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The growing trend of offering freebies and cash handouts by Indian politicians has sparked a nationwide debate. Critics argue that while these measures may be politically effective, they undermine fiscal discipline and shift focus from long-term governance to short-term electoral gains.
From free electricity and water to cash incentives for women and farmers, the promises made during the 2024 state elections reflect an escalating arms race in populism. Monthly cash transfers, subsidised gas cylinders, and free education have become central to party manifestos, as political leaders vie for votes.
For many voters, these measures are a lifeline amid rising unemployment, inflation, and economic disparity. However, experts warn that such handouts drain resources from critical sectors like healthcare and infrastructure, as seen in states like Himachal Pradesh and Karnataka, while deepening fiscal stress. According to the Reserve Bank of India, these giveaways now constitute a significant portion of state budgets, leading to mounting debt concerns, particularly in states such as Punjab and Rajasthan.
Yet, the narrative around freebies cannot be dismissed outright. Their appeal becomes more understandable when viewed against the backdrop of economic distress, stagnant wages, rising inflation, declining household savings, and mounting debt, which have made freebies attractive — if not essential — for survival.
Stagnating wages in rural and urban India
India’s wage trends over the past two decades reveal two contrasting phases: a period of growth from 2004 to 2014, followed by stagnation and decline after 2014. Economist Simon Kuznets’ hypothesis suggests that income inequality rises during the initial phases of economic growth before declining as economies mature. However, the Kuznets curve remains elusive even after 77 years of independence.
Between 2004 and 2014, robust economic growth significantly improved real wages across sectors, particularly in rural areas. The introduction of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in 2005 was pivotal, guaranteeing 100 days of work for rural households, tightening labour markets, and boosting wages.
Higher minimum support prices (MSPs) for crops and improved agricultural productivity further strengthened rural incomes, which spurred consumption and wages for agricultural labourers. Urbanisation and infrastructure projects also drove demand for labour, with real rural wages growing at an annual rate of 5-6 per cent during this period.
After 2014, however, real wages stagnated or declined. In rural areas, agricultural labourers’ wages dropped by -1.3 per cent annually, and non-farm rural wages fell by -1.4 per cent annually during the second term of the Modi government. This contrasts sharply with the 8.6 per cent and 6 per cent annual growth rates seen during UPA-II (2009-2014).
Economic disruptions, including demonetisation in 2016 and the introduction of the Goods and Services Tax (GST) in 2017, severely impacted the informal sector, which employs a significant portion of India’s workforce. These disruptions reduced employment opportunities, further suppressing wage growth.
Source: ILO report All figures in Rs
Meanwhile, income inequality widened. Regular salaried workers accounted for 23.8 per cent of total employment in 2019, but this dropped to 20.9 per cent by 2023, with a shift toward precarious forms of employment like contract work. The Gini coefficient, a measure of income inequality, rose to 0.410 in 2023, surpassing levels seen in the 1950s.
Sectoral analysis: Real wages in construction and agriculture
While the Nifty Realty Index surged by 280 per cent between May 2019 and May 2024, wage growth in construction lagged significantly. Male construction workers’ daily wages rose marginally from Rs 182.44 in 2018 to Rs 205.80 in 2023, while female wages increased from Rs 136.95 to Rs 157.95. Real wage growth turned negative between 2021-22 and 2022-23, declining by -0.1 per cent and -3 per cent, respectively.
In agriculture, while household incomes rose from Rs 6,426 in 2012-13 to Rs 10,200 in 2018-19, financial distress persisted. Half of all agricultural households remained in debt, with average loans ranging from Rs 33,220 for small holdings to Rs 94,498 for medium-sized holdings.
Inflation erodes purchasing power
Inflation trends over the years have further deepened economic challenges. While inflation peaked at 12.17 per cent in 2013 and fell to 4.95 per cent by 2016, it resurged to 6.70 per cent in 2022 and stood at 5.48 per cent by November 2024. These fluctuations have disproportionately affected lower-income groups, whose consumption is more sensitive to price changes.
Food inflation, which peaked at 18.15 per cent in 2009, has remained a significant burden. Rising medical inflation — averaging 7-8 per cent annually between 2014 and 2024 — has further strained households, with healthcare costs outpacing general inflation.
Declining household savings and rising debt
Household savings have dropped sharply. Net financial savings fell to Rs 14.16 trillion in FY2022-23, just 5.3 per cent of GDP, compared to a decade average of 8 per cent. Rising financial liabilities, up by 73 per cent Y-o-Y in FY2023, have strained household budgets further.
India household debt (Loans and debt securities):
| Year | % of GDP |
| 2010 | 35.2 |
| 2011 | 34.52 |
| 2012 | 33.65 |
| 2013 | 33.3 |
| 2014 | 32.7 |
| 2015 | 32.4 |
| 2016 | 32.03 |
| 2017 | 33.26 |
| 2018 | 34.16 |
| 2019 | 36 |
| 2020 | 40.43 |
| 2021 | 36.05 |
| 2022 | 37.32 |
| 2023 | 39.16 |
The allure of freebies
In this context of economic stagnation and financial strain, the popularity of freebies becomes clearer. Whether these measures are good or bad depends on perspective, but they undeniably provide temporary relief for millions grappling with economic uncertainty.
Good or bad? The debate over freebies will continue. But their appeal, set against the backdrop of economic distress, is hard to ignore.
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