What the article is about:
- The article talks about the issue of ‘freebies’, and how a distinction can be made between expenditures made on social welfare schemes and ‘ irrational freebies’.
Relevance:
- GS2: Government policies and interventions.
Analysis:
- The PM’s recent comment on ‘freebies’ has reignited the debate on the economic rationale for granting subsidies.
Agreement on subsidies and countervailing measures (ASCM) of WTO :
- Definition of subsidy Unlike the Tokyo Round Subsidies Code, the WTO SCM Agreement contains a definition of the term “subsidy”. The definition contains three basic elements:
- a financial contribution
- by a government or any public body within the territory of a Member
- which confers a benefit.
Policy and measures:
- Tax policy includes a range of measures that includes special tax rates, exemptions, deductions, rebates, deferrals, and credits, all if which affect the level and distribution of tax, these measures often called “Tax preferences”.
- Tax preferences are considered as implicit(indirect) subsidies to preferred tax payers.
- However, as compared to individuals, corporates have been enjoying a large share of tax cuts.
- If the objectives of tax cut are not realised, as for instance, the corporate tax cuts effected in 2019-20 did not result in higher private investments as government has expected, should these tax cut not be considered as freebies?.
- Fading support and underinvestment: successive governments have paid little attention to the sad reality of underinvestment in health, education and agriculture.
- Public sector expenditure on health has struggled to cross 1.5% of GDP, In education the Kothari commission’s target set in 1966, that public investment should be increased to 6% of the national Income, is but a distant dream..
- The crisis in agriculture has deepened as a result of chronic underinvestment.
- The subsidies have been the palliative extended by the government for farmers to merely protect their livelihoods.
Conclusion:
- It is tough to decide what counts as subsidies and what counts as freebies.
- Therefore first there is need to set a clear distinction between irrational freebies and welfare measures to do away with freebies.
