Populism and freebies seem to be back in vogue with the results of the assembly elections in Maharashtra and Jharkhand.
While the BJP-led Mahayuti alliance swept the Maharashtra assembly elections on the back of its Ladki Bahin Yojana, the ruling INDI Alliance got the mandate in Jharkhand with its own welfare schemes, including the Maiya Samman Yojana and farm loan waivers.
However, analysts have warned that implementing pre-poll promises, including a higher monthly allowance under the immensely popular Ladki Bahin scheme, could put more fiscal pressure on Maharashtra’s finance and cut down capex spends for both states.
As part of its pre-poll promises, the Mahayuti alliance had pledged to increase the monthly allowance under the Ladki Bahin Yojana to Rs 2,100 from the current Rs 1,500 per beneficiary.
Macquarie Capital in a note on Monday said the result of this fiscal policy is that Maharashtra’s fiscal deficit will exceed targets set for the state at 3%, and that the state will have to cut capex to meet the targets.
“Overall, capex will need to increase by a significant ~52% at the central government level and ~40% at the state level in the second half of the fiscal 2025 (as per ICRA), as the first half of the fiscal 2025 has seen contractions of 15% and 10% respectively,” it said.
The overall capital expenditure outlay for Maharashtra is estimated at Rs 835 billion for the current fiscal and the Ladki Bahin scheme will cause close to Rs 350 billion this year, it said.
Attributing the increased turnout of women voters in the state elections to the promise of the increased outlay under the scheme, Macquarie also noted that highlighted that while it was supposed to benefit only 10 million, the state government’s lenient approach towards scrutinising the applications has increased this by two and a half times to 25 million beneficiaries.
Jharkhand has a Maiya Samman Yojana that transfers Rs 1,000 per month transferred to the accounts of eligible women and has also promised farm loan waiver of Rs 4 billion to 1.8 lakh farmers.
Emkay Global Financial Services in a note pointed out that for Jharkhand, the increase under the MSY to Rs 2,500 per month would imply expenditure of Rs 90 billion (1.9% of GSDP) versus Rs 60 billion initially budgeted (1.3%) in FY25.
“While Maharashtra’s fiscal parameters have worsened over the year(s), the H1FY25 fiscal situation for both, Maharashtra and Jharkhand, is comfortable so far, led by limited capex spend (% of FY25BE achieved in H1FY25: 23% and 34%, respectively),” it said. But it warned that higher freebies amid rising number of beneficiaries and amount will make revex stickier, at a time when the existing committed expenditure is 66% and 36% of their revenue receipts, respectively.
With states facing increasing revenue mobilisation challenges, freebie politics will only increase fiscal pressure, implying aggregate states’ FY25BE FD/GSDP of 3% is likely to see mild slippage, with capex likely becoming the casualty and hence slipping by [about] 0.4-0.5% of GDP vs 2.4% budgeted, the report further warned.