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    View | AAP should realise governance is much more than giving freebies

    View | AAP should realise governance is much more than giving freebies

    View | AAP should realise governance is much more than giving freebies
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    By S Murlidharan   IST (Published)


    AAP flush from its Punjab victory should rethink its worldview of freebies and subsidies. It must realise freebies can't be freewheeling and instead they must be targeted.

    The Supreme Court on January 25, 2022, issued notice to the central government and the Election Commission on the continuing tamasha of political parties promising or distributing irrational freebies using public funds. AAP flush from its resounding victory in the Punjab Assembly elections would be following the case with interest laced with anxiety as its USP thus far has been freebies in the name of welfarism.
    AAP government in Delhi was halted in its tracks when it went overboard and announced free rides for women in the Delhi metro. E Sreedharan, the metro man rightly warned of the Delhi Metro Corporation going to seeds if it went ahead with this harebrained move aimed at worming into the hearts of women voters. But unfazed it has gone ahead with free rides for women in its DTC buses on the specious ground that it compensates it for the resultant loss.
    The point is subsidy must be targeted and not freewheeling. Prime Minister Narendra Modi has captured the hearts and minds of the poor with his targeted subsidy under the PM Awaaz Yojana under which the economically weaker section is built homes at affordable prices with interest subvention thrown in. This is as it should be.
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    Scandinavian countries are hailed for their universal welfarism -- free education and healthcare -- but without hurting the government finances. Most of these countries levy a stiff 40 percent income tax on the well-heeled. Nevertheless, the model is unique in that it is not entirely pristine Robin Hood taxation in which the tax is on the rich but beneficiaries are the poor.
    Instead, the rich pay heavy income tax and in return, they too are allowed to partake in government free education and healthcare schemes. In addition, these nations do not have defence budgets and thus are able to sublimate the funds thus saved on human development. Be that as it may.
    BPL (below poverty line) food distribution scheme, which Indian states have adopted save Tamil Nadu and Chhattisgarh where it is universal, is a classic example of targeted subsidy. Our progressive rates of income tax are also a targeted subsidy in a way in that now one with an income of not more than Rs 5 lakh is not required to pay any income tax.
    AAP government giving free electricity upto a generous consumption limit of 200 units a month and 700 liters of water a month across all segments of the society turns welfarism on its head. The super-rich living in islands of opulence like Jor Bagh and Golf Links in Delhi where the monthly rent of bungalows is in the region of Rs 25 lakh a month hardly deserve such freebies. Non-targeted or freewheeling or non-merit subsidies can ruin government finances sooner than later.
    AAP should realise Punjab unlike Delhi is not a city-state. The centre takes care of police and land in Delhi. Punjab is an agrarian state. It is rich and hailed as the granary of India. But its water tables are falling precipitously by the day thanks to wrong cropping patterns among others. And its finances are in a parlous state.
    Anything given free is used injudiciously, with gay abandon. AAP government simply cannot afford to follow its Delhi model of free water. Can it afford to antagonise the kulaks by asking them to pay user charges for the electricity they have been consuming free thus far? The answer is it must be by drawing a line between the small farmer and a kulak.
    Presently, six states have agricultural tax legislation on the books. They are Kerala, Tamil Nadu, Assam, Bihar, West Bengal and Odisha. But the implementation varies substantially, from taxes not being levied at all to being levied only upon income from plantations like in the case of Kerala. A number of other states such as Rajasthan and Uttar Pradesh have reversed their policies on the issue over the decades, introducing and then rolling back agricultural tax. A blanket exemption from income tax is a classic example of non-merit subsidy.
    It is the universal experience that people appreciate efficiency over freebies. They don’t mind paying reasonable user charges for a regular supply of electricity instead of being lulled on the promise of free supply that is confined to just say a couple of hours a day. AAP government in Punjab has to internalise these home truths in Punjab and in due course extend them to Delhi.
    Welfarism does not mean financial recklessness. It is another matter that the rich in India heap losses on the poor by not paying back the loans they take from PSBs and by ministers enjoying freebies in the name of performing official duties. In fact, AAP cites these to rationalise its own brand of freebies little realising that two wrongs don’t make a right.
    — S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
    Read his other columns here
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