Freebies In Our Bonnet

Long back, West prioritised health, education spending over subsidies. That’s the call India must take too

- Dipankar Gupta

Freebies in India have reached such proportions that now even Supreme Court judges have banged their gavel on them. No question, freebies are unwelcome, but what exactly is a freebie? Further, why do they dominate poorer economies?

Though India’s GDP is not as high as that of the US or European Union, India outstrips them all in subsidies. No advanced economy in the West spends more than 1% of GDP on subsidies across all sectors. For example, total subsidy in Germany is 0.9% of its GDP, in France just 0.4%, but in India, agricultural subsidies alone eat up around 2.25% of our GDP. Meanwhile, distortions in the power sector alone cost the Indian exchequer over 4% of her GDP.

Contrast this to developed economies. In the US, agricultural subsidies are just about $20 billion and in the UK around $6 billion a year. This is miniscule because the GDP numbers of these countries are high: US GDP is approximately $21 trillion and UK’s about 2.5 trillion USD.