Last Updated:
While such measures often offer short-term political dividends, NITI Aayog cautions that they impose a heavy burden on state finances, cripple fiscal health, and jeopardise critical investments in infrastructure, education, and healthcare
The concern comes in the middle of a competitive spree among political parties in states to woo voters with promises ranging from free electricity and water to cash handouts, even as revenue collections struggle to keep pace. (PTI)
The NITI Aayog has raised a red flag over the growing culture of giving freebies in states, especially before elections, warning that unchecked populist measures are pushing several state governments towards fiscal instability. The alarm comes even as the freebie war begins following the release of manifestos by political parties for the upcoming Delhi elections.
The central policy-making institute has emphasised on the urgent need for states to strike a balance between welfare spending, announcing freebies, financial assistance and long-term financial discipline as their debts are mounting, which may derail development priorities.
The concern comes in the middle of a competitive spree among political parties in states to woo voters with promises ranging from free electricity and water to cash handouts, even as revenue collections struggle to keep pace.
While such measures often offer short-term political dividends, NITI Aayog cautions that they impose a heavy burden on state finances, cripple fiscal health, and jeopardise critical investments in infrastructure, education, and healthcare.
Competitive populism
Talking to News18, Pravakar Sahoo, programme director (economics and finance), NITI Aayog, said: “Here we are looking at aggregate level. We are looking at the number of resources diverted, which was actually meant for capital expenditure. So, over a period of time, there has been a lot of focus on subsidies and we are witnessing competitive populism. That factor is probably affecting the resources meant for capital expenditure. This is getting reflected in most of the states when anything comes to quality expenditure.”
He added: “The crucial parameters are not improving for multiple states and the decline is not stopping. Apart from around five states, most of the indicators are not looking great for the rest in recent years. Whether the states were average or better performers, they are not doing well now. Some states are not even recovering in several indices and they are at the button for several years now. States like West Bengal, Kerala or Punjab are under acute financial pressure.”
States like Punjab, Kerala, and West Bengal have faced scrutiny for announcing lavish subsidies despite grappling with mounting debt-to-GSDP ratios.
Development shelved, freebies thrive
NITI Aayog’s report stresses on the need for institutional safeguards to monitor and cap expenditure on freebies, urging states to prioritise structural reforms over populist spending.
“It is okay to not do well for some time, but it is worrying when they are not being able to pull themselves up year-after-year. So, these four states are always falling in the categories of what we call aspiring states. More and more resources are going for competitive populism because the state governments, the ruling parties, have their targets of winning elections. They are not concerned about the deteriorating health of the fiscal. There is no fiscal prudence. They need to be careful because this will have serious implications,” Sahoo explained.
The challenge, however, lies in balancing electoral compulsions with economic prudence. As states gear up for upcoming elections, the battle between fiscal responsibility, winning elections and political opportunism grows even sharper than before, with long-term economic stability hanging in the balance.
