An Expenditure Council could help promote fiscal prudence

Such a GST Council-like body can advise states on spending matters to ensure the best possible allocation of scarce resources

- BIBEK DEBROY & ADITYA SINHA

The debate on governmental 'freebies' offering goods and services free of cost or at heavily subsidized rates even to the people who might not need them has its roots in the issue of countries' wasteful expenditure, which is a subtle yet potent deterrent of economic growth. Such spending may bring short-term benefits, but eventually, it risks upsetting fiscal balance, outcompeting productive investments, and amplifying income inequality. This issue draws an uncanny resemblance to the timeless wisdom imparted by Adam Smith in The Wealth of Nations, where he emphasized the judicious use of resources as an essential element of national wealth. Any deviation from this principle invites inefficiencies and can even instigate an economic downturn. 

Linking this to the Indian scenario, it underscores the pressing need for a supervisory body-perhaps an Expenditure Council (EC), just like the GST Council. Its role would be to formulate guidelines and foster agreement on the best practices for state governments in terms of resource allocation. With a clear expenditure roadmap, the focus could be on implementing schemes that encourage inclusive growth, promote sustainable development, and maintain fiscal health. In doing so, the nation's long-term prosperity and the well-being of its people are safeguarded.

By exercising such financial prudence, the states can divert the resources used on 'freebies' to areas that require more attention which could result in sustainable development. The dilemma over freebies, therefore, becomes a question of prioritizing resource allocation, which is where an Expenditure Council could play a vital role in guiding state governments.