Electoral strategies in India increasingly incorporate the provision of subsidies and direct transfers, a practice that has raised concerns regarding state fiscal health. These initiatives, often termed "freebies," have evolved from material goods such as television sets and bicycles to direct cash transfers, particularly aimed at women.
Election Initiatives and Voter Engagement
Ahead of elections, political parties have utilized various forms of electoral incentives. For instance, an alliance led by Prime Minister Narendra Modi in the eastern state of Bihar secured an electoral victory following a 10,000 rupee ($112; ÂŁ85.18) cash transfer initiative targeting women in the state. This election saw a notable increase in women's voter turnout. Similar financial support schemes for women were implemented by Modi's party in other states, including Maharashtra, prior to earlier elections. Opposition parties have also proposed comparable schemes in several states.
Economists have presented differing views on these provisions. Economist Jean Drèze has supported such transfers, arguing that they represent a mechanism for the poorer segments of the population to receive benefits from their political representatives. Conversely, Prime Minister Modi has expressed concerns about the "revdi culture," describing election giveaways as an excessive distribution of resources. India's Supreme Court also addressed the issue in 2023, seeking to regulate the distribution of what it termed "irrational freebies" during election periods.
Fiscal Implications for States
The increased reliance on election-driven economic initiatives has drawn attention to the financial sustainability of Indian states. Research by brokerage Emkay Global indicates that Bihar, with a fiscal deficit at 6% of its gross domestic product (GDP), allocated pre-election schemes equivalent to 4% of its GDP. This amount exceeded the state's capital outlay, which typically funds long-term assets and development projects.
Emkay Global's analysis suggests that this trend extends beyond individual states, with numerous states facing similar fiscal pressures due to election-related spending. The report highlights that the mandated 3% fiscal deficit-to-GDP ceiling for states often now functions as a floor. Estimates indicate that 21 of India's 29 states have surpassed this 3% deficit target, with election-driven expenditure being a contributing factor.
An example of the financial impact is the Bharatiya Janata Party-led alliance's Ladki Bahin (Beloved Sister) financial assistance scheme in Maharashtra, which reportedly contributed to a 0.4% increase in the state's deficit. Some promises associated with this scheme were subsequently modified following the elections.
The Reserve Bank of India (RBI) has identified the growing burden of such subsidies on state-level debt as an area of concern. While the overall debt of Indian states decreased to approximately 28.5% of GDP by March 2024 from previous decade levels, it remains above the recommended 20% threshold.
In its 2024-25 report on state finances, the RBI noted that a significant increase in subsidy expenditure—including farm loan waivers, subsidized services (such as electricity and transport), and cash transfers to various demographic groups—represents an "incipient stress." The RBI recommended that states manage and rationalize their subsidy expenditures to prevent these costs from displacing more productive investments.