Freebie Politics | ‘Revari’-nomics is bad for India’s economic health

A crowd at an election rally in Uttar Pradesh. (Image Source: AP/File photo)

Prime Minister Narendra Modi is known for weighing his statements for timing and appropriateness. So when he made a reference to states preferring to spend money on freebies — distributing ‘revari’ (candies) — over development, during the inauguration of the Bundelkhand Expressway in Uttar Pradesh on July 16, it was interpreted as a political message.

The sharpest reaction came from Aam Aadmi Party (AAP) convenor and Delhi Chief Minister Arvind Kejriwal. AAP is making a spirited bid in the assembly elections later this year in Gujarat, where the Bharatiya Janata Party (BJP) has been in power for over 25 years. In his campaign speeches Kejriwal is promising free electricity, and other subsidies if AAP comes to power in the state. He, therefore, had reasons to believe that Modi’s comments were aimed at his party, as the BJP was rattled by AAP’s recent electoral success in Punjab, where the voters were apparently swayed by AAP’s ‘Delhi model’.

Since then it has stoked a debate about ‘Freebies Vs Development’. A public interest litigation before the Supreme Court has questioned the practice of political parties to make promises of sops and loan waivers before elections without taking into account the financial position of the state. The apex court, on August 3, suggested the formation of an expert body to give suggestions on how to resolve the problem.

‘If you want to prosper, first build roads” goes a Chinese proverb. But when Modi and Uttar Pradesh Chief Minister Yogi Adityanath made a spectacle of the Purvanchal Expressway opening just before the assembly polls on November 16, 2021, sceptics said that ‘roads don’t win elections’, reaffirming an old adage that ‘good economics doesn’t always make good politics’. However, the assembly election results where Adityanath was voted back to power with a thumping majority proved otherwise.

Though there is a generational difference in the economic thinking of Modi and his predecessor (late) Atal Bihari Vajpayee, they seem to share the same conviction about the importance of improving road networks. If Vajpayee built the ‘Golden Quadrilateral’, Modi is taking it to an entirely different level with his GATI Shakti Mission that includes the Sagarmala and Bharatmala projects.

However, there are counter arguments to the economic benefits of investment in infrastructure without commensurate development of the nation’s economic capacity. The latter depends on the level of poverty, and the other related to human development indices like health and education. In the absence of the latter, roads will not have either carts or horses to ply on them.

The most recent case in point is Sri Lanka, which bought into the Chinese Belt and Road Initiative (BRI) plunging the island nation into its worst ever economic crisis.

In India too empirical evidence indicates the economic multiplier of highways is greater in more developed regions of the country, like the west and south. Hence, one school of development economists hold that ‘Cash Transfers’ (aka freebies) are a faster and effective way of poverty alleviation, than investments in infrastructure as its returns take much longer to trickle down the socio-economic strata.

As is usual, the answer lies in the middle. One cannot be pursued at the exclusion of the other. After 75 years of Independence, India cannot wait for total elimination of poverty before undertaking infrastructure development projects. Without road networks, the underdeveloped regions cannot be a part of and benefit from the progress witnessed by the more developed states/regions that have been more affluent for historical and geographic reasons. This is true for the east, northeast, and north in comparison to the west and south of India. At times, such differences can be witnessed within a state itself, as is in the case of east and west Uttar Pradesh. Therein lies the significance of the expressways.

Modi chose the right occasion to highlight the need for investment in the right areas to bring holistic, and long-term development, rather than instant and short-lived gratification through freebies.

The Prime Minister’s concerns seem to stem from the precarious financial health of many states. A recent Reserve Bank of India (RBI) study has identified 10 states in the vulnerable category. The share of revenue expenditure in total expenditure in these states was 80-90 percent, which leaves them with little resources for capital expenditure, or asset creation.

Of these, the top five are Bihar, Kerala, Punjab, Rajasthan, and West Bengal. Four out of the five are Opposition ruled states. If the electoral profligacy of political parties does not stop — and stop now — soon they will all turn towards the Centre to bail them out, as Punjab has already done after AAP came to power. So, Prime Minister Narendra Modi has reasons to worry about competitive populism by many political parties, which can land India into a debt-hole. When many of his detractors revel in the doomsday prophecy of India going down the path of its neighbours (Sri Lanka, and Pakistan), it is a timely warning for all to reflect upon.

While ‘revari’-nomics might win votes and is a definite gallery puller, it is ephemeral and has no economic base. It is a sure shot way to debt and doom. No wonder leading economists and even the Supreme Court of India is worried.