We need fiscal prudence during elections

UPSC Syllabus: Gs Paper 3- Indian economy

Introduction

Fiscal prudence often weakens during elections in India as governments expand welfare spending to attract voters. Large cash transfers and assistance schemes are announced close to polls, increasing public expenditure and fiscal pressure. These practices are common across states and political parties. While welfare has social importance, unchecked expansion raises concerns about sustainability, rising debt, and diversion of funds from development. Balancing electoral commitments with financial discipline has become a major governance challenge.

Rise of Election-Time Welfare Spending

1. Large pre-poll cash transfers: Governments release major financial assistance close to elections, such as lump-sum transfers and special support payments to beneficiaries. For example, Tamil Nadu transferred ₹5,000 each to 1.31 crore women under the Kalaignar Magalir Urimai Thogai scheme, creating an immediate ₹6,550 crore expenditure.
2. Women-centric income schemes dominate: Direct cash transfers to women have become a major electoral strategy across states. For example, Maharashtra released multiple instalments under Mukhyamantri Majhi Ladki Bahin Yojana before polls, and the ruling alliance won. In Bihar, ₹10,000 each was transferred to 75 lakh women before Assembly elections, followed by another electoral victory.
3. Expansion of promised benefits: Parties promise higher monthly payments or wider coverage if re-elected, increasing spending commitments. For example, The Tamil Nadu government indicated monthly assistance could rise to ₹2,000 if re-elected, showing expansion tied to elections.
4. National-level pre-election schemes: The ₹6,000 annual income support to farmers under PM-Kisan was launched in February 2019, just before Lok Sabha elections.
5. Shift from goods to recurring income support: Earlier giveaways included consumer items, but recent schemes focus on regular financial transfers.

Nature and Structural Drivers of the Problem

1. Blurred boundary between welfare and populism: Election-time schemes mix social support with political incentives, making policy intent unclear.
2. Weak linkage to measurable outcomes: Some schemes provide benefits without performance conditions or clear evaluation mechanisms.
3. Competitive escalation among parties: Political rivalry encourages expanding benefits to match or exceed opponents’ promises.
4. Entrenched culture of welfare expansion: Election-linked handouts have become a regular feature of the political system.
5. Need for targeted and time-bound design: Welfare often continues without defined duration or clear administrative efficiency.

Fiscal and Economic Implications

1. Rising fiscal deficits in states: Some states undertake large pre-election spending despite already high deficits. For example, Bihar faced a fiscal deficit of about 6% of GDP, yet announced pre-election schemes worth 4% of GDP..
2. Exceeding fiscal discipline limits: The 3% fiscal deficit-to-GDP ceiling for states is frequently crossed, turning a limit into a baseline.
3. Diversion from productive investment: Pre-poll schemes may exceed capital outlay, reducing funds for job-creating assets and long-term development.
4. Growing subsidy burden and debt pressure: Overall state government debt in India remains about 28.5% of GDP, above the recommended 20% threshold, with subsidies rising sharply.
5. Crowding out development expenditure: Spending on transfers reduces resources for infrastructure and economic expansion.
6. Unsustainable policy outcomes: Some governments roll back promises when fiscal pressure intensifies, as seen in Maharashtra’s deficit rise.

Government Fiscal Approach and Macroeconomic Position

1. Effort to maintain fiscal discipline: The Union government has reduced the fiscal deficit from 4.8% of GDP (2024–25) to 4.4% (2025–26) and targets 4.3% in 2026–27, showing a clear consolidation path.
2. Strong economic growth foundation: GDP growth is estimated at about 7.4%, among the highest globally.
3. High public investment commitment: Capital expenditure of ₹2 trillion supports infrastructure-led growth.
4. Balance between growth and sustainability: Fiscal strategy focuses on maintaining macroeconomic stability in a volatile global environment.

Way Forward

1. Efficient and targeted welfare delivery: Support should reach intended beneficiaries through well-designed administrative systems.
2. Defined duration and measurable outcomes: Welfare schemes must operate for fixed periods and show clear results.
3. Contain and rationalise subsidies: States must control subsidy expansion to avoid fiscal stress.
4. Protect productive expenditure: Infrastructure and development spending should not be displaced by election commitments.
5. Maintain fiscal discipline despite political pressure: Financial sustainability must guide policy decisions even during electoral cycles.

Conclusion

Election-driven welfare spending has become a central feature of India’s political economy, but its fiscal costs are rising steadily. Social support is necessary, yet unchecked expansion weakens financial stability and development priorities. Sustainable governance requires targeted welfare, controlled subsidies, and firm fiscal discipline. Electoral competition must not override long-term economic sustainability and balanced public finances.

Question for practice:

Discuss how election-time welfare spending in India affects fiscal discipline and long-term economic sustainability, with suitable examples from recent state and Union-level policies.

Source: The Hindu