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Economics of Freebie Politics: The Tribune India

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Aunindyo Chakravarty

Senior Business Analyst

When the Modi government announced a gift of Rs 6,000 to all farmers in India in 2019, it was celebrated as a political masterpiece. When opposition parties announce similar plans ahead of the general election, our mainstream media houses write editorials against “freebies” and ask questions about their financial feasibility. Experts rant on Twitter about how we slide into “socialism” and why such slogans destroy productivity and innovation. In wealthy WhatsApp groups, people share mundane sermons about how such socialism makes everyone poor.

Aid to the poor is seen as a wasteful expense. But low corporate interest rates to get cheap credit or lowering corporate taxes are never criticized.

This attitude stems from three decades of being active within the prevailing discourse of market capitalism. India’s vocal realms that shape media opinion are closely tied to the corporate world. They are either employed by corporations 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 are symbiotic with this wealthy class.

This class thinks in a system of terms, motifs and topics, through which their own lived relation to the market is shown. India’s rich aid in the form of money or benefits in kind (free cylinders, laptops, bicycles) appears as a lavish “free gift” from “our” taxes. On the flip side, the constant “giveaway” of maintaining low corporate interest rates in order to get cheap credit or the “knack” of lowering corporate taxes to increase profit margins for large corporations is never criticized. In the minds of the Indian ruling classes, these freebies and frills represent a solid economy.

When the center provides incentives to encourage private investment or states give large corporations free land and announce multi-year tax exemptions, no one asks where the money will come from. Such decisions are justified with arguments that companies create jobs. But companies can only create jobs if they have a buyer’s market for their goods and services. And freebies and drinks to the poor should help create that demand. In other words, the multiplier effect of inducing demand through tax transfers is equal to, if not greater than, the incentive to the corporate world.

The bigger question is why political parties have to make promises to the poor before every election. The answer lies in the utter failure of our economic policies to provide a decent livelihood for the vast majority of Indians. Both the RBI-KLEMS estimates of employment since 1981 and the Center for Monitoring India’s Economy (CMIE) employment surveys since 2016 show that employment growth has initially slowed since the 1990s and then turned negative in the past few years. It is evident that if people do not earn enough to get two meals a day, they are unlikely to elect governments back to power.

Real income growth for the bottom 30% of Indians has slowed since 1982 when India began to “open” and “liberalize” its economy through encouragement from the private sector. At the same time, this income had to be geared towards disproportionately higher spending on education and health, from which the state increasingly withdrew. The poor today also spend on things that appear to be luxuries; Cell phones and data packets are two such examples shown as symbols of India’s increasing prosperity. In reality, these have become indispensable in the gig economy, where cell phone numbers act as permanent addresses for migrant workers where they can be contacted by potential employers. Migrant workers use mobile phones to keep in touch with their families back home or to make a short video call to see their child learn to sit up or crawl.

When we pull in the latest employment data from CMIE, we find that as of December 2021, less than 38% of Indians over 15 had a paid job. The situation wasn’t much better before Covid hit us. In February 2020, less than 39% were in employment. ILO data suggest that the world average at that time was around 57%. Many Indians have become so used to not getting paid work that they have stopped looking for it altogether. The global average for job seekers (known as the labor force participation rate) was around 61% before Covid, while in India, data from CMIE shows it was less than 44%.

Income data from surveys by the CMIE and the World Inequality Database suggest that no more than 10% of Indians earn enough to spend on high quality durable goods. Another 30% have an income that enables them to spend on substandard consumer goods and cheaper FMCG items. The bottom 30% barely survive, a further 30% above are in constant danger of slipping into poverty.

Our organized sector, be it manufacturing or service, is almost exclusively geared towards the top 10%. A smaller part of their production is consumed by the next 30%. The remaining 60% of the people just aren’t in their position. India’s corporations and the ruling classes that support them don’t need the bottom 60% of Indians.

Unfortunately, however, they have a voice. That is, politicians cannot ignore them. Therefore they have to promise income subsidies or subsidies for essentials in the form of benefits in cash or in kind. These switches ensure that the majority of Indians can survive in an extremely difficult economic environment. Without this, they could disempower governments or even begin to question what the media and public culture are feeding them. A democracy controlled by a corporate-dominated ruling class needs popular support to keep its rule going. The tips and freebies for the poor give him the votes he needs. It is a small price India’s wealthy must pay in order for the economy to continue to reward them disproportionately.

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