This is taxpayers’ money: Supreme Court questions freebies given by States before polls

The Supreme Court on Thursday questioned the practice of States announcing freebies and subsidies before elections, noting that the ultimate burden to bear expenses for the same falls on taxpayers [Tamil Nadu Power Distribution Corporation v. Union of India & Anr.]

A Bench of Chief Justice of India (CJI) Surya Kant, Justice Joymalya Bagchi and Justice Vipul M Pancholi was hearing a petition has been filed by Tamil Nadu Power Distribution Corporation Limited (TNPDCL) challenging Rule 23 of the Electricity (Amendment) Rules, 2024.

CJI Kant questioned how subsidies would be funded, pointing out that any promise of “free” services ultimately has to be paid for by the public. He said,

“But this money which the State says it will pay now. Who will pay for it? This is taxpayers’ money.”

He noted the distribution of freebies indiscriminately would result in an economic strain on India. He flagged the growing “largesse distribution” by States despite mounting revenue deficits.

"See on freebies, the economic development of the nation will be hampered with this kind of largesse distribution," said CJI Kant.

While acknowledging that the State has a duty to support those who cannot afford basic necessities, he questioned whether benefits were being properly targeted.

“Yes some people cannot afford. Some people cannot afford education or basic life. Yes it is State's duty to provide. But the ones who are enjoying, freebies landing in their pockets first, is it not something that should be looked at?” asked CJI Kant.

CJI Kant also drew attention to free electricity schemes, raising concerns about indiscriminate subsidies and the strain they place on public funds. He observed that in some States, even large landlords receive free electricity, allowing them to keep lights and machines running without cost.

"If you want to have a facility, you pay for it," remarked CJI Kant.

The Bench also expressed concern over the financial position of States. CJI Kant pointed out that several States are running revenue deficits while continuing to expand welfare schemes.

He noted,

“States are running into deficit but still giving freebies. See 25 percent of revenue you collect in a year. Why cannot it be used for development of the State?”

He added that governments should focus more on creating jobs rather than expanding welfare schemes.

If States continue rolling out one benefit after another, such as free food, bicycles, electricity and direct cash transfers, development spending would inevitably suffer, he opined.

CJI Kant warned that in such a scenario, most public money would end up being used only to pay salaries and to fund these schemes, leaving little for long-term growth and infrastructure.

Additionally, he highlighted the timing of welfare schemes. He observed that they were often announced just before elections.

“We are not on Tamil Nadu context only. We are on the fact that why are schemes being announced just before elections. All political parties, sociologists need to revisit ideology. How long will this continue?” questioned CJI Kant.

Senior Advocate Gopal Subramaniam, appearing in the matter, submitted that there must be equity in allocation of resources and that the widening gap between revenue and expenditure was a matter of governance.

Justice Joymalya Bagchi raised concerns about fiscal planning and regulatory processes, particularly in the context of electricity subsidies.

“After the tariff has been notified suddenly largesse has been given,” he observed.

He further distinguished between planned and unplanned expenditure, stating that if a policy decision is taken, it should be reflected in the budget and justified accordingly. He stated,

“If you really want to do all this, put it in the budgetary allocation and then justify how will you do so.”

Justice Bagchi also raised concerns about governments stepping in after tariffs have been fixed by statutory regulators such as electricity commissions. He observed that such post-tariff interventions could introduce arbitrariness into fiscal administration and undermine the role of independent regulatory bodies.

“How can intervention be there just because States decide to open their purse a bit more!” questioned Justice Bagchi.

The Court eventually issued notice to the Union government and other respondents and directed them to file their replies in the matter.

In its petition, Tamil Nadu Power Distribution Corporation Limited (TNPDCL) has challenged Rule 23 of the Electricity (Amendment) Rules, 2024, calling it "unconstitutional" and beyond the powers granted under the Electricity Act, 2003.

It requested the Court to strike down the rule, arguing that it imposes strict financial conditions on power distribution companies.

Rule 23 broadly requires that any gap between the approved cost of supplying electricity and the tariff actually recovered from consumers must not exceed 3%, and that such gaps must be cleared within a fixed time.

It also says that pending amounts must be recovered along with an added cost, calculated at the base rate of Late Payment Surcharge.

As per the plea filed by TNPDCL, this framework could have serious financial consequences.

According to the petition, applying a surcharge rate would mean delayed payments to accumulated revenue gaps which would either lead to sharp tariff hikes for consumers or require significant financial support from the State government.

While the petition does not directly challenge “freebie” schemes, it arises in the context of state subsidy policies in the power sector, including concessional or free electricity to certain categories of consumers.

The fiscal impact of such subsidy structures formed part of the broader discussion during the hearing.

The petition was filed through advocate T Harish Kumar.

[Live Coverage]