States ignore fiscal balance during elections, 'freebies' are worsening the financial condition of states
Elections were held in 10 states of the country in the last two years. Populist promises have been made in these states, the implementation of which will put a burden on the financial health of these states. There are many states that are presenting very optimistic estimates about their revenue collection. This will also backfire on them. The tradition of distributing freebies in the elections held in the states is very old.
A good effort was being made to establish fiscal balance in the states along with the central government after the Corona epidemic. Although the Centre is making progress in the current fiscal year, however, several states' circumstances appear unpleasant. Populist promises and their implementation are the main cause of this. These things have been told in the report released on Tuesday by the country's economic research agency MK Global.
In the last two years, elections have been held in 10 states of the country. Populist promises have been made in these states, the implementation of which will put a burden on the financial health of these states. Many states are presenting very optimistic estimates about their revenue collection. This will also backfire on them.
Madhavi Arora, Chief Economist of MK Global, says that the tradition of distributing free rebates in the elections held in the states is very old. According to the assessment, when elections were held in 20 states in the last two decades, their fiscal deficit (state gross domestic product - SGDP) was 0.5 percent higher than normal.
Revenue expenditure has also been seen at 0.4 percent in the election year. In fact, fiscal deficit in the election year has been the highest in Chhattisgarh, Maharashtra, Bihar, Madhya Pradesh, Odisha, Jharkhand and Andhra Pradesh.
As the report says, in the present situation, the states may go for more debts. Already, it is on an upward trend, the states' borrowing. This year it may rise 8-10 percent. By the end of the financial year 2025, the total borrowings of the states can be Rs 11 lakh crore, which will be 9 percent more than that of the previous financial year.
According to the estimated figures, the combined subsidy bill of the states would be Rs 3.7 lakh crore in the budget for the year 2024-25 and this constitutes 8.6 to 8.7 per cent of the total revenue collection of the states. This much mammoth amount was given by the states as subsidy only in the Corona period of the year 2020-21. The subsidy bill has increased by 26 per cent in one year. The reason for this is the free goodies.
