralidharan, 2015).

For Bhagwati, ‘growth was a precedent condition for distributive justice’. For Sen ‘redistribution should precede growth’. A nation-state’s budget is an interface between these two. The ‘pattern of growth is determined by income distribution, in a relationship of reciprocal reinforcement’ (Muralidharan, 2015). Referring to the Bhagwati–Sen debate, the Mint newspaper posed a question. ‘Should India aim for growth that will lift incomes or should it first address social issues such as inequality and malnutrition that will eventually hinder growth?’ (Himanshu, 2013). Does the poor automatically benefit from growth?

A simple indicator of growth that improves everybody’s income is the quantity and quality of employment created, but how can a growth of more than 8% per year be seen as increasing incomes for everybody if the total employment created during 2004–05 to 2009–10 is only a million, as against roughly 12 million new entrants in the labour force every year? (Himanshu, 2013)

Poverty ‘did decline faster during 2004–05 to 2009–10 and for many, it would have appeared to be the beneficial result of growth’. Himanshu:

broke down the poverty reduction between 2004–05 and 2009–10 and tried to estimate the contribution of social sector interventions such as public distribution system (PDS) vis-à-vis growth. Research shows that less than half of the poverty reduction (48%) can be attributed to growth, with the rest arising from the benefits delivered by PDS. And ‘even the 48% reduction attributed to growth includes the benefits of various social transfers such as pensions and subsidies and growth in incomes due to employment guarantee act. What was the cost of PDS? It was less than 1% of GDP and has remained so during the last decade’. (Himanshu, 2013)

Debating the Two Approaches

The Dreze and Sen approach and the Bhagwati and Panagariya approach are two paradigmatic thoughts. They help us grasp the issue of freebies and budgetary priorities by offering two alternate perspectives. In the Bhagwati and Panagariya approach, the budget allocation emphasis is on projects promoting ‘growth leading to redistribution’. In the Dreze and Sen approach, the budget emphasis is on projects promoting ‘redistribution leading to growth’. The respective budgets differ in their focus. The budgets in the Bhagwati and Panagariya approach would allocate resources for schemes where the returns are immediate such as infrastructural projects. In contrast, the Dreze and Sen approach would allocate resources for development schemes where the returns are inclusive and participatory such as health, education and employment generation. Here the growth returns need not be immediate. The respective time frames and their assumptions need to be highlighted here. In the short run, the Bhagwati and Panagariya approach may lead to a higher growth rate than that of the Dreze and Sen approach. In the longer run, the Dreze and Sen approach may lead to a more sustainable growth rate. These are assumptions and they can go wrong.

As stated earlier, beginning from 2021–2022, the last three budgets have squeezed the allocation for food subsidies and MNREGA, and this sum has been invested in infrastructure growth. Here growth has been given precedence over redistribution. If manufacturing and service sector growth does go up in significant numbers, the GDP will go up and its multiplier effect will be significant. In this approach, two outcomes are assumed. One, the multiplier effect will trickle down and reach some vulnerable sections, leading to greater inclusion. Two, once incomes go up, market forces will naturally step in to meet the health, educational and nutritional needs of vulnerable people. But these are just assumptions. The trickle-down effect may be weak.

Given the narrow base on which a higher growth rate has been achieved in the Bhagwati and Panagariya approach, sustainability questions arise. This narrow base is precisely the point argued by the Dreze and Sen approach. Through inclusive and participatory policies, their aim is to widen the narrow base of growth and over time create the capacity for sustained growth. The two paradigmatic thoughts offer a clearer perspective on the budgetary choices being made by respective nation-state elites.

Indian needs at this given point in time are the connecting link between freebies, budgetary priorities and the above-mentioned two approaches. Conservative fiscal economics takes the position that distortionary schemes/freebies should be ended. How do Indian budgets relate this position to the meeting of Indian needs? During an election rally in Chhattisgarh in November 2023, the Prime Minister announced that the scheme which so far had provided ‘free foodgrains to 81.35 crore people would be extended by five years’. This scheme which was to end on 31 December 2023 will now stave off hunger of 81.35 crore Indians till 2028. In percentage terms, this 81.35 crore works out to 57% of the aggregate Indian population, which is currently estimated to be 142 crores. This announcement by the Prime Minister quickly endorsed by the cabinet is a policy decision and it will get reflected in the budget. Is this decision a freebie? Will it not affect fiscal stability? A government which has been publicly crusading against the so-called freebie schemes was made to go in for a quick policy correction under the pressure of democratic politics. The demand and need for freebies must be understood in this context of Indian needs (The Hindu Bureau, 2023, p. 11).

The two approaches help us in the sense that it gives us a larger perspective of viewing the freebie schemes versus budgetary priorities and the seeming policy conundrum of growth versus redistribution. Targeting growth may lead to increased revenues immediately, but this growth rate may not be sustainable in the long term. Targeting the meeting of the needs of the 57% of the population may widen the production and consumption base of growth but it may not lead to increased state revenues in the short term. These are policy conundrums anchored in the universe called the Indian political economy.

Inclusive and Participatory Growth

Hyun Son (2007) tells us that the steps taken by nation-states to reduce poverty have ‘generated interest in pro-poor growth’. The ‘pro-poor growth debate has its roots in the pro-distribution arguments of Chenery and Ahluwalia in the 1970s, as seen in their model of “redistribution with growth”’ (Chenery & Ahluwalia, 1974). The ‘term “inclusive growth” has appeared in the Report of the Eminent Persons Group initiated by the Asian Development Bank’. Inclusive growth in this report demands increased participation of the less well-off in expanding market opportunities. And expanding basic services in health, education and infrastructure (Son, 2007, p. 10).

Dreze and Sen, in the updated 2020 edition of their 2013 book, emphasise addressing the ‘huge imbalance’ in India between her economic growth and ‘slow progress in living standards’ and recommend that ‘higher growth be accompanied by demanding more participatory growth’. Enhancing ‘human capabilities’ through ‘the constructive use of public resources generated by economic growth’ not only contributes to improving the ‘quality of life’ but ‘also to higher productive and further growth’ (pp. 276, 277). The ‘East Asian strategy’ and China have used public revenues to address their educational and health needs. And China could achieve a ‘high and sustained economic growth’ (p. 279).

Redistribution in Practice Is Pro- or Anti-growth?

Public revenues that meet redistribution needs are largely beneficial. A research paper titled Redistribution, Inequality and Growth posed a question whether ‘redistribution in practice is pro- or anti-growth’. The paper used a cross-country dataset and found that in general terms, redistribution is benign ‘in terms of its impact on growth’ and the combined direct and indirect effects of redistribution ‘are on average pro-growth’ (Ostry et al., 2014, p. 4). In a summing-up (p. 21), the three authors point out that, ‘inequality remains harmful for growth, even when controlling for redistribution. And we find no evidence that redistribution is harmful’. They (p. 25) argue that ‘It would still be a mistake to focus on growth and let inequality take care of itself, not only because inequality may be ethically undesirable but also because the resulting growth may be low and unsustainable’. Further, they say:

We nonetheless see an important positive conclusion from our look at the big picture. Extreme caution about redistribution—and thus inaction—is unlikely to be appropriate in many cases. On average, across countries and over time, the things that governments have typically done to redistribute do not seem to have led to bad growth outcomes, unless they were extreme. And the resulting narrowing of inequality helped support faster and more durable growth, apart from ethical, political or broader social considerations (Ostry et al., p. 26).

Freebies, Welfare Measures and Human Capital Development

The Welfare Question

How do policymakers approach the question of welfare measures versus freebie schemes? Most freebie schemes carry welfare dimensions carrying short-term or long-term effects. Labelling one particular scheme as solely being a welfare scheme and another one as solely being a freebie scheme will be imprecise since the distinctions are not binary. What policymakers need to ask is whether a particular welfare/freebie scheme is primarily directed at improving human capital or is targeting economic growth? Generally, discourses on economic growth tend to focus on aggregate numbers and quantitative targets. To reach this quantitative target, qualitative aspects play an equally important role. Productivity is a key qualitative outcome aspect, and this aspect connects welfare measures to human capital development. Capable human capital is the agency force enhancing productivity. Building up human capability demands livelihood generation and improving accessibility to health, education and nutritional services. These measures create a larger qualitative ecosystem facilitating per-capita productivity.

A welfare measure enhancing per-capita productivity is the link connecting welfare to growth. Productivity can go up only when the work capabilities of the larger human capital are developed and more so in new domain knowledge and skill areas. What this capability-enhanced human capital does is to nourish qualitative aspects such as human attitudes, behaviours and creativity each strengthening the other towards a larger modern ecosystem oriented towards technology. This ecosystem is conducive to rooting growth impulses facilitating both per-capita productivity and aggregate productivity. These aspects should guide policymakers in approaching the question of welfare measures versus freebie schemes.

Apart from the productivity aspect, Indian needs are the other aspect connecting welfare measures to human capital development. Today there are two Indias: the poor and the non-poor. For the Republic of India to progress, the needs of both must be met. How will the meeting of these needs be sequenced when there is a resource deficit? In the initial stages, meeting the basic needs of the poor should be prioritised. If this position is accepted, then the budget can allocate sums to schemes/freebies which are legitimate and distortionary in some cases, but both should result in inclusive outcomes.

Inclusive growth will increase the purchasing power of people who have very low incomes and widen the base of the population participating in production and consumption. In the case of India where large segments of the population suffer from several types of deprivations and exclusions, policyholders can push forward such schemes carrying the three attributes. This will strengthen the demand impulses of the Indian economy. But this is a long-term approach. And it is a question anchored in the Indian political economy. The parliamentary left parties have consistently taken this position in their discourses.

The points stated above need to be understood with reference to two policy conundrums. The first is to find large sums of money to meet both infrastructural deficit needs and human capital needs in the areas of health, education and nutrition and livelihood creation. The second is that huge public investments might crowd out private investments. Without commensurate private investments a high growth rate is not possible and without it enhancing livelihood opportunities in significant numbers is difficult.

Health Data and Trends

Bhatia and Singh (2021) analysed the allocation to the health sector in India’s budget for 2021–2022. Apparently, there was an increase of 137% as compared to the budget of the previous year. Indeed an ‘impressive increase’ (Bhatia & Singh, 2021, p. 171). But a closer look reveals a disquieting picture. This impressive allocation has clubbed health with water, sanitation and funds to be transferred to the states. It means that the Ministry of Health’s flexibility in utilising funds is reduced. The real increase in the allocation to the health sector in the 2021–2022 budget is just 10% (Bhatia & Singh, 2021, p. 179). Since India has chronically underinvested in the public sector health facilities, this sector is ‘ineffective, inefficient, inequitable and unresponsive to the needs of the population’. This is reflected in some of India’s health indicators. The infant mortality rate (under 5) of India is higher than that of Bangladesh and Nepal. India’s bed population and doctor population ratios are worse than those of China, Sri Lanka, Thailand and Nepal (Bhatia & Singh, 2021, p. 178). The point that Bhatia and Singh make is that a 10% increase might marginally improve the public health infrastructure but is unlikely to meet the health needs of significant sections of the Indian population. This will adversely affect the productivity levels of the Indian working population and weaken the larger ecosystem.

Vulnerable Communities

What has been the impact of free market policies of privatisation of education and health services on two of India’s most vulnerable communities: the scheduled castes (SC) and scheduled tribes (ST)? Till the end of the 1980s era, when socialist policies prevailed, the Indian state, through public investments and an affirmative-reservation policy, had improved educational and health access for people of the SC and ST. Some sections from these two categories—more from the SC communities—did benefit. That era of affirmative policies and public investments in human development has ended with the onset of neoliberal ideas which demand that the state recede from providing public goods. Let markets provide these public goods because they are more efficient.

Education and health are two areas where market forces have increased their reach correspondingly reducing their accessibility for the asset-poor SC and ST communities. The idea of permitting market forces to play an increasingly larger role in the health and educational sectors has been mainstreamed by the two national political parties that have governed India since the 1950s. The Indian poor are not simply the economic poor. Socio-economic identity markers embedded in the Indian social structure define the Indian poor. Birth has left a lasting historical legacy. The People of India Project (Anthropological Survey of India) has listed out 4,635 communities (Bardoloi & Athaparia, 2003, p. viii). Some among them have been categorised as SC communities, while some as ST communities. What is the difference between the two? Communities subject to the stigma of untouchability are categorised as SC communities, while communities living in remote jungles and forest tracts are categorised as ST communities. Both these categories of people are subject to deprivations and exclusions, but their respective source origins are different. Untouchability practices over a historical period of time have left the SC communities excluded and deprived. Distance from mainstream society has left the ST communities excluded and deprived.

Mere economic growth will not end these historically determined exclusions and deprivations based on entrenched social stigma and the distance from mainstream society. Large-scale public investment and intervention measures are required to reduce these differential exclusions and deprivations. This is more so in the case of the ST communities among whom elite formation is rather weak. Elites play a key agency role in social mobility. Sharpening inequalities will adversely affect the larger ecosystem.

Conclusion: Economic Growth-led India or Inclusive India?

The Story of Emerging Economic Growth-led India

A book-interview (Misra, 2023) brought forth some noteworthy insights. The lived reality for many Indians is contrary to customary projections which are mostly based on industrialised developed world life led by a narrow elite. Livelihood is the key to their lived reality and employment is the fulcrum around which opportunities get created. The disconnect between GDP growth figures and this lived reality demands posing GDP metrics versus unemployment metrics (Misra, 2023). The 2023–2024 budget is unwilling to ‘grapple with the unemployment problem head on, except to believe that growth itself will generate jobs’ (Subbarao, 2023, p. 12). The 2022 budget speech tells us that creating livelihoods is left to the ‘trickle-down’ approach (Rao, 2022, p. 38).

Two features are noteworthy in any narration about an India developing. Dreze and Sen (2020) pointed out that by the ‘standard measures of economic inequality’ (p. 279), India shares similarity with Brazil and China. But the ‘lack of amenities for large sections of the people is a characteristic/s of Indian inequality that contrasts sharply with the nature of Chinese inequality’ (p. 280). Also, ‘rural poverty is now four times that of the urban levels, and it accounts for 90% of the nation’s poor’ (Editorial, 2022, p. 7).

Vietnam and China have taken strides in improving their human development indices and in growth metrics. A policy rethinking resurrected the old Bhagwati–Sen debate. Arun Maira while discussing the global trade challenge currently India is facing pointed out that China has outpaced India even though both had ‘opened their economies to global trade around the same time, 35 years back’. Currently, Vietnam is becoming more attractive than India to ‘western and Japanese investors’. Trade-and-growth economists:

like Jagdish Bhagwati were dismissive of economist like Amartya Sen who advocated the human development theory of growth. Jagadish Bhagwati said the size of the economic pie must be increased before it can be redistributed. They had the order wrong. Basic human development must precede growth because it is the means to growth. Moreover, incomes must be increased simultaneously to enable more consumption and attract more investments. (Maira, 2023, p. 8)

The economic growth of Vietnam and China has been remarkable because when their economies opened up ‘they had already attained high levels of human development, with universal education and good public health systems’. Now, the ‘clock cannot be turned back. India’s policymakers will have to find a way to strengthen the roots of the economic tree while harvesting its fruits the same time’ (Maira, 2023, p. 8). Budgets of the global south are competing with each other to make their economies competitively fit to produce for global markets. Aiming for high growth rates, this competition is undermining the powers of many sovereign nation-states to frame policies suiting their human development needs.

The Story of Emerging Inclusive India

Freebies and budgets were the two key aspects of discussion in this article. Is freebie an appropriate name for a policy which aims at enhancing public investments in health, education and employment generation? If the current socio-economic development level of India is such that 57% people need subsidised grains to stave off hunger, then is this nomenclature relevant? All that the freebie nomenclature does is to diffuse policy discourses. Public capital investments aiming at promoting human capital by meeting basic needs should be separated from the very freebie nomenclature. These are not freebies in any sense of the dictionary meaning relevant to Indian needs at this particular juncture of Indian history. Public investments must be assessed on their socio-economic effectiveness in meeting Indian needs. In the Indian debate on freebies so far, there has been no clear articulation of making distinctions based on the socio-economic effectiveness of several of the freebie/welfare schemes. Distinctions based on effectiveness can help frame a more consistent policy approach as seen in the case of MGNREGA.

India’s last five budgets, including the 2023–2024 budget, are characterised by an increase in capital expenditure combined with fiscal consolidation. To achieve this twin goal, the allocation of two key social security schemes has been reduced: food subsidy and the MGNREGA (Mundle & Sahu, 2023, p. 34).

Balancing between competing needs and then prioritising the allocation of national resources is a dilemma. The power struggle configuring this dilemma emerges more from the domain of a nation’s political economy than from its policy-prescription framework. The constituent elites decide depending upon the world views they favour. Certainly, the elites of India, Vietnam and China differ in their world views as evident in the needs they prioritised while allocating their national resources. The Indian elites are largely betting on their middle class for rapid economic growth with a commensurate trickle-down effect.

Distortionary freebies tend to distort the allocation of national resources and thereby disturb the fiscal balance of an economy is a view emerging in India. Is it an elite viewpoint? Counter-elite voices demand that before doing away with distortionary freebies India should first meet the health, nutritional and educational needs of the Indian poor. This counter-elite voice is weak today. The Indian rural poor exercise an ineffective ‘agency’ voice in the political structures of India as is clearly reflected in the worldviews of the two mainstream political parties. Broadly speaking, patronage defines the relationship between the rural poor and the mainstream political parties excluding the left parties. And this view prevails in the policies they implement when in power.

Should the ‘agency’ voice of the Indian rural poor be strengthened? If so, then the budget should aim at livelihood creation accompanied by decentralising funds, functionaries and function powers to the Panchayati Raj institution at the district, block and village levels. Ineffective governance has been the bane of India’s developmental tryst because of last-mile connectivity limitations. More budgetary allocations for labour work will enable the rural poor and rural India to economically integrate and play their historical role in the story of an inclusive India emerging. However, the current budget strategy rests its hopes for growth advancement on the middle class. Within this budgetary contestation is embedded an idea carrying a deeper significance. The demand for a policy shift from growth to livelihood creation also represents a deeper shift of ideas from capital to labour. Does large-scale capital investment play a more key role in nourishing impulses towards livelihood creation? Or is it the other way around?