After setbacks in the general election and with the potential for losses in upcoming state elections, Indian Prime Minister Narendra Modi’s coalition has increased cash handouts, debt waivers, and other benefits, despite Modi’s earlier criticism of such policies.
Analysts caution that these measures, along with similar promises from opposition parties, could destabilize India’s fiscal balance and disrupt funding for urban infrastructure and development projects.
Modi’s Bharatiya Janata Party (BJP) lost its parliamentary majority in the April-June national election and now relies on unstable alliances to remain in power. Polls suggest that the BJP could lose provincial elections in Maharashtra, Haryana, and Jammu and Kashmir later this year, while potentially retaining control in Jharkhand, which could further weaken Modi’s standing.
Maharashtra, the wealthiest state in India and governed by a BJP coalition, has increased its fiscal deficit target to 2.6% of state GDP for the current fiscal year, up from 2.3% in the interim budget. The latest budget includes cash handouts for women and free electricity for some farmers, which could cost the state around 960 billion rupees ($11.45 billion), or 2.2% of its GDP, according to research and investment firm Emkay Global.
In Haryana, also BJP-ruled, the government has waived water dues for thousands of farmers, reduced cooking gas prices for millions of poor families, and announced allowances for unemployed youth.
Inflation, unemployment, and rural distress were key issues in the general election and remain significant ahead of the state elections, according to surveys.
Madhavi Arora, an economist at Emkay, expressed concern about the widespread use of populist promises in this election cycle, warning that the recent wave of populist spending in poll-bound states could disrupt the careful fiscal balancing act previously in place.
Opposition parties have made similar promises, including free electricity for households and monthly allowances for women.
Modi has criticized the practice in the past, calling it dangerous for the country’s development and warning that it detracts from essential infrastructure projects.
Yashwant Deshmukh, founder of polling agency CVoter, observed that politicians are increasingly turning to freebies due to widening economic disparities, particularly in the absence of emotive issues that benefited the BJP in the 2019 national elections. He warned that while there is a strong public demand for such social welfare measures, the fiscal impact could be devastating.
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