Economy of freebie politics

Aunindyo Chakravarty

Senior Economic Analyst

In 2019, when the Modi government announced a Rs 6,000 gift to all farmers in India, it was hailed as a political masterstroke. When opposition parties announce similar schemes ahead of Assembly elections, our mainstream media houses write editorials against ‘freebies’ and ask questions about their financial feasibility. Pundits fulminate on Twitter about how we are sliding into ‘socialism’ and why such sops kill productivity and innovation. In WhatsApp groups of the affluent, people share banal homilies about how such socialism makes everyone poor.

Aid to the poor is seen as a wasteful expenditure. But low interest rates for corporates to get cheap loans or the ‘sop’ of cutting corporate taxes are never criticised.

This attitude comes from three decades of operating within the dominant discourse of market capitalism. India’s vocal rich, who shape opinions in the media, are closely imbricated in the corporate world. They are either employed by corporates or run small businesses that act as vendors to larger companies. Then there are lawyers, doctors, architects, designers, and other professionals, who sell their services to these people. And we also have babus, netas, journalists and commentators who have a symbiotic relationship with this affluent class.

This class thinks within the system of concepts, motifs and themes, through which their own lived relationship to the market gets represented to them. So, aid to the poor given either as money or in kind (free cylinders, laptops, bicycles) appears to India’s rich as wasteful ‘freebies’ given from ‘our’ taxes. On the other hand, the perpetual ‘freebie’ of maintaining low interest rates for corporates to get cheap loans, or the ‘sop’ of cutting corporate taxes to increase profit margins for big businesses are never criticised. In fact, in the imagination of India’s ruling classes these freebies and sops constitute sound economics.

When the Centre gives incentives to stimulate private investment or states give free land to big companies and announce multi-year tax holidays, questions are not asked as to where the money will come from. Such decisions are rationalised with arguments that corporates create jobs. But corporates can only create jobs if they have a market of buyers for their goods and services. And freebies and sops given to the poor should help create that demand. In other words, the multiplier effect of inducing demand through fiscal transfers is equal, if not greater than giving incentives to the corporate world.

The bigger question is why do political parties need to promise sops to the poor before every election? The answer lies in the utter failure of our economic policies to create decent livelihood for a vast majority of Indians. If anything, both the RBI-KLEMS estimates for employment since 1981, and the employment surveys done by the Centre for Monitoring India’s Economy (CMIE) since 2016, have shown that employment growth initially slowed down from the 1990s, and then has turned negative over the past few years. It is obvious that if people don’t earn enough to get two square meals a day, they will be unlikely to vote governments back into power.

Real income growth of the bottom 30% of Indians slowed down from 1982, when India first began ‘opening up’ and ‘liberalising’ its economy by encouraging the private sector. At the same time, this income had to be reoriented towards spending a disproportionately higher amount on education and health, from which, the state increasingly withdrew. The poor today also spend on things which appear to be luxuries; cellphones and data-packs are two such examples which are shown as signs of India’s increased affluence. In reality, these have become essentials in the gig-economy, where mobile numbers act as permanent addresses for itinerant workers, where they can be contacted by potential employers. For migrant workers, the mobile phone helps them keep in touch with their families back home, or do a quick video-call to see how their infant is learning to sit up or crawl.

If we take CMIE’s latest employment data, we find that less than 38% of Indians above the age of 15 had paid work in December 2021. The situation wasn’t significantly better before Covid hit us. In February 2020, less than 39% had some sort of employment. ILO data suggests that the global average at that time was about 57% . A large number of Indians have got so used to not getting paid work that they have stopped looking for it altogether. The global average for people wanting jobs (known as the labour force participation rate) was about 61% before Covid, while in India, CMIE’s data shows it was less than 44%.

Income data from CMIE’s surveys and from the World Inequality Database suggests that not more than 10% of Indians earn enough to spend on high-value durables. Another 30% have incomes that enable them to spend on low-value durables and cheaper FMCG items. The bottom 30% barely manage to survive, while another 30% above them are always in danger of slipping into poverty.

Our organised sector, whether in manufacturing or services, is almost entirely oriented towards catering to the top 10%. A smaller portion of their output is consumed by the next 30%. The remaining 60% of people are simply out of their ken. India’s corporates and the ruling classes they sustain do not need the bottom 60% of Indians.

Sadly, however, they have a vote. That means politicians cannot ignore them. This is why they must promise income support or subsidies on essentials, whether in cash or kind. These sops ensure that a majority of Indians can stay afloat in a fiercely difficult economic environment. Without this, they might throw governments out of power, or even begin to question what media and public-culture feed them. A democracy that is controlled by a corporate-dominated ruling class requires popular support for its rule to continue. The sops and freebies to the poor buy it the requisite votes. It is a small price that India’s affluent have to pay to ensure the economy continues to disproportionately reward them.

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