Data dive: How freebies are hurting already stressed state finances

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Subscribe to enjoy similar stories. Maharashtra and Jharkhand are going to polls amid heated campaigns that saw ideological clashes, political wrangling, and promises of several free goods and services, colloquially known as freebies. Political parties make election promises such as cash transfers to women, free gas cylinders, and free electricity to woo voters.

This competitive populism, nonetheless, has reached a feverish pitch in several state elections in recent years at the cost of fiscal prudence. Most states that went to polls in 2023 or 2024 saw their fiscal deficit as a share of the gross state domestic product (GSDP) rise compared to the previous non-election year, showed a Mint analysis based on the fiscal data of 19 large states by Emkay Global. The rise is between 0.2 and 0.9 percentage points, with Telangana and Rajasthan leading the list.

Telangana and Rajasthan held assembly elections in November 2023. “Financial assistance schemes for women have been very popular, and farm loan waivers and free electricity schemes have also been announced," said Madhavi Arora, chief economist at Emkay Global, in a report last month. “This is likely to kick off a trend across states as it will be extremely difficult to resist pressure to enact similar policies.

Pressure on fiscal math is therefore guaranteed, with upside risks for 2024-25 already emanating," Arora added. Both the Union and state governments had to expand their spending massively during the pandemic years even as revenues slumped, leading to higher fiscal deficits. They embarked on a path of fiscal consolidation but a differentiator has since emerged: the Centre is reducing its fiscal deficit, but states are seeing a rise again.