Should India regulate gifts? | Trade Standard News

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What exactly are gifts? In simple terms, it refers to a measure of public welfare – any good or service – which is provided free of charge by the government to its citizens. But our existing legal or policy framework does not provide a precise definition of the term.

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In today’s context, it is often used as a political term by the Center to express its disapproval of certain regimes at the state level. Therefore, it seems that the meaning changes depending on the perspective you hear.

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Free color TVs, grinders, food grains, laptops, cycles, gold, washing machine, cows, sheep, cash transfers to farmers, health insurance and fertilizer subsidies – Indian voters have benefited from all this and more. But which of these giveaways are vote-grabbing giveaways and which are legitimate welfare measures?

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Making this distinction is an almost impossible exercise.

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Take a famous example from Tamil Nadu, home to the two major Dravidian parties known for their freebies, the DMK and the AIADMK.

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In 1982, when the then Chief Minister, MG Ramachandran or MGR, expanded the midday meal program for school children started by K Kamaraj in the late 1950s, he was met with opposition from all shares. The program has significantly improved enrolment, attendance and absenteeism. About a decade later, in 1995, it was rolled out nationwide by the Center. Likewise, today, the Centre’s PM KISAN program is inspired by the Rythu Bandhu program in Telangana.

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These are just two of many examples where state-level welfare schemes, once considered freebies, have served as a model for the central government to emulate.

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In view of the ambiguity, the Chairman of the 15th Finance Committee, NK Singh, recently said that it is necessary to distinguish gifts from meritorious goods, the expenditure of which brings economic benefits, such as the public distribution system. , job guarantee programs and state support for education and health.

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On the other hand, a June article from the RBI stated that the provision of free electricity, free water, free public transport, waiver of pending utility bills and waiver of agricultural loans is often seen as gifts, which can potentially undermine the culture of credit, distort prices by subsidy. This erodes incentives for private investment and discourages working at the current wage rate, leading to lower labor force participation.

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But this exercise also involves risks.

Because in the long term, the social and economic benefits of certain gratuities can greatly exceed the fiscal costs they impose, even if they seem heavy in the short term. States see it as an investment in human capital. This makes it difficult to label expenditures as meritorious or non-meritorious at the time of deployment.

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Alok Prasanna, co-founder of the Vidhi Center for Legal Policy, says there is no way to define a “free” it is a pejorative term. Politicians responding to people’s wishes are part of the political process. Impossible to make a general argument for fiscal prudence when state finances fluctuate, he says.

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If the Supreme Court is not the right institution to regulate gratuities, can Parliament legislate on this subject?



Alok Prasanna, co-founder of the Vidhi Center for Legal Policy, says it is not for parliament to regulate gifts. States are constitutionally free to legislate on these matters.

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Prasanna says income tax deductions or exemptions and corporate tax cuts could be classified as freebies, but they are also conscious political decisions.



Does something stop being free because it has Center approval?

Experts largely agree that states should be free to decide on freebies if they have the money. The problem arises when states distribute gifts, on merit or not, beyond their fiscal capacities.

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As a percentage of GSDP, tax revenue and own tax revenue, Punjab’s giveaways in the FY23 budget are among the highest in India

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Consider the financially weak state of Punjab. It is among the most indebted states and its own tax revenues have been declining over time. Punjab devotes more than 13% of its tax expenditures to subsidies, one of the highest.

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Yet the ruling Aam Aadmi party recently fulfilled its pledge to provide free electricity to every household up to 300 units.

In the context of the poor fiscal health of some States, is there a way to put safeguards in place to ensure that the gifts do not become excessive?



According to NR Bhanumurthy, Vice Chancellor of Dr BR Ambedkar University School of Economics, the policies of many states are creating long-term debt sustainability issues. Need organizations like the Interstate Tax Council to monitor spending. There needs to be more discussion about the public debt-to-GDP ratio. States and the Center can issue a debt title every six months, he says.

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The debate on gratuities must also be examined from the angle of State revenues.

As the Center imposed more taxes, the share of tax revenue the Center gave to them fell.

The end of the payment of GST compensation by the Center has further reduced the flexibility available with the States for social sector expenditure.

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As such, giveaways should continue to remain a conversation between states, political parties, and voters with careful measures in place to check largesse in the event of fiscally troubled states.

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