SBI cautions against freebies

State Bank of India (SBI), in its latest research report, has cautioned against freebies. It believes that freebies have large fiscal costs and cause inefficiencies by distorting prices and misallocating resources. SBI has suggested that the Supreme Court-led panel should cap welfare schemes at one per cent of the state’s GDP or one per cent of its own tax collection. As per the report, analysis of state budgets shows that election promises recently made for forthcoming state elections range from 0.1-2.7 per cent of gross state domestic product (GSDP) for different states and around 5-10 per cent of own tax revenue of the states. The report further stated that if contingent liabilities are included along with freebies, then they come to around 10 per cent of the GSDP for all the states combined.