In an event on Saturday, Finance Minister Nirmala Sitharaman shed some light on the debate over freebies. Currently, politicians and parties are debating over 'freebies' and welfare schemes. She said that the Modi government aims to empower everyone through saturation of the existing welfare schemes as every Indian citizen deserves access to basic facilities.

FM said, "Every Indian citizen deserves to have access to basic facilities without getting beholden to anybody. Our approach is one of empowerment through saturation of existing schemes rather than that of entitlement," as reported by the PTI.

She further said, "if you have reached all of them who are eligible for something then you have achieved saturation," adding, "there have been so many attempts to make the lives of the poor better in the last 75 years."

Notably, the saturation of the welfare scheme indicates that all entitled beneficiaries will receive the facilities.

According to the Finance Minister, the difference between all the garibi hataos (slogans) of the world and now --- the approach to development that Prime Minister Narendra Modi employs --- even as he brings in schemes that benefit the needy people, is by the principle of saturation so that they cover everybody eligible.

On Thursday, the FM alleged that Aam Aadmi Party(AAP) convener Arvind Kejriwal has given a perverse twist to the debate on freebies. She said, “Delhi Chief Minister has given perverse twist to the debate on freebies. Health and education have never been called freebies. No Indian government has ever denied them. So classifying education and health as freebies, Kerjiwal is trying to bring in a sense of worry and fear in minds of poor." She added that there should be a genuine debate on this matter.

DMK leader and Tamil Nadu chief minister M K Stalin also joined the debate on Saturday and stated that the expenditure incurred by the government on education and healthcare cannot be construed as freebies.

The freebies versus welfare debate came in the limelight after PM Modi's 'revdi' jibe that was followed after Kejriwal promised free electricity and other facilities including for women and pensioners in Gujarat and Himachal Pradesh once selected in the election.

PM Modi had criticised Kejriwal for distributing ‘revdi’ or freebies.

In general terms, freebies mean that something is given to someone for free.

PM said, "This Revdi culture (or the freebies culture) is dangerous for the development of the country. Those with Revdi culture will never build new expressways, new airports, or defence corridors for you. Together, we have to defeat this mentality, remove Revdi culture from the politics of the country."

The 'freebies' concept has been debated heavily and comes in the context of a public interest litigation filed before the Supreme Court. The question has now arisen of how much freebies can be allowed and their impact on the economy.

Earlier, in June 2022 bulletin, RBI had raised concerns over freebies against the backdrop of the Sri Lankan crisis. RBI said, "new sources of risks have emerged in the form of rising expenditure on non-merit freebies, expanding contingent liabilities, and the ballooning overdue of DISCOMs."

As per RBI, in the recent period, state governments have started delivering a portion of their subsidies in the form of freebies. While there is no precise definition of freebies, it is necessary to distinguish them from public/merit goods, expenditure on which brings economic benefits, such as the public distribution system, employment guarantee schemes, and states’ support for education and health.

RBI said, "provision of free electricity, free water, free public transportation, waiver of pending utility bills and farm loan waivers are often regarded as freebies, which potentially undermine credit culture, distort prices through cross-subsidisation eroding incentives for private investment, and disincentivise work at the current wage rate leading to a drop in labour force participation."

The central bank also said, some freebies may benefit the poor if properly targeted with minimal leakages, but their advantages must be evaluated against the large fiscal costs and inefficiencies they cause by distorting prices and misallocating resources. Additionally, the provisions of free electricity and water are known to accelerate environmental degradation and depletion of water tables.

Data from the Comptroller and Auditor General of India (CAG), the state governments expenditure on subsidies has grown at 12.9% and 11.2% during fiscal 2020-21 and 2021-22, respectively, after contracting in 2019-20.