Freebies are never ‘free’, says RBI MPC member Ashima Goyal
August 22, 2022
Stressing that freebies hurt production and resource allocation and imposes large indirect costs, such as the water table falling in Punjab due to free electricity, Goyal said such freebies come at the cost of low-quality health, education, air and water that hurt poor the most.
Freebies are never ‘free’ and political parties promising such dole-outs must be required to make the financing plans for such programmes and related trade-offs clear to voters, the central bank’s Monetary Policy Committee (MPC) member Ashima Goyal said on Sunday. In an interview to PTI, Goyal said: “”Freebies are never free… specially harmful are subsidies that distort prices.” Stressing that freebies hurt production and resource allocation and imposes large indirect costs, such as the water table falling in Punjab due to free electricity, Goyal said such freebies come at the cost of low-quality health, education, air and water that hurt poor the most.
The contentious “freebie” issue gathered traction after Prime Minister Narendra Modi last month cautioned people against the “revari culture” under which votes are sought by pledging freebies. This was followed by the Supreme Court expressing concerns over the “the culture of freebies ahead of elections”. Earlier this month, the apex Court had suggested that a specialised body be set up to examine “irrational freebies” offered to voters during elections.
In recent years, the Aam Aadmi Party, especially, has been accused by its opponents of promising freebies to draw votes, a charge that the party denies. Last week, finance minister Nirmala Sitharaman stressed that the current government’s approach had been to empower people through the “saturation of existing schemes” rather than handing out mere entitlements. Explaining this approach, Sitharaman said: “You launch something (scheme), it reaches a certain number of people but there are more people who are eligible to get that. If you reach all who are eligible, then you achieve saturation…. Under Prime Minister Modi, we attain saturation in each case.”
Commenting on the country’s macroeconomic scenario, Goyal, who is also emeritus professor at the Indira Gandhi Institute of Development Research, said: “Indian growth is sustaining despite continuing global shocks and rate rises.” She added that India has performed better than most other nations under challenging conditions. Growing economic diversity, among other reasons, has helped the economy absorb shocks.
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“Large domestic demand can moderate a global slowdown; if industry suffers from lockdown, agriculture does well,” she said, adding that services compensate for less contact-based delivery with digitisation, distance work and exports. According to Goyal, even if global growth slows, diversification from China, India’s digital advantage and government efforts to promote exports would support India’s outbound shipments.
Emphasising that a rise in the currently very small Indian share in world exports remains feasible, Goyal said diversity and reforms in the financial sector have improved its stability. “Coordinated fiscal and monetary policy action to reduce inflation while maintaining adequate demand has worked well. Rising real policy rates have prevented over-heating and anchored inflation expectations, as they approach positive values,” she noted.
Goyal pointed out that inflation peaked in April and has since been easing. “The big test is already past and looks like flexible inflation targeting (FIT) is winning,” she said. Retail inflation, which hit a five-month low of 6.71% in July, may drop below 6% before October or slightly later, she added. “Inflation expectations have fallen. The attempt will be to further slowly guide them towards the target in a soft landing, even as a robust growth recovery takes hold,” Goyal said.
Commenting on the rupee movement, Goyal said: ” Indian reserves and forex intervention have ensured the rupee depreciation was only about half of the dollar rise and much less compared to other countries.” The intervention in the forex market is aimed at ensure orderly movement of the domestic currency.