It would have better if the article had also talked about "freebies" given to billionaires to set up offices for just Rs 1, and it's bad and ugly. If there was no data, then it could have been mentioned as "out of scope" for now, otherwise it is just studying one segment of population. Anyway, isn't corporate freebies more effective to gain votes for parties? After all, it's billionaires who have "excess" money to fund parties and eventually get votes.
Hi Saamarth, the article focused on the current flavour of the election season which was freebies to individuals or households. In terms of vote share, it's the individuals who drive election results at the end of the day.
Although your point about party funding is indeed valid. And there could be another story on that on a later date.
India's fiscal federalism looks like the eurozone pre-2012—states front-load goodies while Delhi ends up backstopping the debt. Bond markets already price the implicit guarantee.
If we look at countries such as the UK and France, they appear to be struggling with the long-term burden of social welfare spending. Both countries frequently run budget deficits, and whenever governments try to raise taxes or introduce reforms to increase revenue, they often face strong public backlash. In some cases, political leaders have even been forced to resign or change direction because of public pressure.
This shows that a welfare-heavy system can become a slow poison for a country if it is not managed carefully. In Canada’s case, the government has provided significant support to Indigenous communities because of the historical atrocities committed against them. This support has helped reduce extreme poverty to some extent, but it has not fully closed the gap. At the same time, some people argue that parts of this support system may have indirectly contributed to social problems, including drug abuse, when not combined with strong education, employment, and community-development policies.
There are a few successful examples of welfare states, such as Denmark and Finland, but these are relatively small, highly developed countries with strong institutions, high trust in government, and efficient tax systems. I am not sure whether a large and diverse country like India can successfully implement the same model.
This is an excellent insight into the Freebies by State governments. Most of my educated friends have a total negative opinion/view about the Freebies.
This article and the associated details can be an Eye opener for all.
Do checkout the last section of the article. You must compare the UCTs (Freebies) with against building the infrastructure(CapEx). And the article suggests clearly that the multiplier effect of CapEx is more than that of UCTs. I don't think the article is portraying UCT as an overall positive thing from an economist's lens.
Thanks, Abhishek. Although would have to add that the multiplier effect from these UCTs haven't been studied in depth in India yet. A recent report by Crisil did state that the consumption benefits for a rural individual could be significant; they could move from the bottom 5% fractile to the 30-40% fractile for consumption. And that will have a ripple effect on the growth of businesses too in theory -> better earnings -> increased hiring -> wage growth etc.
Thanks for sharing this extra bit and fair point. Perhaps a detailed review of the multiplier effect of UCTs in the Indian context and its comparison with CapEx could help better contextualize the broader impact.
Is there any link of the Crisil report you referenced that you can share?
It would have better if the article had also talked about "freebies" given to billionaires to set up offices for just Rs 1, and it's bad and ugly. If there was no data, then it could have been mentioned as "out of scope" for now, otherwise it is just studying one segment of population. Anyway, isn't corporate freebies more effective to gain votes for parties? After all, it's billionaires who have "excess" money to fund parties and eventually get votes.
Hi Saamarth, the article focused on the current flavour of the election season which was freebies to individuals or households. In terms of vote share, it's the individuals who drive election results at the end of the day.
Although your point about party funding is indeed valid. And there could be another story on that on a later date.
Very nice article. The problem is quite significant and is hurting the country.
India's fiscal federalism looks like the eurozone pre-2012—states front-load goodies while Delhi ends up backstopping the debt. Bond markets already price the implicit guarantee.
If we look at countries such as the UK and France, they appear to be struggling with the long-term burden of social welfare spending. Both countries frequently run budget deficits, and whenever governments try to raise taxes or introduce reforms to increase revenue, they often face strong public backlash. In some cases, political leaders have even been forced to resign or change direction because of public pressure.
This shows that a welfare-heavy system can become a slow poison for a country if it is not managed carefully. In Canada’s case, the government has provided significant support to Indigenous communities because of the historical atrocities committed against them. This support has helped reduce extreme poverty to some extent, but it has not fully closed the gap. At the same time, some people argue that parts of this support system may have indirectly contributed to social problems, including drug abuse, when not combined with strong education, employment, and community-development policies.
There are a few successful examples of welfare states, such as Denmark and Finland, but these are relatively small, highly developed countries with strong institutions, high trust in government, and efficient tax systems. I am not sure whether a large and diverse country like India can successfully implement the same model.
Thanks for sharing your views, Vaibhav. :)
In both Capex and social welfare programs, a large proportion goes to corrupt officials.
As always, you guys bring a different perspective with data evidence. Please continue. Thank you for this
Thank you, Lokesh. :)
This is an excellent insight into the Freebies by State governments. Most of my educated friends have a total negative opinion/view about the Freebies.
This article and the associated details can be an Eye opener for all.
Thank you, Karunanithi.
Do checkout the last section of the article. You must compare the UCTs (Freebies) with against building the infrastructure(CapEx). And the article suggests clearly that the multiplier effect of CapEx is more than that of UCTs. I don't think the article is portraying UCT as an overall positive thing from an economist's lens.
Thanks, Abhishek. Although would have to add that the multiplier effect from these UCTs haven't been studied in depth in India yet. A recent report by Crisil did state that the consumption benefits for a rural individual could be significant; they could move from the bottom 5% fractile to the 30-40% fractile for consumption. And that will have a ripple effect on the growth of businesses too in theory -> better earnings -> increased hiring -> wage growth etc.
Thanks for sharing this extra bit and fair point. Perhaps a detailed review of the multiplier effect of UCTs in the Indian context and its comparison with CapEx could help better contextualize the broader impact.
Is there any link of the Crisil report you referenced that you can share?