Implementing populist promises that featured prominently in election wins in key Indian states this week risk straining their finances, with economists warning of wider fiscal deficits.
Actor-turned-politician C. Joseph Vijay’s party emerged as the single largest in Tamil Nadu on Monday after campaigning on promises such as free gas cylinders, gold coins and cash support. In West Bengal, Prime Minister Narendra Modi’s Bharatiya Janata Party also campaigned on larger cash transfers and expanded welfare benefits.
The promises could add about 2.2% of the gross domestic product to Tamil Nadu’s spending, according to estimates by Emkay Financial Services. That compares with a 3% projection for the year ending March. For West Bengal, cash transfers may cost roughly 3.4% of GDP, exceeding its 2.9% goal.
“The immediate challenge lies in maintaining fiscal discipline,” economist Madhavi Arora of Emkay wrote in a report Tuesday.
Cash handouts, often aimed at women voters, have become a staple campaign tool in recent years, increasingly blurring the lines between welfare and electoral populism. While the federal framework sets a fiscal deficit target of 3% of state output, such giveaways can strain finances, squeezing spending on infrastructure and jobs. The central bank has also warned that rising subsidies are adding to risks around state debt.
“State budgets have witnessed a sharp rise in welfare and populist spending in recent years, structurally lifting deficit ratios past 3% of GDP threshold in FY26 and likely FY27,” said Radhika Rao, an economist at DBS Bank Ltd, after the election results.
Data from 10 major state elections since 2023 show fiscal deficits rising by about 1 percentage point of GDP in election years, while capital expenditure stayed flat. This shows the difficulty in restricting sticky spending, with states needing to cut spending elsewhere to control deficits, Arora said.
Economists say the electoral success on the back of populist promises is set to fuel a spending race ahead of key 2027 polls in states such as Punjab, Gujarat and Uttar Pradesh.
The 3% fiscal deficit ceiling cap for states is now effectively “the floor,” Arora wrote.
Disclaimer: This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.