Freebies galore: The 16th Finance Commission warns against them and so does ancient history

In 123 BCE, Gaius Gracchus passed the lex frumentaria, a law mandating that the Roman state sell grain to citizens at a fixed below-market price. The aim was modest: stabilize food prices, protect the poor. Within two generations, it had become free distribution.

By the Augustus era, 200,000 Romans were on the rolls; by the Aurelian, 600,000, and pork had been added to the ration. Historians still argue whether this generosity strengthened Roman cohesion or hastened the ruin of its treasury. It was probably both.

The Asian Development Bank (ADB), in a study commissioned by the 16th Finance Commission (FC), has added up India’s subsidies and transfers with unusual thoroughness. The numbers are not reassuring. Start with their scale.

The Union government spent ₹6.33 trillion on subsidies and transfers in 2023-24, up from ₹2.76 trillion in 2018-19, a compounded annual growth rate of 21%. This is before one adjusts for what governments prefer not to report. The ADB study found that official figures undercount actual subsidy expenditure by about ₹3 trillion at the state level alone; dozens of schemes, pensions, loan waivers, investment promotion subsidies and electricity shortfalls are simply not classified as subsidies.

Now add off-budget borrowings. For instance, Andhra Pradesh has parked ₹35,100 crore of food subsidy liabilities in its Civil Supplies Corporation and has ₹26,466 crore in power discom debt. Kerala has quietly accumulated ₹11,733 crore in off-budget social security pension liabilities through a corporation created for that purpose.