Freebies, a cause of concern but what would qualify as one: Panagariya

Chairman of the sixteenth Finance Commission Arvind Panagariya on Monday said that the competitive populism displayed by states doling out freebies is a cause of concern for the Commission, but it is struggling to address the question as to what would qualify as a freebie.

“Yes, it’s a concern for the Commission in terms with how the freebies or subsidies impacted the financial stability and macro-economic stability. I will not answer what the Commission should or should not do because until those decisions are made it will be inappropriate for me to express an opinion,” Panagariya said while responding to a query on fiscal responsibility.

Asked whether fiscal management by states can be considered to become a criteria for devolution of taxes, Panagariya said one has to be able to define a freebie. “That’s where the challenge lies. The state which is giving that subsidy does not have a negative view about it. So, who has to decide whether it is a good or bad subsidy,” he added.

He further said that what the Commission has tried to wrestle with and cannot really resolve the issue as to what can be classified as a freebie and what cannot be. “We have internally discussed the issue and also consulted experts of the Commission. Anything that the Commission does has to be transparent and has to have general acceptability. This is where the problem arises. What can be included as a freebie and what can be excluded. There is a merit subsidy and demerit subsidy etc. There are classifications which are acceptable and there are those which are not. It is a tough thing to classify,’’ Panagariya said.