While the Aam Aadmi Party (AAP) continues to promise freebies in election-bound states, its Punjab government continues to face a financial crisis. According to a report by Indian Express, the Punjab government is yet to pay salaries to its employees for the month of August even after a week has passed in September. And it is believed that the reason for this delay is that the state government has run out of money.
The government typically pays salaries for the previous month on the first of each month. Officials in the state govt claimed that the administration has been facing a funding crisis since the GST compensation regime expired. In the previous fiscal year, Punjab received Rs 16,000 crore in GST compensation from the Centre.
This year, it only received compensation for the first quarter of the current fiscal year, after which the GST compensation regime expired on June 30. According to the report, a senior govt official said that the salaries have been delayed because the AAP govt invested Rs 1,000 crore from the state exchequer to earn interest. The officials said that they thought that the “employees could bear with the government for at least a week”.
On Monday, the Cabinet approved a new policy that would create a specific cadre of employees by absorbing contractual and ad hoc staff. This would impose an additional burden of Rs 400 crore on the state exchequer.
Besides this, the state exchequer is already burdened with a whopping electricity bill, owing to the AAP government’s fulfilment of pre-poll free electricity promises. It is worth mentioning that the AAP had also promised before the assembly elections that every woman of a household above 18 years will be provided Rs 1000 every month. However, the state govt which presented its maiden budget of Rs 1.55 lakh crore skipped making any provision for implementing its pre-poll promise of giving Rs 1,000 allowance to women of each household above the age of 18.
Why are the Centre and AAP fighting over freebies?
The BJP-led central government and Arvind Kejriwal’s AAP have been debating over freebies with the BJP advocating that the freebies need to be stopped, while Delhi CM Arvind Kejriwal asserts that his party’s schemes are meant for the welfare of the people and, that they will continue with such schemes.
हमारे देश में मुफ्त की रेवड़ी बांटकर वोट बटोरने का कल्चर लाने की कोशिश हो रही है।— PMO India (@PMOIndia) July 16, 2022
ये रेवड़ी कल्चर देश के विकास के लिए बहुत घातक है।
इस रेवड़ी कल्चर से देश के लोगों को बहुत सावधान रहना है: PM @narendramodi
Election Commission on freebies
As the matter escalated and reached the Supreme Court, the Election Commission told SC that the terms “irrational” and “freebies” are open to subjective interpretation and have no clear legal definitions. Providing life-saving medicines, food, or funds during a natural disaster or epidemic may save lives, but in normal times, they can be considered giveaways, according to the commission.
RBI on freebies
Freebies are not merit products or expenditures, according to a Reserve Bank of India (RBI) report (such as public distribution systems, employment guarantee schemes, and governmental assistance for education and health facilities). According to the document, freebies include provisions for free energy, water, or transportation, as well as waivers of pending utility bills and loans, and other such perks.
Burden of freebies
Freebies, according to experts, destabilize public budgets and send governments into a debt spiral. According to the above-stated RBI analysis, freebies undermine credit culture, distort prices through cross-subsidization, erode incentives for private investment, and disincentivize employment at the present wage rate, resulting in a reduction in labor force participation.
For example, Punjab’s electricity subsidy and escalating cost to the state exchequer exceeds 16% of total receipts. Bailouts imply money transfers from one state to another, as well as animosity. PM Modi has urged states to clear subsidies to distribution companies (DISCOMS) totaling hundreds of crores of rupees. According to a CRISIL report, most states are in perilous debt circumstances, which will limit their ability to compete.