The bugle for the assembly elections in Bihar was blown by the Election Commission. The attention will shift to campaign themes, stars, rhetoric, abuses, rallies, and roadshows. Most experts will not have the time to analyse a ticking financial time-bomb that has become a feature of most state assembly elections. This is the increasing tendency of the political parties to offer cash-related benefits and doles to lure voters.
This populist profligacy will inevitably bankrupt a few state governments, as it has several others in the past, if better sense does not prevail among the ruling regimes in the former. Look at Bihar. Before the elections were announced, the ruling NDA government in Bihar transferred Rs10,000 each into the bank accounts of 7.5 million women. The annual cost to the Bihar Exchequer: Rs 7,500 crore which, experts estimate, may go up to Rs33,000 crore.
Other states, including the Centre, have followed the same routine. During his Independence Day speech, Prime Minister Narendra Modi announced a one-time payment for first-time employees. During the 2023 Karnataka assembly elections, the Congress offered five welfare schemes including a Rs2,000 per month cash dole to the female head of each household if voted to power. This propensity to buy votes gathers momentum even as a decadal report on the state of states’ finances by the Comptroller and Auditor General (CAG) flagged concerns over the fiscal health of several state governments.
The CAG report, which covers the period between 2012-13 and 2022-23 revealed that the states were increasingly reliant on non-tax revenues to finance their expenditures. In some cases, the revenues flowed from unusual sources like lottery (Rs9,000 crore a year in Kerala), or mineral royalty in Odisha. But most states opted for borrowings. For instance, the original pioneer of welfare schemes and freebies in this century, Punjab, accumulated debt which was 45 per cent of the state GDP in 2022-23.
Since the numbers are a bit old, the current ratio in Punjab may be higher. This kind of debt is simply unsustainable, and something will give, sooner or later. According to the CAG analysis, the state’s revenue deficit (revenue receipts minus revenue expenditure) was 30 per cent, the highest among the states. Obviously, it had no option but to resort to loans to bridge the growing gap. There is only a limited distance one can travel on this debt road.
Yet another highlight from the CAG report. While the combined annual expenses of the states grew by more than 2.5 times, and committed expenditure (salaries, pensions, and interest) by a similar figure during the 10 years, subsidies grew by a higher multiple. Welfare expenses were up more than three times to more than Rs3,00,000 crore. According to a media report, “This sharp expansion added another layer of rigidity to state budgets, especially as subsidies often become politically sticky.”
Some experts feel that the CAG report understates the impact of welfare schemes, and subsidies. For example, according to a media report, the electricity subsidies in Tamil Nadu are carried on the books of the power distribution companies, and not the state’s Exchequer. “The arrears mount, guarantees pile up, and losses are rolled forward through special purpose vehicles. Yet none of this disturbs the neat arithmetic of… CAG’s decadal review,” it adds. The report classifies the state as a revenue surplus one, with manageable and healthy debt ratios compared to the others.
Obviously, such a scenario creates the “illusion of fiscal prudence,” where none exists. In Tamil Nadu, the state plans to settle more than Rs80,000 crore of the distribution companies’ debt. The Supreme Court has ordered a drastic reduction in debt, and capping new borrowings. This has pushed the state to push the electricity liabilities off the official books. Moreover, one is not sure if the CAG report fully captures freebies. If something is free, can it be completely quantified, especially if one does not know the quantum of the beneficiaries.
Populist welfare schemes became a regular feature of the Indian political economy since the 1980s. But except Punjab, which made everything from electricity to water free for the farmers, most states remained fiscally prudent. During the early 2000s, there was a public tussle between Captain Amarinder Singh, Punjab’s chief minister from the Congress, and the central coalition regime led by Atal Bihari Vajpayee. The latter wanted reforms in the bankrupt electricity sectors of the states. Singh vowed to continue with the freebies, no matter what the cost was for the electricity distribution companies.
Cut to the 2010s, and what Punjab did two decades ago pales in comparison to the freebie assault of the Delhi’s AAP Government led by Arvind Kejriwal. Households, irrespective of incomes, got 200 units of electricity free of cost. A host of other schemes followed. Kejriwal’s unusual success made the political parties realise that doles, or merely their promises during elections, were an effective strategy to win assembly and national elections.
In those days, the BJP, led by Modi, counter-attacked welfarism, and publicly stated that such recklessness was a dangerous trend. It did not take too long for the party to opt and embrace welfare schemes. Money was transferred into the bank accounts of the poor. Subsidies continued, although there were efforts to pinpoint beneficiaries, and reduce corruption. Even this did not fully succeed. Some states promised, and delivered, cradle-to-coffin benefits. A birth resulted in Government gifts. There were scholarships for children. A gold Mangalsutra for a newly-married woman. Freebies for retirees.
Come the 2023 assembly elections in Karnataka, and the floodgates opened. The genie was finally out of the bottle. The Congress went on a rampage with sops, and won the state in a handsome manner. The annual subsidy bill: Rs60,000 crore. The party learnt its lessons from the Himachal Pradesh elections, which it narrowly won despite promising freebies. The Congress repeated the promises during the 2023 Telangana elections, and won it too.
The BJP, which had opted for the route, but seemed on the back foot, stepped out of the crease. It completely succumbed to the romantic wiles and lures. In late 2023, the party announced the Ladli Behena scheme that now provides cash of Rs1,500 a month to women. It has already promised to raise the amount to Rs3,000 by 2028. It offered Rs50,000 per woman under the Shubadhra scheme, and won the Odisha assembly elections. It launched a Ladki Bahin scheme in Maharashtra, and won it too.
No wonder, just before the Bihar elections, the ruling regime transferred Rs10,000 to 7.5 million women, and promised to dole out more if it was re-elected. Cash is king, whatever one may say about Digital India.
The author has worked for leading media houses, authored two books, and is now Executive Director, C Voter Foundation