Impact of Freebies on the Economy

"Free" – a word that raises eyebrows, stirs excitement, and sparks debates. Governments often launch programs that provide either incentives or direct freebies, aiming to provide immediate relief to underprivileged populations. However, while such programs address short-term needs, questions about their long-term economic impact persist. One such initiative is Maharashtra’s Ladki Bahin Yojana, launched in 2024, designed to support women from low-income families. Although this program appears well-intentioned, lessons from similar schemes, such as Farm Loan Waivers, suggest that without careful management, significant long-term risks could arise for the state’s economy.

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Ladki Bahin Yojana: Immediate Support by the Maharashtra Government

What is the scheme?

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The Ladki Bahin Yojana provides ?1,500 per month to women from households earning less than ?2.5 lakh annually, which translates to ?18,000 per year per beneficiary. In families with multiple women meeting the criteria, each eligible member receives the ?18,000 allowance. Alongside these cash transfers, the scheme offers three free LPG cylinders annually, saving each household an additional ?2,400. In total, this amounts to ?20,400 in direct benefits per household. Furthermore, the program includes skill development and healthcare services aimed at fostering financial independence for women.

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While the scheme provides much-needed relief to women from low-income households, it also comes with a hefty price tag. The Maharashtra government has allocated ?46,000 crore for the Ladki Bahin Yojana out of the state’s total annual budget of ?6.12 lakh crore for the fiscal year 2023-24. This means that approximately 8% of the state’s budget is dedicated solely to this program, making it one of the more expensive welfare initiatives in recent history.

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A similar scheme, the Ladli Behna Yojana, has been implemented by the Madhya Pradesh (MP) government. While both schemes aim to provide financial support to women, the large-scale financial commitments involved in such programs beg the question: what is the long-term impact on state finances and the broader economy?

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Impact on the Government Budget

Maharashtra's fiscal deficit was ?66,641 crore as of 2023. Adding a large welfare program like the Ladki Bahin Yojana may further worsen the state's financial situation unless coupled with substantial economic reforms. Allocating ?46,000 crore for a welfare program like this – a sum equivalent to 8% of the state’s annual budget – limits the funds available for other critical areas like infrastructure development, education, and healthcare. As seen with previous welfare programs, such as farm loan waivers, poorly managed large-scale welfare schemes can strain public finances and increase public debt.

A historical example worth noting is Maharashtra’s 2019 farm loan waiver, which cost ?25,000 crore. While it provided temporary relief, it significantly restricted the state’s ability to invest in long-term growth initiatives. Similar to the Ladki Bahin Yojana, the intent was noble, but it created a fiscal burden that limited critical investments, particularly in infrastructure and education.

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Long-Term Considerations and Fiscal Responsibility

While the Ladki Bahin Yojana offers much-needed financial support to women, its long-term sustainability is questionable without accompanying fiscal discipline. Allocating 8% of the state’s budget to a single welfare program risks reducing funds available for critical public investments. The key to balancing welfare and growth is responsible fiscal management and structural reforms that reduce dependency on government aid while fostering long-term economic growth.

Furthermore, there are concerns about leakages in the system. Reports indicate that some recipients of the Ladki Bahin Yojana may not meet the eligibility criteria, with women from households earning above ?5 lakh annually still receiving benefits. This misallocation of resources could result in a substantial portion of the program’s funds going to ineligible beneficiaries, reducing its overall effectiveness. More rigorous verification processes, such as Aadhaar-linked income checks, are necessary to prevent misuse.

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The Problem with Freebies: Unfair Allocation and Lack of Motivation

A critical issue with schemes like the Ladki Bahin Yojana is the unfair distribution of benefits within households. In many cases, one family member who is not earning becomes eligible for the scheme, while other members of the same household are working hard to make ends meet. For example, a woman who is not earning may receive ?1,500 per month under the scheme, while her spouse or children, who are employed, continue to struggle to support the family. This creates an imbalance, where the earning members must work hard for their income, but the non-earning member receives money without any effort.

This situation can also reduce motivation to seek employment or skill development. When people receive free money with no strings attached, they may question the need to work or upskill. As the National Institute of Public Finance and Policy (NIPFP) reported, "long-term reliance on welfare schemes can lead to dependency, reducing the incentive to participate in the workforce" (NIPFP, 2023). This is a serious concern, as a workforce lacking motivation will hinder economic growth and productivity.

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A More Equitable Approach: Incentives Over Freebies

A more equitable and effective approach would be to move away from unconditional freebies and towards programs that provide incentives tied to effort, such as job offers, vocational training, or educational scholarships. When people receive financial aid without any effort, it can reduce motivation to seek employment or further education. This has been a persistent issue in welfare economics, as overreliance on handouts can create a cycle of dependency.

Countries like Germany and South Korea have successfully implemented "workfare" programs, where benefits are conditional on employment or participation in skill development programs. This approach not only ensures that individuals contribute to the economy but also equips them with the skills necessary to become financially independent. In India, a similar model could empower women to gain skills and jobs, reducing their reliance on government aid while ensuring that welfare programs drive long-term economic growth.

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Conclusion: Freebies or Economic Upliftment?

The Ladki Bahin Yojana provides short-term financial relief to women in Maharashtra, helping to stimulate local economies and address immediate needs. However, like similar programs before it, such as farm loan waivers, the Ladki Bahin Yojana could create long-term challenges for the state’s finances if not carefully managed.

Instead of continuing the cycle of freebies, the government should consider reforms that lower the cost of living and focus on empowering citizens through education, skill development, and employment opportunities. Only then can we achieve sustainable economic growth and reduce reliance on government aid.

Is the Ladki Bahin Yojana an economic upliftment strategy or merely an election stunt? Only time will tell. Do share your thoughts in the comments.