A State Bank of India report has suggested that a Supreme Court committee could cap the spending on social welfare schemes, also known as freebies, at 1% of a state’s gross domestic product or 1% of its tax collections, PTI reported.

On August 3, the Supreme Court suggested that an expert body of various stakeholders could be formed to look into possible ways to regulate promises by political parties about welfare schemes or freebies. The court on August 26 referred to a petition seeking restrictions on such schemes to a three-judge bench.

State Bank of India’s Group Chief Economic Advisor Soumya Kanti Ghosh in her report suggested that the proposed Supreme Court committee could fix a permissible band for such spending.

“If we look at the state budgets, election promises recently made for forthcoming state elections range from 0.1%-2.7% of [gross state domestic product] for different states and around 5-10% of [the] own tax revenue of the states,” the report said, according to The Economic Times.

Ghosh said that freebies have large fiscal costs and that they distort prices and misallocate resources.

The report also said that the annual pension liabilities of Jharkhand, Rajasthan and Chhattisgarh are quite high at 217%, 190% and 207% of their own tax revenues, respectively.

Off-budget borrowings of states, or loans raised by state-owned entities and guaranteed by the state governments, reached about 4.5% of the gross domestic product in 2022, the report said.

On August 3, the Centre had told the Supreme Court that freebies will harm the Indian economy. “They [voters] don’t know what’s going to fall on them,” Solicitor General Tushar Mehta had told the court.

The petition in this regard has been filed by advocate and Bharatiya Janata Party leader Ashwini Kumar Upadhyay, who has sought directions to file criminal cases against political parties for luring voters with freebies.