WHY POLL PROMISES ARE CAUSING FISC RISK

Welfare promises being made by political parties and cash doles extended ahead of elections in recent years are beginning to reshape the fiscal landscape of Indian states.

- BY PAYAL BHATTACHARYA

Political considerations are pushWing ing welfare spending higher, even as revenue sources remain stressed and capital outlay meant to power long-term growth is uneven. Bihar's existing strain is unmissable, but the pressures are now visible across several states heading into or emerging from polls, pointing to a structural shift in how state finances can balance welfare and fiscal sustainability. State governments' inability to ramp up asset-creating expenditure could hurt both employment opportunities and economic growth.

FREEBIE FALLOUT

BIHAR IS a case in point. Populist welfare schemes announced during the recent polls, including a ₹10,000 grant to women, could cost the state over ₹41,000 crore, Emkay Global estimates. That's nearly 4% of the gross state domestic product (GSDP), and exceeds even the planned capital expenditure for 2025-26.

Bihar already relies heavily on New Delhi for funds, with over 70% of its revenue coming from central transfers. This makes the state's finances inherently volatile, as any fluctuation in central support can immediately strain fiscal stability, pointed out Paras Jasrai, associate director at India Ratings and Research.

The state's fiscal deficit in 2024-25 is estimated to have been 6% of GSDP, while the budget for 2025-26 targets 3%, based on an ambitious 22% nominal economic growth. But data until September shows the fiscal deficit is already at 7.8% of the estimated full-year GSDP. This means the new Bihar government will begin its term with far less fiscal room than its welfare promises require.

POLL PRESSURES