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India's election freebies drive victories but strain state finances
Cash handouts and material incentives have become a defining feature of India's electoral politics, with recent victories in Bihar credited partly to a 10,000-rupee ($112) transfer to women voters-yet economists warn such schemes risk deepening fiscal instability across states already exceeding deficit limits.
The rise of pre-election handouts
From bicycles and televisions to gold ornaments, Indian political parties have long deployed freebies to sway voters, blurring the line between welfare and populism. In recent years, direct cash transfers-particularly those targeting women-have emerged as a potent electoral tool. Last week's landslide win for Prime Minister Narendra Modi's alliance in Bihar, India's poorest state, followed a 10,000-rupee payout to female voters, coinciding with record women's turnout.
Similar schemes preceded polls in Maharashtra and other states, with opposition parties adopting comparable pledges. While economists like Jean Drèze argue such measures extract tangible benefits for marginalized groups-who otherwise see little from elected leaders-critics, including Modi himself, have previously condemned "revdi culture," or frivolous giveaways. In 2023, India's Supreme Court sought to curb "irrational freebies" during campaigns.
Fiscal strain amid unsustainable promises
Bihar's fiscal health illustrates the broader crisis: the state's deficit stands at 6% of GDP, yet pre-election schemes consumed 4% of GDP-more than its capital expenditure budget for long-term infrastructure. Research by Emkay Global reveals 21 of India's 29 states now exceed the 3% deficit ceiling, a threshold originally set to rein in unplanned spending. Maharashtra's "Ladki Bahin" (Beloved Sister) cash-assistance program, for instance, spiked the state's deficit by 0.4%, forcing post-poll rollbacks.
The Reserve Bank of India (RBI) flagged subsidies as an "incipient stress" in its 2024-25 state finances report, noting debt levels-though down to 28.5% of GDP-remain above the 20% recommended cap. "Subsidies for farm loan waivers, free electricity, and cash transfers risk crowding out productive investments," the RBI warned, as private-sector job creation stalls and governments pivot to tax cuts and handouts to boost consumption.
Political momentum vs. economic reality
With Bihar's results reinforcing the "freebie wave" of the past two years, analysts predict the trend will accelerate ahead of 2026 polls in Tamil Nadu, Kerala, and West Bengal. Emkay Global economists Medhavi Arora and Harshal Patel described the dynamic as a "race to the bottom," where short-term electoral gains outweigh long-term fiscal prudence.
Opposition parties, too, have embraced the strategy, promising similar schemes. Yet as states divert funds from infrastructure to subsidies, the RBI's call for "rationalizing" spending clashes with political imperatives-leaving India's economic stability in the balance.
"States need to contain and rationalize their subsidy outgoes, so that such spending does not crowd out more productive expenditure."
Reserve Bank of India, 2024-25 State Finances Report
