📰 Are freebies affecting the economic growth of India?
There are subsidies that are productive and then there are those that are wasteful
•In an address delivered at the Delhi School of Economics last week, N.K. Singh, the chairperson of the 15th Finance Commission, warned about how the race to provide freebies to voters could be a “quick path to fiscal disaster”. He also noted that freebies could be harmful for the long-term economic growth of the country and emphasised the need to distinguish between productive and unproductive forms of welfare spending. In a conversation moderated by Prashanth Perumal, Renu Kohli and Himanshu examine whether there is a case for doing away with freebie culture. Edited excerpts:
Is there a trend of deterioration in the financial situation of States? Are freebies the reason for it?
•Renu Kohli: When the argument is framed as freebies versus fiscal stability, a binary answer is often not possible. So let me just clarify that there are different kinds of freebies. Some of them are extremely justifiable, some of them are not. As far as fiscal stability and financial deterioration is concerned, if we see the welfare spending of the States, and if it is sustainable and affordable, then that is fine as it is the prerogative of the political executive. Having said that, we must understand what exactly we mean by fiscal stability. Broadly speaking, in common parlance, fiscal stability is a situation in which the government is able to deploy its fiscal policy towards long-term economic objectives, which are high employment and growth rates. That leads us to measures of fiscal stability. If you see the study of the State finances conducted by the Reserve Bank of India, you find that from 2005 onwards, in aggregate, States have adhered to the limit in terms of their gross fiscal deficit, which is the gap between the total revenue of the State and the total expenditure.
•The mandate is under the ceiling of the fiscal responsibility legislation, which allows them to keep the gross fiscal deficit within an aggregate limit of 3% of GDP. The only years — apart from the pandemic years — when these limits were breached were 2009-10, 2015-16 and 2016-17. 2009-10 was a crisis year and 2015-16 and 2016-17 were years of power sector reforms in which power sector debt was taken over by the state governments. Secondly, what is the trajectory of the outstanding debt? Outstanding debt reduction has actually progressed quite well in the case of the States. From a high of 31% of GDP, it came down by almost 10 percentage points to about 22% of GDP by 2014-15. After that, it has inched up about five percentage points by FY 2020. If we compare this with the Central government’s track record, the Central government has never been able to adhere to fiscal deficit limits. Secondly, when it comes to debt reduction, the Central government’s debt-to-GDP limit is supposed to be 40%, but it has now crossed 90% of GDP. So, the problem of fiscal stability is more pressing at the level of the Centre.
•Himanshu: We need to look at the definition of freebies itself. The term “freebies” gives you an impression of something that is a dole or a gift given to the population. But then freebies can be of different varieties. Certain kinds of expenditure that are done under populist pressures or with elections in mind may be questionable. But given that in the last 30 years there has been rising inequality and also some level of distress in the last decade, some kind of relief to the population in the form of subsidies may not be unjustified. It may actually be necessary for the economy to continue on its growth path. On the fiscal front, given that after 2017, when we have the goods and services tax (GST) which is more or less taking away the power of the States to generate revenues and given that responsibility for the majority of the welfare expenditure lies in the domain of the States, the hands of the States are squeezed. So, fiscal stability is not just about expenditure but also about revenues. And mind you, the Centre also engages in giving out freebies not just to the poor people but also to a large number of corporations.
N.K. Singh claims that poverty reduction has accelerated under the Modi government. How much of this is due to growth versus the welfare measures taken by the Centre?
•Himanshu: We don't have official poverty estimates after 2011-12. The only estimates that we have are from a number of independent studies by private researchers. And I completely disagree with N.K. Singh’s claim that the rate of poverty reduction has doubled under the Modi government. None of the studies, including the IMF study, the World Bank study, or consumption surveys, confirm that. In fact, there is at least one study that concludes that the rate of poverty reduction has slowed down under the Modi government. There is also a consensus that the welfare measures such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the public distribution system, have contributed to poverty reduction. The strengthening of these programmes has definitely contributed to poverty reduction. This does not mean that growth does not have a role to play in reducing poverty. If the growth during the Modi years was as good as it was before that, then probably the rate of poverty reduction may have been higher. So, I don't think this is a question of welfare versus growth. I'm a little hesitant to call welfare measures as freebies because they may be essential not just for poverty reduction but also for growth. Remember, we are in a slowdown simply because demand in the economy overall has collapsed. And I think welfare spending has been able to at least prevent consumption demand from falling any further.
•Renu Kohli: The very idea of estimating poverty on the basis of private final consumption on the basis of national accounts was rejected long ago. So, estimating poverty on this basis is simply unacceptable. There has also been no consumption expenditure survey. We have to question estimates of poverty coming from both the World Bank and the IMF. This is for two reasons. One is that at a time when the government is claiming that formalisation has increased, there's no basis to believe that income distribution has not worsened as an outcome of formalisation. Secondly, at a time when free food is being given, where is the proof that the underlying income of the poor has remained intact in the absence of any consumer expenditure survey? There's no way that this can be established. Also, the fact that the latest survey was junked and has never been published creates the suspicion that poverty may have risen.
What proportion of spending by States is productive rather than aimed simply at gaining votes in elections?
•Himanshu: Well, in a democracy where political parties try and get votes from every section of the population, there is obviously a tendency for State governments to try and provide some kind of relief to voters. I am certainly in favour of expanding, for example, the MGNREGA type of spending and subsidy in the form of food ration schemes. These go a long way in increasing the productive capacity of the population. So, they're not just doles. They build a healthier and a stronger workforce, which is a necessary part of any growth strategy. That is similar to a State spending on education or health. One can call these as an investment for the long-term, for improving the productive capacity of the population. But yes, there are obviously cases where State governments have gone astray and have gone into providing all sorts of freebies or gifts. But when it comes to simply giving away loan waivers, I am not in favour of these because they have undesired consequences such as destroying the whole credit culture and it blurs the very basic question as to why is it that a large majority of the farming community is getting into a debt trap repeatedly.
•We need to be talking about some of these issues in the larger context of whether they actually contribute to growth. Do they actually contribute to poverty reduction, or are these simply being done to get short-term benefits at the cost of long-term damage? We know about free electricity that is being given in various States to the rural communities which has sometimes led to disastrous consequences in terms of declining water table, wastage of electricity and various other things. There are nuances to the issue, and one will have to get into those nuances to take a final call on whether a certain welfare spending is necessary or not. Lastly, some people have been questioning subsidies going into education, such as for laptops and other things. Some of them have now become necessities for increasing productivity, knowledge, skills, and various other things. So, we need a more nuanced understanding of the issue.
•Renu Kohli: There is absolutely no justification for promising 200, 300 or whatever number of units of power to middle class or urban populations who are by and large regular income earners. I have a slightly different perspective on loan waivers in the light of agriculture being a very costly and extremely risky venture. It's one of the riskiest activities to undertake compared to, say, manufacturing or any of the services segment. And there are always ways to restructure bank loans to medium and small enterprises in the event of a downturn in the business cycle or any kind of extraordinary shock. Now, we can talk about loan waivers in the light of weather and other risks and also the fact that crop insurance has by and large always failed to offset shocks in agriculture. Also, we are in a position where direct benefits transfer can be used to deliver loan waivers directly to distressed farmers and the cost of the waiver is immediately taken on the government’s budget and financial intermediaries are not involved. Secondly, the tendency towards unproductive spending is not more pronounced at the level of the States as compared to the Centre. If we look at social sector expenditure, there is a rising trend at the level of the States, but then the rising trend at the level of the Centre is extraordinarily high. And if you look at the core sector schemes, then the revenue spending component is as high as 65-68%. So almost two-third of the expenditure is revenue expenditure. The issue of unproductive and productive spending should be looked at in this light and in the light of mounting interest payments.
The top court may have to look at the core question in ‘Bachan Singh’ — the constitutional validity of the death penalty
•On April 22, a Bench of the Supreme Court of India, led by Justice U.U. Lalit, decided to critically examine the routine and abrupt way in which trial judges often impose the death penalty on convicts. The challenge before the Court in the instant case of Irfan vs State of Madhya Pradesh was to identify the mitigating circumstances and to ensure a convict-centric approach so that the imposition of capital punishment becomes rarer, fairer, and principled.
•The Court seemed to think that an individualistic approach that examines the social, economic, emotional, and genetic components that constituted the offender rather than the offence, would go a long way in evolving a just and judicious sentencing policy. According to the Court, “a ‘one size fit for all’ approach while considering mitigating factors during sentencing should end”. The Bench indicated the need for mitigation experts to assist trial courts in reaching a correct conclusion on whether one should be sent to the gallows or not.
Recent verdicts as pointers
•This is a significant development that can radically alter India’s death penalty jurisprudence, by a comprehensive examination of the multi-disciplinary wisdom relating to the crime, the criminal, and the punishment.
•An analysis of the possible reasons to avert the death penalty is reflected in a series of recent verdicts such as Lochan Shrivas vs State of Chhattisgarh (2021) and Bhagchandra vs State of Madhya Pradesh (2021). These reasons might include socio-economic backwardness, mental health, heredity, parenting, socialisation, education, etc.
Needed, a different acumen
•According to Section 354(3) in the Code of Criminal Procedure, while imposing the capital punishment, the judge should specify “the special reasons” for doing so. It was in Bachan Singh vs State of Punjab (1980) that the Constitution Bench suggested a humane and reformist framework in the matter. It said that the gallows could be resorted to only in the rarest of rare cases, that too when “the alternate option is unquestionably foreclosed”. Thus, Bachan Singh requires the trial courts not only to examine the gravity of the offence but also the condition and the ‘reformability’ of the accused. The Court, in Bachan Singh, refused to declare the death penalty as unconstitutional. It, nevertheless, tried to reduce the rigour of capital punishment by trying to do away with the indiscriminate use of the penal provisions. It abundantly implied that no person is indubitably ‘irreformable’. It had the effect of practically undoing the death penalty provision, if taken in its letter and spirit. The need to have ‘unquestionable foreclosure’ of ‘alternate option’ (in the matter of punishment , such as life imprisonment) sets the benchmark for the sentencing court very high and even unattainable. This person-centric approach, for its materialisation, needs a different judicial acumen that recognises the convict in her multitudes.
•But the Bachan Singh principle was followed more in its breach than in compliance even by the Supreme Court. In Ravji vs State of Rajasthan (1995), the Supreme Court said that it is the nature of the crime and not the criminal which is germane for deciding the punishment. This is diametrically opposite to what was laid down in Bachan Singh. In Machhi Singh vs State of Punjab (1983), the Court indicated that inadequacy of other punishments could justify the death penalty. This too negated the humanistic liberalism in Bachan Singh. Several other cases also were decided by ignoring the Bachan Singh doctrine, as noted by the Supreme Court itself in Santhosh Kumar Satishbhushan Bariyar vs State of Maharashtra (2009) and Rajesh Kumar vs State (2011). The Hindu’s Frontline magazine (“A case against the death penalty”, issue dated September 7, 2012) had a list of 13 convicts who were directed to be hanged in different reported cases decided by the Supreme Court itself, illegally and erroneously, by discarding the Bachan Singh philosophy.
•This egregious judicial error will have to be kept in mind while the Court revisits the issues related to mitigating factors and individual-centered sentencing policy in the Irfan case. In the process, it may need to consider concrete guidelines for such policy.
Overuse and misuse
•But the Indian experience shows that whenever the Court tries to dilute the harshness of penal provisions by a balancing approach, instead of striking down the provision, the instrumentalities of the state (including the police, the prosecution and the court) continue to overuse or misuse the provisions. The judgment of the top court in Kedar Nath Singh vs State of Bihar (1962) is a case in point. The Supreme Court endorsed the validity of the sedition law (Section 124A of the Indian Penal Code) with a rider that it could be invoked only when there is an incitement to violence. But the state seldom acts based on interpretation of the law. Many were booked for the charge of sedition since then for mere words, innocent tweets or harmless jokes. The top court is now seriously considering the need to revisit Kedar Nath Singh itself.
•It is true that Bachan Singh did not, in concrete terms, elaborate on the mitigating factors and the methods to gather them to avert the death penalty. Nor did it explain the issues such as burden of proof and standard of proof in detail. As argued by Anup Surendranath, Neetika Vishwanath, and Preeti Pratishruti Dash in a recent paper, there could be “gaps within Bachan Singh itself”. The point, however, is that going by the Indian experience, it may not be enough to provide clarity with respect to the mitigative elements in the matter of sentencing or the method of invoking them. Taking empirical lessons from the fate of Bachan Singh, the Supreme Court may have to now ask the more fundamental question posed and negatived in Bachan Singh — the question of the constitutional validity of death penalty. The judiciary needs to learn a lot from history.
The poor are most affected
•In India, as elsewhere, the poor, rather than the rich, are sent to the gallows. The numbers of the uneducated and the illiterate sentenced to death outweigh those who are educated and literate. In Williams vs Taylor (2000), the U.S. Supreme Court said that failure of the defence lawyer in highlighting the mitigating factors that could lead to avoidance of capital punishment makes the legal assistance ineffective. Therefore, it infringes constitutionally guaranteed rights. In the Indian scenario, the legal assistance received by the poor facing serious charges is far from satisfactory. Lack of proper defence results in conviction. And in the matter of sentencing too, the mitigating factors are either not placed before the trial court or not persuaded adequately to convince the trial judge to avoid the death penalty. There is a marked contradiction between the Indian legal plutocracy and the marginalised.
Revisiting the case
•The Court, in the instant case, will have to evolve a legal device for procurement of a comprehensive report dealing with the socio-economic and hereditary backgrounds of the accused from experts in the fields of social work, psychiatry, psychology, anthropology, etc. Yet, there could be inherent inequality and arbitrariness in applying the principles because of multiple factors such as failure of the judges, incapacity or backwardness of the parties, inadequacy of defence, deficits in the reports of experts, disparity in practical application of the doctrine, etc. As such, there is a possibility for the new juridical device also meeting the unfortunate fate which the Bachan Singh verdict faced. Therefore, the true way ahead is not merely to fill up the blanks in Bachan Singh by laying down concrete propositions for assessment of mitigating factors, determination of standard of proof, burden of proof etc. The Court may have to revisit Bachan Singh itself in so far as it refused to declare the death penalty as violative of the right to life envisaged under Article 21 of the Constitution. Across the world, 108 nations have abolished death penalty in law and 144 countries have done so in law or practice, according to the Amnesty Report of 2021.
•In the Indian context, where judgmental error is quite frequent and the quality of adjudication is not ensured, what is required is a judicial abolition of death penalty. For this, the present matter will have to be referred to a larger Bench, with a view to rectify the foundational omission in Bachan Singh — of not explicitly declaring capital punishment as unconstitutional.
