States and political parties do not realize the cost of budget spending on gifts

The fact that senior central bureaucrats are concerned about populist regimes and state-level handouts – as TOI reports – should be another reminder to political parties that the tax party to get votes is not free. Politicians found the giveaways an easy way to reach low-income voters and some powerful interest groups. This is a cross-party and cross-ideological trend and although the ruling parties in the center are not exempt from this sin, the rush to populism is most evident in the states. The UP-winning BJP, for example, promised free electricity for farmers, free scooters for female students and two free LPG bottles. In Punjab, AAP has promised 300 units of free electricity to each household and a monthly stipend of 1,000 rupees to each woman. UP owns 2.3 crore of farms and Punjab has 55 lakh households, suggesting thousands of crores of revenue generated on promises of electricity alone.

While bureaucrats would have pointed to Punjab, Delhi, Telangana, Andhra Pradesh and Bengal, the BJP-ruled states are not models of good spending. Furthermore, while the total stock of debt as a percentage of the GSDP has increased significantly from 2005 to 2022 for Punjab, PA and Telangana (the latest being in 2014), it has fallen for Delhi and Bengal. But off-budget borrowing circumvents borrowing limits. CAG recently asked states like Telangana and Kerala to include them in their annual budget statements.

The price that states, their residents, and future generations incur from borrowed populism and incurring long-term interest payments is clear: Even during the Covid public health emergency, states only spent 6.6% of primary health care expenditure against the national health policy target of 8%. Funds for capital and essential social spending are what are sacrificed when states buy laptops instead of improving schools. Certainly, the Center can help by adding cess revenue into the divisible pool, but beyond that lies the responsibility of state governments and all political parties.


This article appeared as an editorial opinion in the print edition of the Times of India.


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