The Freebie Faultline: Growth, AI Ambition And The Supreme Court’s Warning

The Supreme Court’s recent sharp observations on the culture of electoral freebies—particularly in the context of the Tamil Nadu government’s announcement of free electricity for all—have once again brought to the centre a debate that refuses to die. Questioning what kind of political culture encourages ever-expanding handouts without transparent fiscal backing, the Court has signalled that the issue is no longer just political rhetoric; it is a constitutional and economic concern.

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The problem is not welfare per se, but the steady drift from productive, capability-enhancing public spending to perpetual, consumption-oriented political doles. The Court’s intervention now adds moral and institutional gravity to that concern.

The Fiscal Illusion: Free Today, Pay Tomorrow

Free electricity “for all” is not merely a budget line item. It is a structural commitment. Electricity boards already operate under stress, often dependent on state guarantees and cross-subsidisation. When power is made universally free, without differentiation or targeting, three distortions occur simultaneously – encouraging inefficiency and wastage, private investment confidence erodes as pricing becomes politically manipulated and fiscal gaps widen, requiring larger transfers financed through borrowing.

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There is no such thing as free electricity. Someone pays. If not the consumer, then the taxpayer. If not the taxpayer today, then the taxpayer tomorrow—through debt.

When recurring revenue does not keep pace with recurring expenditure, governments borrow. Borrowing leads to rising interest payments. Rising interest payments consume revenue that could otherwise fund development. To finance even basic services, more borrowing is undertaken. That is the classic vicious cycle of fiscal populism.

AI Power or Subsidy Economy?

India today speaks of becoming a global AI powerhouse—building indigenous foundation models, semiconductor ecosystems, data centres, compute infrastructure, AI skilling programmes, and research universities. Each of these requires massive, sustained capital investment.

AI architecture is not rhetorical. It demands hyper scale data centres, high performance compute clusters, reliable power grids, skilled manpower pipelines, advanced universities and research grants.

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All of this requires fiscal space

If states and the Union lock increasing shares of revenue into non-productive, permanent consumption subsidies, the fiscal room for AI infrastructure shrinks. A nation cannot simultaneously aspire to build world-class AI compute capacity and subsidise unlimited electricity for universal consumption without corresponding revenue expansion.

There is a deeper contradiction here

AI competitiveness depends on skilled human capital, Innovation ecosystems and productive labour force participation.

Yet a culture of permanent freebies risks creating the very dependency mindset that undermines productivity and aspiration standing in stark contrast to the vision of Viksit Bharat and raising the danger of India drifting towards a society of dependent citizens.

Every rupee tied into blanket subsidies is a rupee unavailable for foundational education, modernized ITIs and skilling, urban infrastructure, water management, climate resilience, semiconductor fabrication plants and defence modernisation.

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India’s demographic dividend is already fragile. Without sustained capability-building investments, it could become a demographic liability.

If service revenues are made free across the board, tax buoyancy weakens. If capital expenditure declines while committed expenditure rises, growth moderates. Slower growth reduces revenue. Reduced revenue increases borrowing. Borrowing inflates interest burden. The cycle tightens.

This is not alarmism. It is fiscal mechanics

Once announced, universal freebies become politically irreversible. Any rollback is branded anti-people. Governments across party lines then compete to outbid one another. Over time, welfare is no longer calibrated policy; it becomes competitive populism.

That is why the Supreme Court’s reprimand is significant.

Economic rise requires investment discipline.

The fundamental question is not moral but strategic:

Does India want to be a high-income, AI-enabled, globally competitive economy — or a fiscally strained polity trapped in auction politics?

Freebies feel compassionate in the short run. But compassion without productivity becomes unsustainable.

The Reform Moment: A Legislative Reset

The clock is ticking. If there was ever a moment to address the structural roots of competitive populism, it is now. What is required is perhaps the most consequential political reform since the liberalisation era: a clear amendment to the Representation of the People Act to mandate transparent distinction between legitimate, policy-backed welfare and electoral doles.

Such an amendment should require that:

- Every announced welfare scheme be backed by a clearly stated funding source

- Recurring fiscal liabilities be transparently disclosed before implementation

- Welfare programmes carry defined sunset clauses and periodic impact review

- Universal consumption subsidies be subjected to strict targeting norms

Welfare is the duty of a responsible state. Perpetual, open-ended handouts designed for electoral gain are not welfare; they are fiscal encumbrances passed to future generations.

India cannot afford a political marketplace where voters are treated as clients and public finance becomes collateral damage. The distinction between empowerment and patronage must be codified into law, not left to political discretion.

The Prime Minister Modi himself initiated the national debate on “revdi culture.” He has consistently spoken against systems that perpetuate dependency rather than opportunity. His political capital, mandate, and reformist track record position him uniquely to champion such a correction.

If India truly seeks to realise the vision of Viksit Bharat—powered by innovation, human capital, and AI-driven growth—then fiscal discipline must be institutional, not rhetorical. Reforming the electoral incentive structure that fuels competitive freebies would not be anti-poor; it would be pro-future. Here I would add why the proposal of One Nation, One Election mooted by Prime Minister Modi deserves serious consideration by all political parties, not merely as an administrative reform, but as a fiscal stabiliser. Synchronised electoral cycles would reduce the constant political incentive to announce fresh doles in response to impending state polls. It would create longer, uninterrupted governance windows focused on policy execution rather than poll positioning.

The nation does not need more promises. It needs a framework that ensures promises are responsible, time-bound, and growth-compatible.

(By Ram Gandhi, Businessman, Governor & Past President, IMC)

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