What are freebies? How are they different from welfare schemes?

Freebies refer to non-merit, populist giveaways by governments — such as free electricity, free TV sets, or cash handouts — that are not targeted or linked to productivity. Welfare schemes, on the other hand, are need-based and inclusive — for example, MGNREGA, PM Awas Yojana, or subsidised LPG under Ujjwala.

Why are freebies rising in India?

Competitive populism among political parties before elections. Pressure from voters for immediate benefits. Weak enforcement of fiscal responsibility norms at the state level.

How do freebies affect the economy?

Increase fiscal deficit and public debt. Reduce funds available for infrastructure, education, and healthcare. Create inflationary pressure if financed through borrowing.

Description

Copyright infringement not intended

Picture Courtesy: The Hindu

Context:

The Stree Shakti Scheme in Andhra Pradesh, launched on August 15, 2025, provides free bus travel for women, girls, and transgender persons across the State. In just two months, it has shown remarkable results in improving women’s mobility, increasing bus ridership, and boosting public support.

Why its necessary for balancing empowerment with economics?

Empowerment schemes such as Stree Shakti, which provide free public services to promote gender equality and inclusion, are essential for social justice. However, without economic balance and financial planning, even well-intentioned programmes can become unsustainable and counterproductive in the long term.

Current status of rising freebies in India:

The cost of freebies is very large relative to state budgets. In Bihar, freebies announced are estimated to be around ₹33,000 crore. (Source: India Today)

Many states are seeing rising fiscal deficits after election years, partly driven by the cost of such schemes. For example, states like Chhattisgarh saw fiscal deficits jump from ~1% to ~4.9% of GSDP. Other states (Odisha, Karnataka, etc.) saw jumps of ~1.4-1.5%. (Source: India Today)
The Supreme Court has warned that giving handouts could create a “class of parasites”, i.e., dependency, where people rely on freebies rather than being stakeholders in productive economic (Source: Reuters)

Many states already have high debt-to-GSDP ratios, and freebies add fiscal stress.

Freebies vs. Inclusive Development:

*Aspect*	Freebies	Inclusive Development
*Definition*	Non-merit goods or services provided free or at heavy subsidy, often for political or short-term gains.	A process that ensures equitable access to opportunities and benefits of economic growth for all sections of society.
*Core Objective*	To provide immediate relief or electoral advantage.	To achieve sustainable and equitable socio-economic progress.
*Nature*	Consumption-oriented; non-productive expenditure.	Investment-oriented; capacity-building expenditure.
*Economic Focus*	Short-term populist spending with limited returns.	Long-term human capital and infrastructure development.
*Examples*	Free electricity, water, TVs, cash transfers, loan waivers, or scooters before elections.	MGNREGA, PM Awas Yojana, Ayushman Bharat, PM-KUSUM, Skill India Mission.
*Fiscal Impact*	Increases fiscal deficit and debt burden. Example: States like Tamil Nadu and Punjab spend 2–3% of GSDP on freebies (RBI, 2024).	Encourages sustainable growth; returns through improved productivity and tax revenues. Example: PMGSY generates ₹2.5–₹3 in rural GDP for every ₹1 invested (NITI Aayog, 2023).
*Social Impact*	Creates dependency and entitlement; limited empowerment.	Promotes empowerment, inclusion, and self-reliance.
*Targeting Efficiency*	Often politically targeted and poorly monitored.	Data-driven, Aadhaar-linked, and outcome-based delivery.
*Long-Term Outcome*	Fiscal stress, inflationary pressures, weakened human capital.	Human capital development, higher income, and social equity.
*Governance Impact*	Encourages competitive populism among states; reduces fiscal discipline.	Promotes governance-based competition, innovation, and accountability.
*Environmental Impact*	Can lead to resource overuse and environmental degradation (e.g., free power causes groundwater depletion).	Promotes sustainability (e.g., renewable energy subsidies, eco-friendly infrastructure).
*Political Motivation*	Primarily electoral — aims at immediate voter satisfaction.	Developmental — focuses on long-term social transformation.
*Sustainability*	Unsustainable due to recurring fiscal burden.	Sustainable through measurable development outcomes.
*Accountability Mechanism*	Often lacks impact assessment or audit.	Monitored via performance audits, DBT, and outcome evaluation.
*Public Perception*	Popular but economically distortive.	Less visible politically, but transformative in the long run.
*International Comparison*	Similar populist practices seen in Sri Lanka and Pakistan leading to fiscal crises.	Modelled after inclusive policies of Nordic countries and East Asian economies.
*Policy Alignment*	Often deviates from FRBM targets and fiscal prudence.	Aligned with SDGs (1: No Poverty, 4: Quality Education, 8: Decent Work, 10: Reduced Inequalities).
*Overall Impact*	Short-term relief, long-term fiscal and economic risks.	Sustainable empowerment, productivity, and equitable growth.

Implications of rising freebies in India:

Economic Implications

Fiscal Stress: Rising freebies increase the fiscal deficit and public debt of States. For instance, some States now spend 15–20% of their budgets on welfare subsidies and free services. Example: Andhra Pradesh’s Stree Shakti Scheme alone costs ₹1,942 crore annually. (Source: The Hindu)

Reduced Capital Expenditure: Excessive spending on consumption-based freebies often diverts funds from infrastructure, education, health, and job creation, slowing long-term growth.

Social Implications

Dependency Culture: Freebies can create dependency, discouraging work participation and self-reliance among citizens.
Inequality Issues: Poorly targeted freebies may benefit the non-poor, while the truly vulnerable remain excluded due to administrative inefficiencies.

Political Implications

Populism over Policy: Election-time freebies shift focus from long-term governance and reforms to short-term populist measures aimed at vote banks.
Fiscal Irresponsibility: Competitive populism (“freebie race”) among political parties leads to unsustainable promises without clear funding mechanisms.

Administrative Implications

Implementation Burden: Freebie schemes increase the administrative workload, requiring new monitoring systems, staff, and verification processes.

Ethical and Moral Implications

Erosion of Civic Responsibility: Overdependence on government benefits may reduce the spirit of civic duty and individual effort.

Environmental Implications

Unsustainable Consumption:
Free electricity, water, or fuel can lead to overuse of natural resources and higher carbon emissions. For e.g.: Free power to farmers contributes to groundwater depletion in Punjab and Haryana.

Human Development Implications

Short-Term Relief vs Long-Term Growth: Freebies offer immediate comfort but fail to address structural issues such as unemployment, education quality, and healthcare access.

Government Measures to Reduce Freebies in India (2024–2025):

State / Level	Measure / Reform	Details & Data	Objective / Impact	Source
Central Government	Subsidy Rationalisation	Reduced total subsidy expenditure to ₹3.17 lakh crore in FY 2022–23 — a 26.6% cut from previous year. Focus shifted to targeted DBT and fertilizer efficiency.	Control fiscal deficit and prevent subsidy leakages.	Times of India, 2023
Central Government	Tax Devolution Conditions	Proposal to reduce states’ tax share from 41% to 40% (FY 2026–27); link future grants to fiscal discipline and curbing populist freebies.	Encourage states to adopt fiscal prudence.	Reuters, Feb 2025
Maharashtra	Budget Cuts in Welfare Schemes	“Mukhyamantri Ladki Bahin Yojana” allocation cut from ₹46,000 crore to ₹36,000 crore; other welfare programs rationalised.	Reduce fiscal stress; reallocate resources for infrastructure.	Business Standard, Mar 2025
Karnataka	Fare Revisions in Public Transport	Post-launch of Shakti scheme (free bus rides for women), KSRTC increased fares for paying passengers to offset costs.	Maintain service sustainability; control subsidy burden.	Business Standard, 2025
Rajasthan	Audit and Fiscal Review of Freebies	CAG report flagged ₹65,000 crore annual cost from free power & medicine schemes, causing ₹31,491 crore deficit (2023–24).	Push for rationalisation of high-cost schemes.	Times of India, 2024
Andhra Pradesh	Introduction of Cost-Control Mechanisms	Post-Stree Shakti launch, State exploring GPS-based route optimisation and monitoring to reduce subsidy leakages (~₹1,942 crore yearly cost).	Improve efficiency, ensure better fiscal control.	The Hindu, Oct 2025
Punjab	Debt Management and Borrowing Limits	Rising debt >45% of GSDP; implementing stricter borrowing under FRBM cap; reviewing non-essential freebies.	Control unsustainable liabilities; comply with FRBM.	CRISIL Report, 2025
Meghalaya	FRBM Act Amendment	Amendment allows ₹400 crore borrowing boost only under specific revenue-growth conditions.	Enforce fiscal discipline before expanding welfare.	Business Standard, Nov 2023
Tamil Nadu	Freebie Review Committee (Proposed)	State Finance Dept considering review panel to assess welfare impact-to-cost ratio for schemes like “Magalir Urimai Thogai”.	Enhance accountability and outcome-based spending.	India Today, 2024
Pan-India (Policy Reform)	Phasing Out Power Cross-Subsidies	Proposal to remove industrial-to-domestic cross-subsidies worth ₹1–2 lakh crore annually, shifting to transparent budgetary support.	Increase transparency; reduce hidden subsidies.	India Today, Oct 2025

Way Forward:

Use Aadhaar-linked Direct Benefit Transfers (DBT) to ensure benefits reach the intended recipients and avoid duplication or leakages.

Strengthen the Fiscal Responsibility and Budget Management (FRBM) Act at both Centre and State levels to cap deficits and debt ratios.

States exceeding fiscal limits should face borrowing restrictions or reduced central grants, incentivizing efficiency.

The 15th Finance Commission recommended performance-based transfers linked to fiscal discipline — this should be expanded.

Reallocate a portion of welfare spending toward education, healthcare, skilling, and infrastructure that generate long-term returns. According to the RBI (2024), a 1% rise in capital expenditure yields 5–3% growth in GSDP, while revenue expenditure on freebies yields minimal economic return.

States should institutionalize independent fiscal and social audits to assess whether freebies achieve intended outcomes.

Shift from consumption-based welfare (free electricity, transport) to productive welfare, such as microcredit for women, self-help groups (SHGs), and entrepreneurship. For example, expanding National Rural Livelihood Mission (NRLM) funding by 20% could empower 8–10 million rural women annually, reducing dependency on subsidies.

Educate citizens on the long-term economic cost of freebies through public campaigns and civic education.

Source: The Hindu

Practice Question

“Balancing empowerment with economics is essential for sustainable welfare.” Critically examine this statement in the context of the rising culture of freebies in India.

Frequently Asked Questions (FAQs)

Freebies refer to non-merit, populist giveaways by governments — such as free electricity, free TV sets, or cash handouts — that are not targeted or linked to productivity.
Welfare schemes, on the other hand, are need-based and inclusive — for example, MGNREGA, PM Awas Yojana, or subsidised LPG under Ujjwala.