Politics of Freebies
Good politics has yielded place to populist politics-not just in India, but the world over and with disastrous results, as can be seen in countries like Sri Lanka and Venezuela. We, in India, should get wise from others’ mistakes and shun populist politics, through regulatory measures if needed, and nurture a truly democratic process
We all know that good politics is good economics. This is so because good politics tries to attract voters based on good nation-building initiatives. However, these days, good politics is yielding place to populist politics. Populist politics centres around tempting voters with tempting offers. These tempting offers are devoid of any national interest but full of good looking packaging, which in due course, harm the nation’s economy. These populist politics has started flowering in some of our states across all political parties. If one party comes up with a plan of cheaper meals, the other party comes up with a plan of fully-free meals. If one party comes up with a plan for partial farm loan waivers then the other party announces full farm loan waivers. The objective is to target the vote bank of farmers, not to help agriculture or boost the income of farmers. Populist measures include services that are free, such as the cost of electricity, water, bus travel, etc. Free services add to the subsidy bills and also ruin the quality of services, and ultimately, the people suffer. Money in the hands of the government comes from the hard work of taxpayers and this money, instead of going for development work is squandered by it to win elections and grab the seats of power. The beautiful present of the people in power or those who want to come to power, jeopardises the future of the people of the state and also of the country.
"These days, good politics is yielding place to populist politics. Populist politics centres around tempting voters with tempting offers. These tempting offers are devoid of any national interest but full of good looking packaging, which in due course harm the nation’s economy"
The game of populist politics is not unique to our country alone but is being played in many parts of the world. We must learn from the outcome of this game, which is now visible in those countries.
To illustrate, let us take the case of our immediate neighbour, Sri Lanka. Lankans voted for the Rajapaksas knowing very well what wrongs they did in the past, including corruption, selling out national assets to China, dynastic politics, etc. They still voted for them because the Rajapaksas promised many things, which were very tempting. The things put up by Rajapaksas were:
- VAT tax on all products was reduced to 8%, thus making everything cheaper in one stroke. It killed the revenue of the government but people loved things getting cheaper.
- The minimum income tax threshold was changed from 5 lakh to 30 lakh rupees. Very few earned more than 30 lakhs and hence, income became tax-free for most Lankans. This became a very popular incentive to the salaried class who formed the larger section of taxpayers.
- For those with income over 30 lakhs, an upper ceiling of a maximum personal tax of 15% was created, so no one paid over 15%. For comparison, with surcharges, it is around 42% in India and between 40% to 60% in many developed countries.
- Corporate tax was promised to be reduced to 14%. As a result, corporates supported the Rajapaksas and even funded them.
- They abolished seven other taxes, including a 2% nation-building tax paid by businesses.
- Zero tax to many industries like IT Services and hotels that served tourists was also announced to attract sections of big taxpayers.
- Various taxes imposed on religious institutions were promised to be scrapped. As a result, Sri Lanka’s powerful Buddhist monks campaigned for the Rajapaksas during the elections.
- Individuals and companies engaged in agriculture, fisheries, and livestock farming were exempted from taxes for the next five years.
- The daily minimum wages of tea workers were raised to Rs.1000. As a result, a big chunk of votes went to the Rajapaksas.
- The minimum salary for private company employees was fixed at Rs.12,500 per month. Every low-income family loved it.
- Tax on retirement gratuity was reduced from 24% to 15%. All senior citizens got tempted.
- Pensions were awarded to state bank employees who were not eligible earlier, which was a good tempting offer.
- 15% VAT on apartments was scrapped. Young home buyers and construction industries loved it.
- Fuel prices were kept artificially low. They bought petrol from India and still sold it at prices lower than in India. Hence, no tax revenue is accrued from the sale of fuel.
- In a hurry to make Sri Lanka a developed nation, they went on an infrastructure-building spree financed by Chinese loans. These infrastructure projects proved to be white elephants as there was no income from them while interest had to be paid.
"The game of populist politics is not unique to our country but is being played in many parts of the world. We must learn from the outcome of this game, which is now visible in those countries. To illustrate, let us take the case of our immediate neighbour, Sri Lanka. Sri Lanka is not the only country to suffer badly from populist politics. Venezuela, a petroleum reserve country also suffered in a similar way"
Freebies turn costly
The Rajapaksas delivered on all the promises promptly when they won the elections. They bankrupted the country in this process. In trying to get so many things for free, Sri Lankans ended up paying much higher prices. Now, the Sri Lankan rupee trades for Rs.310 per dollar. For an import-dependent country, this means that everyone is paying much higher as prices have gone up. The savings of the people are getting eroded in the same proportion. Their salary did not increase in the same ratio. Thus, the result was that everyone had lower-earning and took a fall in their wealth. Besides monetary issues, it has destroyed the country causing human suffering with 15-hour power cuts, lack of food, etc. Civil war is looming large. The country had a double whammy with Covid, as its main income from tourism dwindled. The Ukraine war added more problems with increased fuel price and hardly any foreign exchange reserves left. (The statistical details have come from my WhatsApp group.)
Sri Lanka is not the only country to suffer badly from populist politics. Venezuela, a petroleum reserve country also suffered in a similar way. Inflation in Venezuela is virtually killing the people. We all know that there is no free lunch. People suffer if they do not apply their minds and fall for freebies.
Don’t sell dreams
The job of the government is to provide good governance and not to sell dreams, which are counterproductive. We, in India, have to get wiser after seeing the pitiable conditions in Sri Lanka and Venezuela. Things are deteriorating as politics is losing its true meaning of service to the people. People have to be cautious in choosing their representatives, as it is the people who ultimately become victims of populist politics. The virus of populism takes its roots, as normally, a large section of people remain ignorant of public affairs and they are very susceptible to simplistic slogans and attractive freebies. Politicians capitalise on their clever assumption that a mob has many heads but no brain. The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics, however, is to disregard the first lesson of economics.
We, in India, should have laws against political freebies. Our Election Commission should have the power to regulate these laws. Freebies spread over political parties create a vicious chain. If one party announces one, then the competitor party jumps into the fray to outwit the other. They all have to win elections and hence, they have to look more attractive. The Finance Commission, as per the Constitution of India, decides the formula for the distribution of earnings of the country amongst states. If any state is diverting its share of revenue on freebies, then the Finance Commission must reduce its share. States should not keep running to the centre for more finance except in extreme conditions like natural calamities. States should have financial discipline. Elections should not be won based on limited tax revenue. Why should taxpayers pay a political party for grabbing the seat of power? In the game of populist politics, taxpayers become helpless spectators.
Political parties should have a roadmap to build the country. Let the people decide whom they want to choose. There should be no inducement by political parties to influence the voters. We have to enact laws to curb such dishonest practices to buy votes. Inducements given are corrupt practices. We have to nurture the democratic process instead.